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11 May 2018 | 2:00PM EDT

Mexico: Balance of Political Power in Congress Is Likely to Shift to the Left

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Andrés Manuel López Obrador (AMLO)’s Morena party did not win any governorships in the 2016 local elections (in 12 of the 31 Mexican Federation States), but it did run competitively in two of those elections (Veracruz and Zacatecas). In the June 4, 2017 local election Morena did not do that well either: the party ran competitively in the pivotal State of Mexico, but finished second to the PRI candidate.

Alberto Ramos +1(212)357-5768 | alberto.ramos@gs.com Goldman Sachs & Co. LLC

Gabriel Fritsch +1(212)902-0170 | gabriel.fritsch@gs.com Goldman Sachs & Co. LLC

Overall, Morena is yet to win a major local election in close to three years. But that may be about to change as recent polls show the Morena-led coalition is currently well positioned to potentially win the presidency and build a strong legislative bench in both Chambers of Congress (mostly at the expense of the PRI). Jul 1 Election day Apr 22 May 20 Jun 12 1st debate 2nd debate 3rd debate

Sep 1 1st Congressional Session

Dec 1 Presidential Inauguration

Mar 30 - Jun 27 Campaign

Polls Suggest AMLO’s Morena-Led Coalition Would Become Largest Political Bloc in Congress The main focus on the upcoming general elections has been on the presidential race but the post-election composition of the new federal Congress is also important for the overall direction of policy. The latest Mitofsky poll shows that AMLO’s Morena-led coalition could take control of the Lower House. In the bicameral Congress, the Lower House has 500 seats. The Mitofsky poll shows that the Morena-led coalition (Morena-PT-PES) enjoys the preference of close to 39% of voters, which could translate (depending on the regional distribution of the vote) into a Lower House bench of between 195 and 262 seats (up from the 60 seats currently held by the Morena-led coalition). That is, if the current level of support holds until election day, AMLO’s Morena-led political coalition is closing in on a simple majority in the House.

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Goldman Sachs However, we caution that we are still 50 days away from election day, there are still two presidential debates ahead, and the race may tighten/polarize from here.

Morena

PT

PES

MorenaPT-PES

PAN

PRD

MC

PAN-PRDMC

PRI

PVEM

PANAL

PRIPVEMPANAL

31.5

3.8

3.2

38.6

23.4

6.3

4.6

34.4

17.5

2.7

2.0

22.1

Max

142

54

66

262

116

49

45

210

72

21

14

107

Min

115

36

44

195

94

35

31

160

54

10

7

71

Vote Share (%)

Projection for Lower House Seats

Source: Consulta Mitofsky

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The PAN-PRD-MC coalition is polling at 34.1%, which could translate into an estimated Lower House bench between 160 and 201 seats. Finally, the PRI-PVEM-Panal coalition is polling at just 21.1%, which would reduce its bench from the current 255 seats to between 71 and 107. Morena Coalition Could Have a Majority in the Lower House (# of seats)

(# of seats) 300

300

Seats needed for majority (251) 262

250

250 210

200

200 195

150

160

116

107

100 94

35

115

100

PRD

Source: Consulta Mitofsky

54

54

31 MC

66

71

45

0

PAN

150

72 49

50

142

PAN PRD MC

PRI

21

14

10

7 PANAL

PVEM

36

50 44 0

PRI PVEM PANAL

Morena

PT

PES

Morena Morena PT PES

Given that the PAN (center-right) and the PRD (leftist) parties have traditionally been on opposing sides of the political spectrum, it is unclear how cohesive and effective a potential PAN-PRD-MC parliamentary bloc would be. That is, even if the Morena-led coalition falls short of achieving a simple majority of 251 seats, it may end up close enough to effectively enjoy an operating governing majority given that it may be able to co-opt support from some legislators from, for instance, the leftist PRD (which is now in an alliance with PAN in the presidential race) and also some votes from more pragmatic PRI legislators.

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Goldman Sachs

2012-2018 Lower House Composition

13

39

50

PRI 10

PVEM

255 seats

PANAL 108

Morena

203

PES

60 seats

PAN

52

PRD

180 seats

MC 20 5

Independent/N o Party

Source: Goldman Sachs Global Investment Research

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Midpoint of Consulta Mitofsky Projection for 2018-2024 Lower House

45

PRI 55

PVEM 127

88 seats

PANAL

105

Morena PT

10 15

227 seats

PES

42

PAN 63 38

PRD

185 seats

MC

Source: Consulta Mitofsky, Goldman Sachs Global Investment Research

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Goldman Sachs

Box 1: Electoral System for the Lower House and Senate Senators and Lower House lawmakers are elected through a mixed system of proportional representation and State/District level voting. For the Lower House, bench sizes are based on a party’s share of the national vote (200 seats), and district-level majority representation (300 seats): the most-voted party in each of the 300 electoral districts elects one lawmaker. The 200 proportional representation seats are assigned generally without taking account the 300 majority-seats, but a party cannot get more seats overall than 8% above its result for the proportional representation seats (that is, a party needs to secure 42% of the votes for proportional representation seats to reach an overall majority of 251 seats). Finally, a party can never get more than 300 seats overall, or 60% of the chamber (even if it has more than 52% of the votes for the proportional representation seats).

50 49 Combination of districts won and share of national vote yielding absolute majority

48 Percentage of national votes obtained

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Lower House Electoral Method

47 46 45 44 43 42 41 40 39

No absolute majority

38 37 36 35 151

153

155

157

159

161

163

165

170

175

180

185

200

Number of districts won (out of 300) Source: INE, Goldman Sachs Global Investment Research

According to electoral rules, an absolute majority in the Lower House (251 out of 500 votes) can result from several combinations between the percentage of national vote (proportional representation) and the number of electoral districts won (out of 300). With slightly more than 42% of the national vote a party could obtain the majority of seats if it wins in at least 167 of the 300 districts. In the 128-seat Senate, a 65-seat simple majority could be obtained, for instance, through a combination of 42% of the national vote (13 senators), a first-place finish in 20 States (40 senators) and a second-place finish in the remaining 12 States (12 senators). For the Senate, 32 seats are assigned according to the national share of the vote, and the other 96 seats by a simple majority vote in the 32 States: the most-voted party in each of the 32 States elects two Senators, and the runner-up (first minority) elects one Senator.

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Goldman Sachs

Composition of Senate May Also Change Significantly

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According to a polling company that conducts robocalls to fixed and mobile numbers (Massive Caller) and which was more accurate than many other pollsters in the 2017 State of Mexico election, in the 32 states (includes Distrito Federal) in play the PRI-PVEN-Panal coalition is leading in only 1 state and is running in second place in another 6. This would give it 8 Senators, and given its roughly 21% share of the national vote it could elect another 8 Senators, for a total Senate PRI bench size of just 16 Senators, which would be well short of the current 55-seat PRI bench (61 with the PVEM). Finally, in the 25 states in which the PRI is currently running third or fourth, in only 1 state is the PRI fewer than 4pts away from getting into second place and elect 1 Senator.

Morena-PT-PES

PAN-PRD-MC

PRI-PVEM-PANAL

1st place

20

10

1

2nd place

8

17

6

3rd place

4

7

20

4th place

0

0

5

Source: Massive Caller, Goldman Sachs Global Investment Research

The picture looks a lot brighter for Morena, which currently has no representation in the Senate (the PT junior coalition partner holds 19 seats). According to the same pollster, the Morena-PT-PES coalition is currently ahead in 20 States (the PAN-PRD-MC is ahead in 10) and in second place in 8 (the PAN-PRD-MC in 17). If these figures are accurate and hold until Election Day, this would give the Morena coalition roughly 60 seats in the Senate (short of the 65 simple majority); 48 plus approximately 12 elected Senators from the proportional assignment of the national vote. In the states where Morena is ahead there is only one where the lead margin is under 3%. Finally, in the 8 of the states where Morena is in second place the lead over third place is very narrow in only one (0.2pt in Durango over the PRI) but in the 4 states where it is in third place in two of them (Aguascalientes and Chihuahua), Morena is lagging the party in second place by only 2%-3%, that is, it could still eventually move into second and elect 1 Senator. Overall, recent polls suggest that if support for Morena and its allies holds at current levels, the AMLO coalition would increase its representation in Congress and would end up with the largest bench in both the Lower House and the Senate. At this stage, polling data suggests that a simple majority (50% + 1 seat) seems more within reach in the Lower House than in the Senate.

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Goldman Sachs

Morena in 1st: Morena in 2nd: Morena in 2nd: Morena in 3rd: margin to 2nd margin to 1st margin to 3rd margin to 2nd place place place place

State

1st place

2nd place

3rd place

Campeche

Morena

PRI

PAN

12.1

Hidalgo

Morena

PRI

PAN

19.7

Oaxaca

Morena

PRI

PAN

28.5

Tabasco

Morena

PRI

PAN

30.4 6.1

Baja California

Morena

PAN

PRI

Baja California Sur

Morena

PAN

PRI

7.5

CDMX

Morena

PAN

PRI

11.4

Estado de MØxico

Morena

PAN

PRI

13.2

Guerrero

Morena

PAN

PRI

21.4

MichoacÆn

Morena

PAN

PRI

5.7

Nayarit

Morena

PAN

PRI

20.4

Puebla

Morena

PAN

PRI

5.2

Quintana Roo

Morena

PAN

PRI

24.8

Sonora

Morena

PAN

PRI

2.2

Tlaxcala

Morena

PAN

PRI

20.2

Veracruz

Morena

PAN

PRI

6.8

Zacatecas

Morena

PAN

PRI

14.4

Chiapas

Morena

Independent

PAN

34.5

Morelos

Morena

PAN

MC

11.5

Sinaloa

Morena

PAN

Independent

14.4

Colima

PRI

Morena

PAN

-6.1

7.9

Coahuila

PAN

Morena

PRI

-8.1

5.8

Durango

PAN

Morena

PRI

-9.6

0.2

Guanajato

PAN

Morena

PRI

-16.9

6.8

Queretaro

PAN

Morena

PRI

-20.9

14.3

San Luis Potosí

PAN

Morena

PRI

-2.4

6.4

Tamaulipas

PAN

Morena

PRI

-6.0

16.8

YucatÆn

PAN

Morena

PRI

-6.3

4.0

Aguascalientes

PAN

PRI

Morena

-2.5

Chihuahua

PAN

PRI

Morena

-3.1

Nuevo León

PAN

MC

Morena

-10.7

Jalisco

Independent

PAN

Morena

-5.6

Average

15.5

-9.5

7.7

-5.5

Source: Massive Caller, Goldman Sachs Global Investment Research

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Goldman Sachs

Disclosure Appendix Reg AC We, Alberto Ramos and Gabriel Fritsch, hereby certify that all of the views expressed in this report accurately reflect our personal views, which have not been influenced by considerations of the firm’s business or client relationships. Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs’ Global Investment Research division.

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Goldman sachs mexico balance of political power in congress is likely to shift to the left  
Goldman sachs mexico balance of political power in congress is likely to shift to the left  
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