(Bloomberg) -- The Mexican peso added to losses Tuesday as President Andres Manuel Lopez Obrador doubled down on the importance of a judicial reform that critics fear would erode checks on the country’s ruling party. 

The outgoing leader described the constitutional change as “urgent,” saying it could be approved before his term ends on Sept. 30. The currency weakened 1.2% against the US dollar as of 3:40 p.m. in New York, lagging all other emerging-market peers.

 “This is about having true rule of law, which is what the investors want, not the speculators. True businessmen want true rule of law,” AMLO, as the president is known, told reporters early Tuesday. “Do you think so there isn’t nervousness in financial markets I’m going to be an accomplice to corruption in the judicial power? That we are all going to be accomplices?”

His remarks came on the heels of a Monday news conference by President-elect Claudia Sheinbaum, in which she said the government should prioritize the reform, but called for it to be discussed widely by law schools and workers of the judiciary. On Tuesday she addressed the matter again, saying the changes could build a better judicial system. 

The peso, which had been one of the best currencies in the world, has been sliding since Sheinbaum was elected in a landslide on June 2. Her Morena party obtained more support in Congress than investors expected, fueling concerns that lawmakers, whose terms start in September, will push through AMLO’s package of reforms even before she takes office in October.

‘Deterioration Ahead’

Morgan Stanley — which prior to the country’s elections said the peso could weaken to 19.20 per US dollar by the second quarter of 2025 under its most pessimistic scenario — sees room for additional losses given prospects for a possible deterioration in the country’s outlook, according to strategist Ioana Zamfir.

“We do not believe that MXN is pricing in enough risk premium for the potential deterioration ahead,” Zamfir wrote in a note Tuesday. “We would look to buy USD/MXN on dips below 18.00, as the currency should remain the main release valve for political noise.”

The peso recently broke past the 18.50 per dollar level, while its one-month implied volatility is hovering near the highest levels since November 2020. The currency no longer offers the most compelling emerging-market yield after adjusting for volatility, Zamfir said. 

In his daily press conference, AMLO stressed that the peso had strengthened during his time in office, unlike under the presidents before him, and said that Mexico’s public finances were in good condition. He met with Sheinbaum on Monday to discuss their transition plan, which left investors anxious for more information about the timeline for the proposed reform.

At a closed-door meeting at the US Chamber of Commerce in Washington last Friday, US business officials told Mexico’s current foreign minister and head of the navy that they’re concerned that some of the plans by Lopez Obrador and Sheinbaum, such as the reform to make Supreme Court justices elected rather than appointed, could hurt the climate for investors in Mexico, according to people familiar with the conversation.

The organization, the largest US business lobbying group and a key conduit between the business community and the White House, is seeking to have a group of chief executives from both countries meet with Sheinbaum. The plan is for that to happen when they gather for a conference in Mexico City in September, just weeks before her inauguration, according to the people, who asked not to be identified without permission to speak publicly.

The Chamber declined to comment. Mexico’s Foreign Minister posted on X that the topic of judicial reform did not come up in the meetings.

--With assistance from Vinícius Andrade and Eric Martin.

(Updates with Foreign Minister comment in the last paragraph)

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