Mexico's ruling party looking at changes to judicial reform to calm markets, sources say

By Diego Oré

MEXICO CITY (Reuters) - Mexico's ruling party is considering changes to a proposed judicial reform in a bid to calm market concerns, including making the election of judges a staggered process over many years to reduce fears of a political takeover of the judiciary, sources familiar with the discussions said.

The original proposal by outgoing President Andres Manuel Lopez Obrador rattled investors on concerns the changes would weaken Mexico's checks and balances by introducing the election of nearly 1,600 judges - including to the Supreme Court - by popular vote.

President-elect Claudia Sheinbaum, who takes office in October, also of the ruling Morena party, has defended the proposal, saying she believes judges should be elected.

Morena, however, will adjust the reform so that the election of judges is staggered and participants are selected by a technical committee after undergoing suitability tests, said four party sources with knowledge of the discussions.

In addition, the sources said, the lucrative trust funds of judicial workers will be protected. Last year, Mexico's Senate voted to terminate 13 trusts held for the judiciary, ratcheting up tension between the government and judicial authorities, though the Supreme Court later reversed the decision.

Mexico's peso plummeted 8% the week after the June 2 elections, which also ushered in a super-majority in the lower house of Congress for Morena.

Lopez Obrador has denied that the market volatility is linked to the judicial reform.

The outgoing president has pushed the reform, which also proposes reducing the number of Supreme Court judges to nine from 11, as a necessary transformation of a justice system which he said "is not at the service of the people."

Critics argued the election of judges by popular vote would politicize the justice system in favor of Morena and its allies.

Spokespeople for Lopez Obrador, Sheinbaum and Morena did not immediately respond to a request for comment.

TRADE PACT WORRIES

The four Morena sources said the new modifications also considered an upcoming 2026 review of the United States-Mexico-Canada Agreement, the trade pact which took effect in 2020.

The popular election of judges without strict conditions, as originally proposed, was seen by the sources as a potential stumbling block to the functioning of Mexico's labor courts which were created to comply with swift resolutions of labor-management conflicts under the USMCA.

Legislators decided to adjust Lopez Obrador's reform so that it does not affect the "clear, transparent and predictable" legal and commercial framework, as stipulated in the USMCA.

Senator Ricardo Monreal, who is expected to lead Morena in the lower house when the new Congress begins in September, said it was the role of legislators to incorporate "issues that can improve, enrich or modify the presidential proposal."

"We will respect all expressions, points of view; we will resist internal and external pressures, and we will maintain our principles and our commitments," Monreal said in an interview.

(Reporting by Diego Ore in Mexico City; Writing by Cassandra Garrison; Editing by Ana Isabel Martinez and Matthew Lewis)