Last updated: 13:12 / Wednesday, 14 November 2018
He could seek re-election

AMLO’S Actions Erode Investors’ Confidence in Mexico

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AMLO’S Actions Erode Investors’ Confidence in Mexico

After Mexico's president-elect, López Obrador, announced that he plans to scrap the most important infrastructure project of the past two decades - the New Mexico City International Airport, the peso had one of its worst days since President Trump’s election and the stock market, which fell 4%, had its worst close in a decade.

According to JPMorgan Chase & Co which lowered its expectations for Mexico, the decision (which followed the mandate of the referendum held on the issue, with minimum participation -only 1,067,859 votes, or less than 1% of the Mexican population), "left investors worried about how he would manage the economy and increases the probability of the central bank raising interest rates."

Morgan Stanley also reacted by changing its preference of exposure to that country from an overweight to an underweight position due to "the short-term asymmetric risks associated with the free trade agreement with the US and the airport situation."

According to UBS the issue seems even riskier, since they warn that this dynamic could be used to carry out material changes in Mexico, such as invalidating “effective suffrage, not re-election" or even the central bank’s autonomy. "We see the potential for a public referendum to be approved as a constitutionally valid way of enforcing changes in the future, including possibly extending the six-year presidential mandate. The use of reserves at the central bank (Banxico) could also be subject to the people’s choice," they point out in the attached report.

AMLO, who will not be sworn into office until December 1st, stated that after the public consultation, "our decision is to obey the referendum mandate, so two runways will be added to the military airport at Santa Lucia, the current Mexico City airport will be improved, and the Toluca airport will be upgraded, so that shortly we will have solved the saturation in Mexico City’s current airport."  The politician also commented that, "in economic terms, with this decision the Federal Government is going to save, around 100 billion pesos." Just with the change in capitalization value due to Monday’s fall, Mexican companies lost 17 billion dollars, or more than 341 billion pesos. This means that in just one day, they lost more than three times the savings promised by AMLO.

Meanwhile, President Enrique Peña Nieto informed that Grupo Aeroportuario de Ciudad de México, or GACM, the company in charge of the New International Airport of Mexico (NAIM) project, will continue working on the construction of the new terminal in Texcoco at least until his last day in office, November 30th. Whereas, Juan Pablo Castañón, President of the (CCE), or Business Coordinating Council, said that the consultation lacks legal fundamentals in order to be accepted and warned that if after December 1st the stance continues to be to halt the Project underway in Texcoco, stakeholders will undertake legal actions in defense of the Project, and "in favor of Mexico’s economic development."

The President, Enrique Peña Nieto, also warned that if the airport is canceled, the next government will have to comply with all its contractual and financial obligations, which includes advancing airport bond payments. According to AMAFORE, Afores investments in the NAICM are assured: "Workers must be calm about their savings, since the instruments used by the Afores for this investment, Fibra-e and Bonds, are backed by the collection of the TUA (Airport Use Fee), that is, by the flow of passengers, so the investment of their savings has enough guarantees to recover the capital plus a yield higher than inflation," the organism said in a statement.

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