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This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit http://www.djr http://www.djreprints.com. eprints.com. https://www.ws https://www.wsj.com/articles/mexican-pres j.com/articles/mexican-president-elect-lopez-obr ident-elect-lopez-obrador-is-spooking-f ador-is-spooking-foreign-investorsoreign-investors-1543150816 1543150816
WORLD
Mexican President-Elect López Obrador Is Spooking Foreign Investors Enthusiasm for leftist leader curdles after he cancels airport project; ‘Everybody is closing the money spigot,’ one consultant says
y David Luhnow and Robbie Whelan
Nov. 25, 2018 8�00 a.m. ET MEXICO CITY—An unlikely honeymoon between Wall Street and Mexican President-elect Andrés Manuel López Obrador, a leftist nationalist, is over before he even takes office on Dec. 1. In the months that followed Mr. López Obrador’s July election win, the peso and Mexican stocks rallied as foreign investors appeared willing to give the former Mexico City mayor the benefit of the doubt. He had made a pragmatic- sounding victory speech, vowed to keep Mexico’s finances in check, and appointed a businessman as chief of staff and a respected economist as finance minister. That positive foreign take clashed with fears among many Mexican business leaders who see the politician—who once famously said Mexico’s institutions “could go to hell”—as an authoritarian populist with a strong bent for state intervention in the economy.
Recent events have since shaken the view from abroad that Mr. López Obrador will be a pragmatist. He canceled the country’s biggest public-works project—the new, $13.3 billion Mexico City airport that was one-third complete—and announced a series of public referendums to let
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customers. “I think that López Obrador has shown his true colors,” said Walter Molano, chief economist at BCP Securities in Greenwich, Conn. “He hasn’t even taken over as president, and he’s showing a real authoritarian streak.” Since the airport cancellation, the Mexican peso has been among the world’s worst performing emerging-market currencies, falling more than 5% against the dollar to around 20.41 Friday. Mexican stocks have fallen 7.6% and interest rates on 10-year Mexican government bonds have risen to 9% from 7.7% on July 2, the day after Mr. López Obrador’s election. In October alone, foreign investors sold off some $2.4 billion in Mexican bonds. “It’s been like a bucket of cold water…for those who thought AMLO was going to be pragmatic,” said Marco Oviedo, chief economist for Latin America at Barclays Barclays , using a common abbreviation abbreviation for the presidentelect’s name. A handful of emerging-markets fund managers are reconsidering investments in Mexico or paring back exposure in response, plowing funds instead into Brazil, where the right-wing, business-friendly Jair Bolsonaro recently won the presidency, and other emerging economies such as India and China. “We’re long Mexico, and we’re hurting, to be honest,” said Paul McNamara, who runs an emerging-markets bond fund for Swiss asset manager GAM Holding and says he is looking at reducing its Mexican assets. Alfonso Romo, Mr. López Obrador’s chief of staff, didn’t respond to requests for comment. On Nov. 16, Mr. López Obrador released a rambling video message defending the airport cancellation and his plan to use “popular polls” to decide on major infrastructure projects and on funding for social programs. For the past two decades, Mexico has been one of the safest emerging markets for investors, with a record number of trade deals, world-class technocrats, prudent budgets, and dependable, if slow, growth. If that
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The state of construction at the irst terminal of a new airport for Mexico City earlier this month, after incoming president Andrés Manuel López Obrador scrapped the project. PHOTO: BRETT GUNDLOCKBLOOMBERG NEWS
Mr. López Obrador’s early actions are likely damping foreign investment, which was expected to pick up after Mexico, the U.S. and Canada renegotiated a new trade deal, said Alejandro Schtulmann, head of Mexico City-based risk-analysis firm Empra. Mr. Schtulmann said his firm had recently won a contract to do a risk analysis for a Latin American energy company interested in a $100 million energy- infrastructure project. His contract was put on hold days after the airport was canceled.
“Everybody is closing the money spigot,” he said. A big coming test will be the leftist government’s first budget, due in midDecember. Mr. López Obrador has said he wouldn’t pile on debt and would pay for new spending programs through government austerity and less corruption. “Fiscal slippage or unachievable fiscal targets will test investor confidence further,” said Andrew Stanners, investment manager at Aberdeen Management in Scotland. Further bad news could spark a broader selloff. Mexico’s peso is the second-most-traded currency in emerging markets after China’s yuan,
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on s. “My recommendation to investors is to basically get out,” said Mr. Molano. “When people start running for the door there will be a panic.” The reassessment intensified on Oct. 29, when Mr. López Obrador canceled the new airport project. He criticized it as too expensive and riddled with corruption, without offering evidence. The government said it would reimburse contractors for the estimated $5 billion they have spent, and indicated the same companies would likely be chosen to work on an alternative airport project to expand a nearby military base for civilian use.
Mexicans lining up on Oct.. 25 to vote in a referendum referendum on the construction of a new airport for Mexico City. PHOTO: ALFREDO ESTRELLAAGENCE FRANCEPRESSEGETTY IMAGES
The cancellation showed Mr. López Obrador’s willingness to put the politics of change over Mexico’s investment needs, said Luis de la Calle, a former top trade official. “López Obrador wants to send a message…that the people now run things, and that he alone represents the will of the people,” Mr. de la Calle said.
Much of the concern over the airport action was how it was justified by the result of a questionable referendum widely seen as tilted to a predetermined outcome. The poll was run by Mr. López Obrador’s party, voting stations were concentrated in areas of the country where his support was strongest, and just 1% of Mexico’s registered voters took
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Tens of thousands of Mexico City residents took to the streets to protest the airport cancellation. Mr. López Obrador responded by announcing a new public consultation later this month on a raft of other public-works projects, including a new oil refinery in his home state of Tabasco and a tourist train through the Yucatán Peninsula. Some investors question the president-elect’s motives in carrying out such polls, since he will have control of congress and can pass projects with little opposition. Mr. Molano said he sees a worrisome precedent in Latin America’s recent history, where populists like the late Venezuelan leader Hugo Chávez have used referendums to consolidate power and skirt constitutional restrictions. Mr. López Obrador’s party has introduced a bill that would eliminate restrictions on making public referendums binding, according to a copy of the bill reviewed by The Wall Street Journal. “So maybe you keep using them for bigger things, to change term limits, to use international reserves, to do social spending,” Mr. Molano said.
An employee walks through the power station in Acolman, Mexico. The president-elect has signaled big changes for Mexico’s energy policy. PHOTO: LUIS ANTONIO ROJASBLOOMBERG ROJASBLOOMBERG NEWS
There are other worrying signs, some investors say. In the planned austerity drive, many top bureaucrats will have their salaries and benefits slashed, leading to an exodus of top talent at agencies like the central
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other areas of government. This week, one of the five members of the central bank’s board of governors announced his early retirement. So did the respected head of the National Hydrocarbons Commission, which runs auctions to attract private capital to develop Mexico’s oil-and-gas reserves. Mr. López Obrador’s party has submitted a bill stripping the oil-and-energy regulators of their autonomy. His future energy secretary, a fiery nationalist, has asked the top energy regulator to step down four years before his term ends. He has so far refused. In his video message last week, the president-elect lashed out against Mexico’s 2013 energy overhaul that opened the oil-and-gas sector to private investment after 75 years of state monopoly. Describing previous administrations as “conservatives, neoliberals, and corrupt,” he said they had caused a crisis in the energy sector by failing to build a single new oil refinery in the last 40 years. “It was aggravated by the poorly named Energy Reform, which they said would be the salvation of Mexico, that it would bring foreign investment, that it would reactivate the energy sector, that we were going to produce more crude oil,” Mr. López Obrador said. “Pure lies.” Since the law changed, a handful of private oil companies have made big oil finds in the Gulf of Mexico and are investing billions of dollars to develop them. In coming years, those finds could help offset declining production from state-run Pemex, analysts say. But Mr. Lopez Obrador has suspended new oil auctions indefinitely. —José de Córdoba contributed to this article. Write to David Luhnow at
[email protected] and Robbie Whelan at
[email protected]
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