Mexico: What to expect from AMLO`s Presidency

A modern Robin Hood or an obstinate lefty who endangers Mexico`s economy – depending on who is being asked, all is to be expected of the new Mexican president Andrés Manuel López Obrador (AMLO for short). This article provides a short overview of his political principles, economic plans, current challenges and how AMLO is seen by economic actors and the financial market.

 

 

What AMLO stands for

AMLO is not just another politician but a renowned protest leader who as such is the first to assume the presidency since the Mexican revolution. His victory is understood to be the beginning of the Fourth Transformation Round of Mexico after the independence of Spain, the liberal reforms emancipating Mexico from the church and the revolution itself between 1910 and 1917. In AMLO`s own words:

 

“We will carry out a peaceful transformation, ordered, but profound and even radical, because the word radical comes from root, and what we will do… is, in essence, to root out the corrupt regime.”

 

As a politician, AMLO stands for the political integration of the poor people who need to be listened to by those who govern. Accordingly, AMLO has led demonstrations in the past that criticized ruling elites which he called “fifi” (frivolous). In his home state Tabasco, AMLO positioned himself strongly against oil pollution.

Furthermore, he focuses on the fight against crime and corruption as well as an improved economic development by creating new jobs and steered social politics.

Opponents of AMLO fear that he will employ an authoritarian government style as is currently used in Venezuela. However,

AMLO promised to respect the opposition, not undertake any expatriations and to accept the limits of his presidential powers.

In order to give a voice to his citizens, AMLO`s instruments of choice are referendums:

 

“We will always be looking for more legitimacy, more support from the people.”

 

While those are not legally binding, they help AMLO to democratically legitimize his actions. Whereas all so-far held referendums turned out according to AMLO`s preferences, opponents criticize their low voting turnout with less than 1% of eligible voters casting their ballots. Moreover, they blame AMLO for instrumentalizing them to push through his pet projects such as the Maya train.

 

 

Which plans he has

Aforementioned Maya train project is supposed to connect Tulum, Merida, Palenque and Calakmul in order to promote tourism in the area. However, AMLO has been harshly criticized for the project because of its high costs of $7,5 Billion as well as the sub-standard preparation ( lack of environment report and feasibility study, no legally prescribed consultations with the indigenous population).

Additionally,  AMLO plans to build a costly new refinery in order to become more independent from oil imports. Critics feel like this investment is likely to burden the already highly indebted country in an unsustainable manner.

However, infrastructural projects are not at the forefront of AMLO`s government. Instead, he focuses on a societal transformation. He speaks out openly against the “Power Mafia” which he suspects to consist of the private sector. He wants to combat such structures by creating scholarships for young Mexicans and social

welfare programs for the elderly, thus fighting social fracturing.

Another important aspect of the transformation is the war against the drug cartels. AMLO plans to address the high murder and crimes rates not by using a military strategy but by legalizing marijuana. The Mexican Supreme Court has released a decision paving the way for such legislature.

In order to generally strengthen the fight against crime, AMLO has planned to establish a National Guard under military supervision, thus combining the Federal Police with the Military Police.

With view to fighting corruption, AMLO has announced to examine the currently existing contracts between state-owned oil company Pemex and private companies.

 

 

Which Challenges await

Apart from the high state debts, the corruption, social inequalities and the supposedly untamable war against drugs, AMLO is mostly facing one major challenge: the thousands  of Central American migrants camping at the US-Mexican border, seeking US asylum. AMLO described Trump`s closed-door-policy as “irresponsible” and “racist”. At the same time, he tries to improve the camping sites which due to the sheer amount of migrants and the lack of financial support is difficult to implement.

 

What the Economy and Financial Markets think about him

After his victory has been announced, Mexico has been downgraded by a rating agency to “negative”, causing the Peso to stock market to plunge significantly. Entrepreneurs and financial experts fear that Mexico`s economy will suffer from the panned social welfare programs as well nationalization attempts and similar leftist policy instruments. AMLO tries to

counteract his negative image by soothing the investors. Four days prior to the elections he announced:

 

“We are going to give a lot of reassurance to investors, to those who invest in shares, in companies, in financial markets. Their investments will be guaranteed, and they will get good returns, because there will be true rule of law.”

 

Particularly his decision against the currently build airport in Mexico City is considered as indicative of the president`s preference of political control over the country rather than economic prosperity. In one of his many referendums, AMLO let the people decide of the building of the $18 Billion airport. 70% of the voters spoke out against the airport, however, only less than 1% of the eligible voters participated in the voting. Instead, AMLO prefers to build two more runways at the military airport Tizayuca. Right after the referendum, the Peso plunged to a level wiping out all gains of the entire year. In order to avoid losing the trust of the investors, AMLO promised to take their interests into account.

Sticking with the airport would have signaled to the market that the incoming government feels responsible for guaranteeing continuity and commitment, both to the economic growth of Mexico and to international investors. At the same time, cancelling the project shows that AMLO prioritizes the opinions of his electorate and influential lobby groups (such as the farmers) and that he is not giving in to the “sunken cost fallacy” by throwing “good” after “bad” money.However, AMLO`s politics of referendums is problematic both democratically and economically. If he continues to use these (legally non-binding) instruments to circumvent the separation of powers. Using the referendums to bypass Congress could enable a de facto authoritarian regime. Given AMLO`s leftist orientation, this could result in detrimental policies for the

economy and specifically private economic actors.

He could rebut those fears by making strategically smart decision regarding the choice of ministry of finance as well as the central bank`s governor. Regarding the amount of guiding decisions to be made, AMLO`s first 100 days of office will be indicative of his government.

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