Mexican Voters Love Their President, But Investors Are Wary

(Bloomberg, Nacha Cattan, 7.Mar.2019) — Mexican President Andrés Manuel López Obrador, or AMLO as he’s known, is doing spectacularly well with voters 100 days into his term. The latest survey pegs his approval rating at 78 percent, a record for the first trimester of a presidential term since polling began in the 1980s.

But just as his popularity is soaring, market sentiment is souring, widening a divide between investors and the president’s base. The clearest sign of this is a substantial markdown in growth forecasts by Wall Street analysts. In a poll of institutional investors commissioned by Credit Suisse Group AG in February, three-quarters said the current economic situation was worse or much worse than a year ago.

In contrast, the majority of Mexicans see a president who’s delivering on his campaign pledges to fight crime, raise living standards, and reduce inequality. Since taking office on Dec. 1, his administration has launched welfare programs for the elderly and disadvantaged youth, abolished cushy retirement pensions for former presidents, and cracked down on gangs of gasoline thieves whose appetite for destruction rivals those of Mexico’s infamous drug cartels. The social-media-adept president touts his government’s achievements in daily press conferences watched by hundreds of thousands on YouTube.

“Andrés Manuel’s popularity with the electorate is the result of a honeymoon period and an incredibly savvy political communications strategy,” says Duncan Wood, director of the Mexico Institute at the Woodrow Wilson International Center for Scholars in Washington. “Mexicans have responded very well to his message on corruption, equality, and development. But markets are looking for a specific plan that will show how economic growth could be generated in Mexico, and thus far they haven’t seen one.”

In a statement released on March 1, S&P Global Ratings said Mexico faces a 1 in 3 chance of being downgraded in the coming year. Of particular concern are AMLO’s plans to curb the private sector’s role in the energy industry while pouring money into the highly indebted national oil company, Petróleos Mexicanos, known as Pemex. Economists are worried that such policies will have an adverse effect on public finances and damp corporate investment.

Goldman Sachs Group Inc.’s Alberto Ramos adjusted his 2019 growth estimate for the economy to 1.5 percent, from 1.7 percent, after performance came in weaker than expected at the end of the year. He cited “market apprehension” about AMLO’s policies as a factor in the revision. Bank of America Corp. is even more downbeat, predicting an expansion of only 1 percent.

The president’s supporters measure the administration’s progress with a different set of yardsticks. Over the past three months his government has doubled the minimum wage in cities and towns near the U.S. border and raised it nationwide in an attempt to counteract a decades-long erosion in worker salaries. The measures have buoyed consumer confidence, which reached its highest level on record in February, according to the national statistics agency.

At the same time, AMLO has unleashed a raft of austerity measures targeting privileges enjoyed by high-level bureaucrats. Among his first acts in office were to put the presidential jet, a Boeing 787 Dreamliner, up for sale and disband Mexico’s equivalent of the U.S. Secret Service. AMLO also has enlisted the army to help thwart fuel thieves, a move that’s already saved the country 7.8 billion pesos ($405 million), according to the government.

What will likely be remembered as one of the defining moments of his presidency happened even before AMLO took office. Four months after his landslide victory, he announced a halt to the construction of an airport on the outskirts of Mexico City, calling the $13 billion project a wasteful extravagance. The move shocked investors at home and abroad and sent the peso and Mexican bonds tumbling. But it energized his supporters, bolstering his image as a maverick willing to take on the corporate establishment—what he calls the “power mafia” that ran the country into the ground with the help of neoliberal governments.

“In one stroke, he sent a strong message to the crony capitalism players of Mexico,” says Rogelio Ramírez de la O, an economist who advised AMLO when he ran for president in 2006. The message, Ramírez de la O says, goes something like this: “I respect the value of your contracts, but if we change the model, we’re going to have a much healthier economy in the long term.”

In another sign that the status quo is fracturing, the incidence of labor strikes has increased, particularly along the northern border, an area with a high concentration of foreign-owned factories.

Some in the business community are also unnerved by how much power the president wields. His Morena Party and its coalition partners have a majority in Congress and most state legislatures. In recent months, AMLO has launched attacks on autonomous government agencies, accusing them of being biased in favor of business, and called the Supreme Court dishonest. “In Mexico, presidents have a very strong influence,” says Javier Oliva, a political scientist at Mexico’s National Autonomous University. “But for our democracy to work, we need more checks and balances, and the president is neutralizing them.”

AMLO has been meeting with Mexican business leaders in an attempt to mend fences. Ramírez de la O, who runs Ecanal, an economic advisory firm, says he’s seen some Mexican companies come around to AMLO’s idea of creating public-private partnerships to build an oil refinery and an interstate passenger train.

But Wood of the Wilson Center says businesses’ suspicions have hardly been laid to rest. Addressing a group of 150 investors at a recent conference in Miami, he asked how many felt comfortable putting money into Mexico now. “Two people raised their hands,” Woods says. “If you asked that question two years ago, everyone in the room would’ve raised their hands.”

BOTTOM LINE - The popularity of Mexico’s president has only increased during his first 100 days in office. But economists have been downgrading the country’s growth forecasts.

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