Like Trump in US, Mexico Rolls Dice with Populist President

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On his third try for the presidency, Andrés López Obrador (AMLO) defeated his opponents and is well-positioned to set Mexico on a course that will be anything but “business as usual.”

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He is a populist with nationalist and statist tendencies who nevertheless understands that the social and economic transformation he envisions for Mexico cannot be achieved without the support of the private sector, foreign as well as domestic.

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A Mexican public fed up with corruption scandals, gang violence, drugs, poverty and inequality (a rich north and a poor south) decided “enough is a enough” and rolled the dice, betting on AMLO.

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In a 400-page policy platform shared with the press, Lopez Obrador laid out a vision of fiscal responsibility, infrastructure investment, public-private partnerships and social programs for the poorest sectors of society.

AMLO’s platform mirrors the priorities of his mayorship of Mexico City. His intent is to manage the national debt, hold to the tax reform enacted under the PRI party, ensure the current levels of inflation and foreign exchange, maintain an independent central bank and promote efficiency in government operations and a tight control of budgets.

Some specifics also include scholarships and apprenticeships for young people, free access to telecom services and doubling pensions for the elderly, cutting top bureaucrats’ salaries. Turning to economic concerns, Mexico’s GDP is expected to grow steadily at a rate above 2 percent for 2018 and 2019.

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AMLO would like to reserve deepwater drilling in the Gulf of Mexico for Mexican firms and spend $6 billion on constructing two refineries for processing crude for the domestic market. However, procurement favoritism defies the dozens of trade agreements signed by Mexico.

Building a razor-thin margin refinery project in the age of electric cars will be difficult to get financed by private lenders, and Pemex, the Mexican state-owned petroleum company, can’t afford to fund them with its tattered balance sheet.

On the positive side, AMLO has said he has no plans to nullify any of the $153 billion in existing oil contracts unless they were awarded illegally. Troubling are AMLO’s plans to boost social, education and pension spending to levels that are bound to generate inflation and increase the fiscal deficit.

{snip} What’s more, López Obrador plans to undo many of the educational reforms enacted under Peña Nieto that will further erode competitiveness.

Understandably, the private sector is nervous. Mexico’s benchmark stock index dropped 7.6 percent in May, the biggest one-month decline since February 2009.

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AMLO does not assume office for a full five months after his election, so it may be a year from now until we understand what he can achieve.

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{snip} A lot is expected of AMLO from his disenfranchised supporters, probably too much for any president to achieve.