Initial euphoria over Andres Manuel Lopez Obrador’s landslide victory soured as the dollar’s gain jolted investors back to the reality that the country’s first leftist president in recent times may alter its economic model.The peso declined as much as 1.3 percent after results of the Sunday elections signaled his Morena party was set to enjoy broad support in Congress.The victory came with a commanding lead for Lopez Obrador, showing a strong mandate for his policies. Stocks also slipped, along with the country’s dollar-denominated notes.Investors are concerned that under Lopez Obrador, the privatization of the energy industry will be rolled back, and spending on social programs will push the country into debt.In a victory speech following the vote, the 64-year-old struck a unifying tone while saying that his government will give preference to the poor.The peso’s drop in the second quarter was the biggest since 2014.While analysts said it may be a few days before the makeup of congress is clarified, Eurasia Group said Lopez Obrador’s large margin of victory suggests his party would have a strong position in both houses and be able to attract support from smaller parties as well.Among his proposals are a halt to a $13 billion airport project, the rollback of a historic opening of the energy industry and an expansive fiscal program.
Wednesday, July 04, 2018
What if Lopez-Obrador becomes Trump’s secret admirer?
Down in Mexico, “Presidente-electo” Andres Lopez-Obrador is singing a conciliatory tune. I think that he understands that the other 47% of the people who split their vote between three centrists are concerned that he meant what he said during the campaign. Words matter, as we say up here.
According to the Yucatan Times, the early signs may mean trouble for Mexico and “El Presidente Electo” who won’t assume the presidency until December 1st:
It may be an insignificant early reaction, but the peso fell. It may stop falling, so let’s not overreact but a falling peso is always traumatic for Mexicans who remember 1976, 1982, and 1994, the big three devaluations of recent memory.
My guess is that “El presidente electo” knows that his presidency can’t take much peso erosion.
I lived in Mexico in 1982 when the pre-1994 peso went from 26 (to a US dollar) in August to 150 by the end of the year. I learned a big lesson: Mexicans will always bet against their currency or exchange their pesos into dollars.
To be honest, Mexico is better prepared for peso erosion today because they’ve let the currency float since the late 1990s. Nevertheless, nothing scares the Mexican middle class more than the peso losing value.
In other words, President Lopez-Obrador will need a stable peso and economy. He cannot accomplish that without a strong U.S. economy. Mexico’s new president will need for President Trump’s economic plan to succeed across the board. He may be a public Trump critic but deep inside he will become his secret admirer.
Trump’s economic success will mean Mexico’s economic success. President Lopez-Obrador can not deliver a single promise unless Mexico’s economy grows.
Guess who will be cheering on President Trump? Mexico’s “Presidente electo”! Suddenly, he needs Trump to succeed!
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