López Obrador, triumphant, seeks to calm nerves

Monday, July 2, 2018

Having secured a landslide victory in Mexico's presidential election, Andrés Manuel López Obrador (AMLO) zeroed in on the chief concerns of the global finance community.

Markets were calm early Monday, with the peso trading 20.21 to the US dollar, having depreciated only slightly from the 19.7-19.9:1 range over the weekend.

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In his victory speech, AMLO called for reconciliation with the other political parties, a call that was met by half-hearted applause from a crowd that only minutes before responded to a video address from President Enrique Peña Nieto with long chants of "murderer."

Key snippets of interest to the private sector follow:

  • "There will be freedom to do business."
  • "In economic matters, the autonomy of the Bank of Mexico will be respected; the new government will maintain financial and fiscal discipline; the commitments entered into with domestic and foreign companies and banks will be recognized."
  • "Energy sector contracts signed with individuals will be reviewed to prevent acts of corruption or illegality. If we find anomalies that affect our national interest, we will go to the Congress, to national and international courts; that is, we will always proceed by legal means. We will not act arbitrarily nor will there be confiscation or expropriation of property."

His market reassurances, however, remain for now only words, requiring concrete policy action and appointment decisions in the weeks ahead to foster further stability.

Private sector reaction

"Overall, the López Obrador administration will likely be endowed with high initial political capital (from the fresh and strong ballot mandate) and relatively limited political constraints to move forward with its policy agenda," said Goldman Sachs senior analyst Alberto Ramos in a note to investors.

Ramos, however, drew attention to the risk of a hyper-presidency - "an administration in which the balance of political power is heavily tilted towards the presidential office," stating: "A López Obrador administration may (at least initially) face few obvious political constraints and counterweights. A skewed balance of political power could ultimately encourage the new administration to pursue more radical policies (as it could see no need to negotiate with the legislative branch and compromise on policies and/or legislation) and to eventually adopt a posture that undercuts the current system of institutional checks and balances and weakens or undermines other independent powers and autonomous agencies and institutions."

"In our assessment, the key immediate challenge for the president-elect will be to find ways to work constructively with the departing administration in order to generate a smooth handover of power, and to avoid the policy communication inconsistencies and contradictions that plagued the campaign," said Ramos.

Looking at the banking sector, Moody's Investors Services also issued a response to the result, saying in a note, "Polices that disrupt the business of private banks are unlikely in the medium term."

"Interest rates on loans will probably not be capped anytime soon, though the new administration could accelerate loan growth at public banks, rather than impose lending quotas," said Moody's VP-senior credit officer Jaime Reusche.

Targeted words

Prepared responses from major Mexican business association (CEE) and from Mexican banking association (ABM) were congratulatory but measured.

A key voice in ongoing NAFTA negotiations, the CEE said in a statement that it looked forward to working with AMLO, adding: "At the end of the day, we all have the same desire to build a Mexico with a better future."

The ABM statement also stated its commitment to working with the incoming government, adding that it would be presenting its recommendations for bank sector development.

"Mexico's banking sector fully assumes its corresponding role in contributing to the progress of all Mexicans," read the ABM statement. "With this in mind, a 2018-2024 Strategic Program for the development of the sector has been prepared and will be presented to the new administration as a basis for coordinated work between the authorities and banks in Mexico, for the benefit of all Mexicans."

The ABM has yet to respond to a request from BNamericas on when to expect that presentation to occur.

Results confirming win

As of 10:30 a.m. Monday, the election authority's preliminary results system PREP showed that AMLO had obtained 53.6% of the vote with 62.6% of ballots counted. Runner-up PAN-PRD candidate Ricardo Anaya had 22.6%, followed by former ruling party PRI candidate José Antonio Meade with 15.6%.

The remarkable plurality was further confirmed by PREP results for congress. In the lower house, 200 of the 500 seats are appointed by proportional representation. Of the 300 seats voted on directly, AMLO's political coalition (Morena-PES-PT) won 42.5% of votes, positioning itself to have a majority of the final 500 seats with its proportional representation seats in place.

There are 128 seats in Mexico's senate, 32 of which are set through proportional representation. The PREP showed that AMLO's coalition held an even more commanding lead in that chamber, with 55.3% of the vote, suggesting a more significant majority in the upper house.

Pictured: President-elect Andrés Manuel Lopez Obrador, and his wife Beatriz Gutierrez Muller, cheer supporters at the Zócalo square after winning the general elections on Sunday.