Latin America Advisor

A Daily Publication of The Dialogue

What Changes Will López Obrador Bring to Mexico?

Photo: Morena. Photo: Morena.

Leftist Andrés Manuel López Obrador trounced his opponents in Mexico’s presidential election on Sunday. López Obrador, widely known as AMLO, won by more than 53 percent of the vote and defeated his nearest rival, conservative Ricardo Anaya, by more than 30 percentage points, the largest margin of victory for a presidential candidate since 1982. To what can AMLO attribute his victory? What are the biggest takeaways from the election? What do the results portend for economic policy and the business climate? What changes are in store for Mexico?

James R. Jones, member of the Advisor board, former U.S. ambassador to Mexico and chairman of Monarch Global Strategies: “Mexico’s elections Sunday were historic in many respects. It was the largest victory margin of any president in 36 years and, unlike in that period, this election was transparent and honestly conducted. This will be the first time in more than two decades that the president will have a majority in Congress from his own political party and coalition. It was a mandate for real change. That change will be manifest in two ways—style and substance. Clearly, the lifestyle of the political elites will be different. The old ways of doing things, which AMLO condemned as corrupt, will be closely watched and exposed. The public focus on the poor will continue, especially targeting the south of the country where poverty is rampant. AMLO believes a truly democratic society cannot be sustained if half the population gains nothing from democracy. In substance, AMLO will be more conventional on economic policy, adhering to a conservative, prudent fiscal policy as he did as mayor of Mexico City while honoring the independence of the central bank which has produced a world-class monetary regime. He recognizes that to deliver a better life to the poor, he must grow the economy and that can best be done through encouraging private sector investment, not irresponsible government spending. The issue of poverty is so deep in Mexico that it will not be cured in one presidential term. But AMLO will try to put that issue on the road to recovery and create hope and a sense of belonging among the poor with investments in education, health care and infrastructure. That will help reduce crime and insecurity, the hardest challenge to crack. A major push to implement true rule of law and professionalize the institutions of law enforcement and the judicial system will be needed. In short, this presidency can transcend the promise of a more just and stronger Mexico into one where more promises can come true.”

Eduardo Arcos, Mexico analyst at Control Risks: “The biggest takeaway is the collapse of the ruling PRI and the rise of the leftist Morena. The election marks a true breaking point for Mexico’s young democracy and a blunt departure from the two main parties that had ruled the country over the past 18 years. This landslide electoral result can only be explained by massive disillusionment with the political establishment amid a failed security strategy, mediocre economic performance, pervasive corruption and persistent inequality. AMLO will become the first leftist president of Mexico in three decades and will implement policy changes. Nonetheless, he is unlikely to dramatically alter economic and trade policy, and he has pledged to maintain stable macroeconomic indicators. AMLO has promised to diversify exports—in a likely attempt to make the Mexican economy less reliant on U.S. imports amid a changing geopolitical dynamic in the region. He is likely to devote increasing resources to social and welfare spending; however, he has pledged not to increase taxes and to lower them in the northern border region. AMLO will likely maintain a cooperative stance with investors. However, the energy sector, and the oil and gas industry in particular, will be cautious during his first year in office, likely delaying spending in major projects until AMLO’s energy policies become more evident. AMLO will not rule without democratic checks and balances. Despite Morena’s rise, both the PAN and the PRI will continue to hold more state governorships. Moreover, it is uncertain whether AMLO and his allies in Congress will achieve a two-thirds majority in both houses—required to make constitutional amendments. The most likely scenario sees AMLO fulfilling some of his campaign pledges, particularly the revision of contracts for energy companies awarded during the past administration. However, canceling the energy reform is unlikely to occur. Combating corruption has been his central campaign promise. On this front, AMLO’s successes will be, at best, gradual. Corruption at the local level will likely persist and corruption scandals within AMLO’s allied parties will emerge once in office. Overall, changes will follow but their pace and impact will be more modest than AMLO hopes.”

Tapen Sinha, professor of risk management at the Instituto Tecnológico Autónomo de México and professor at the University of Nottingham Business School: “The main reasons for AMLO’s victory are persistence, some winning formulas and timing. Since 2006, AMLO has been in perpetual campaign mode. After he lost then by a tiny margin, he declared himself as the ‘legitimate president’ and formed a shadow cabinet. He has crisscrossed the country ever since for the next elections—both for 2012 and for 2018. His two winning formulas as the mayor of Mexico City were to give pensions to all older people; to be in the news all the time by doing public opinion polls (from pricing of the metro to garbage collection); and doing press conferences at 6 a.m. so that he was always in the first news cycle of the day. That bet paid off. When he left as the mayor, his approval rating was 83 percent. All of that earned him a legion of supporters that amounted to about 30 percent of the electorate. With the PRI’s corruption scandals and the rise of unprecedented violence, he added another 20 percent of the voters who reasoned that they had nothing to lose. His promises have been vague. He has taken a nativist stance while talking in public. However, he has signaled a ‘business as usual’ stance when he talked to businesses. Not surprisingly, today, neither the stock market nor the exchange rate market has reacted strongly. However, in the past six months, the credit default swap market has the premium up by 35 percent. The changes he promised are an end to corruption, reversing education and oil industry reforms and more government help for the poor. It is hard to see how he can deliver on ending corruption, but the other two promises can be fulfilled. They will have negative consequences.”

Luis Rubio, executive partner at the Mexico City office of Holland & Knight:“On Sunday, Mexico had the biggest election of its history in numbers and importance. With a turnout of 62 percent of eligible citizens, 55 million people chose the president, eight governors, the mayor of Mexico City, the whole Senate and Chamber of Deputies, and other positions. The good news is that the stock market and the exchange rate did not show drastic changes. During his victory speech, López Obrador made some interesting references that could have an impact on Mexico’s trade relations with the United States and the rest of the world. In his speech he said ‘a relationship of friendship and cooperation for development will be sought with the government of the United States of America,’ (referring specifically to the rights and protection of Mexican immigrants in the United States). He later said that reducing current spending and increasing public investment to boost productive activities and create jobs will be made with the objective of ‘strengthening the domestic market, to try to produce in the country what we consume.’ In reality, these two concepts may be difficult to reconcile. How can we obtain further cooperation for development and, at the same time, restrict, substitute or impose conditions to replace imports from those countries where cooperation will be sought? This dissonant approach to trade will be one of the key policies to watch in the coming months and years.”

The Latin America Advisor features Q&A with leaders in politics, economics, and finance every business day. The publication is available to members of the Dialogue’s Corporate Program and others by subscription.