AMLO Shows He’s Not Going Quietly With New Market Interventions

Mexican President Andres Manuel Lopez Obrador chose the country’s private airports to send a punchy message to the business and political world: it may be his final year in office but he’s still very much in charge.

(Bloomberg) — Mexican President Andres Manuel Lopez Obrador chose the country’s private airports to send a punchy message to the business and political world: it may be his final year in office but he’s still very much in charge.

With the focus quickly moving toward next year’s presidential election, and the two top candidates to replace him already nominated, the silver-haired populist known as AMLO has a fight on his hands to avoid being seen as a lame duck. He’s instead pressing ahead with his big plan to deliver key infrastructure projects and cement a legacy that has turned the government into a central player in Mexican business.

On Wednesday night, it emerged his transport officials unilaterally changed the fee structure under which the privately-run airports operate, the latest in a string of interventions that have sporadically riled the private sector since he took office in 2018. The government didn’t provide details but just the news of the changes was enough to send shares of Mexico’s publicly-traded airport operators down as much as 44%, one of the biggest market selloffs linked to a policy decision taken by AMLO in his five years in power.

“There was no dialogue, no anything, so that was very aggressive,” said Alejandro Schtulmann, research director at Mexico City-based political consultancy EMPRA. “He’s still trying to show that he has control of everything, that he’s the main decider.” 

The peso and Mexico’s main stock index also tumbled fast on Thursday in response, as traders fret over which of Lopez Obrador’s favorite two paths he might choose in this intervention. In some cases, he has been uncompromising, deciding to outright cancel major projects like his predecessor’s $13 billion airport or shutter a partly built $1.5 billion beer plant by Constellation Brands Inc. At other times, the playbook has been to make an aggressive first move, then ease the pain by negotiating a deal — as seen when giving a billionaire an extended rail concession after seizing one of his other train lines.

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The airports fee changes seemed timed for the noisiest impact possible, with US Secretary of State Antony Blinken in town for a bilateral encounter with AMLO and right after the president hosted a meeting with some of Mexico’s top business leaders including billionaire Carlos Slim. 

Despite being late in his term, Lopez Obrador is in a position of strength that has so far shielded him from eventual clashes with the business elite. His approval rating hovers around 60% and the economy has outpaced all forecasts, expected to grow 3.2% this year, as investment has flooded into Mexico thanks to companies boosting investments to supply the US market and relocating their supply chains away from Asia.

Mexico’s presidency didn’t reply to comment requests.

Last Year

For Mexican presidents, who serve a six-year term without reelection allowed, the last 12 months in government is traditionally a moment when the leader sees power slowly evaporating as players fight for the succession. AMLO has nonetheless remained active as usual, involved in the campaign of his protégé Claudia Sheinbaum and seeking to deliver landmark infrastructure projects including the Maya train, a tourist railway through the jungle in southeast Mexico at a cost of over $20 billion, before retiring when his term finishes on Sept. 30. 

Lopez Obrador has normally soothed market jitters about such moves with strict fiscal austerity and strong recent economic growth, keeping Mexico’s debt as a percentage of gross domestic product to a manageable 46.5% estimated for the end of this year. But his final budget for 2024 also surprised investors with a change in tack when presented last month, as he aimed to widen the deficit to its highest point since 1988, at 4.9% of GDP, as he seeks to boost public spending before the June 2 election.

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AMLO’s fraught relationship with the aviation sector has gone beyond canceling the planned new Mexico City airport after construction had already advanced. He chose instead to keep the existing Benito Juarez airport and build his own new one, which has struggled to attract passengers and airlines.

Since the cancellation, Mexico has had to use much of the fees that would be used for upkeep of the capital’s main airport to pay interest on the debt taken out for the scrapped project while reducing operations at the hub. He is now creating a state airline with the help of the military.

Wednesday’s changes will affect the entire tariff system, including passenger fees, airport services for use of runways and leasing spaces to airlines and suppliers, according to a person familiar with the matter, asking not to be named discussing private information.

AMLO may have made the changes in an effort to recoup more money to finish the vastly expensive signature projects before his term is up.

“What’s happening is the government doesn’t have enough income and it’s looking where to get that revenue,” said Gabriela Siller, director of economic analysis at Grupo Financiero Base.

In any case, AMLO’s latest move on airports touched a market nerve: The peso, whose sharp climb this year has been embraced as a sign of his strong leadership, dropped 1.7% to its lowest point since April on Thursday while the stock index declined 2.5%.

Grupo Aeroportuario del Sureste SAB, Grupo Aeroportuario del Pacifico SAB, and Grupo Aeroportuario del Centro Norte SAB shares ended Thursday plunging between 17% and 26% after falling as much as 44% earlier in the day. The three firms said in filings that they are evaluating the effect of the changes on their operations.

Investors had given the president a pass on the budget thanks to his history of tight spending and the booming investment into the country. But investors are now fretting about what other sectors Lopez Obrador might target in his final year, said Rodolfo Ramos, a strategist at Bradesco BBI.

“No one’s safe,” he said. “This starts questioning rule of law and if the government is respecting contracts.”

–With assistance from Maya Averbuch, Andrea Navarro and Michael O’Boyle.

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