President-elect Obrador takes office in Mexico amidst national populist surge
Andres Manuel Lopez Obrador (AMLO) will be inaugurated as Mexico’s president today, following his landslide election in July.
With his populist left-wing Morena party controlling both houses of Congress, AMLO should have ample legislative support for his agenda. This will include apprenticeship programs, increased pensions, anti-corruption measures and legalising marijuana.
Yet, markets are concerned about his handling of the economy. Despite initially boosting investor confidence with moves like accepting the recent NAFTA renegotiations, AMLO has recently returned to moves reflecting his unpredictable campaign rhetoric. Following a hastily organised referendum with 1% turnout, he halted the construction of a partially built $13 billion airport in Mexico City, leading to a $2.2 billion sell-off in government bonds and a cut in one 2019- growth forecast from 2.4% to 1.9%.
Expect AMLO to begin his term with crowd-pleasing economic measures that shake investor confidence, such as high-spending welfare programs. Though his congressional majorities will mean little political opposition, he will face headwinds from businesses and international finance to keep spending under control. AMLO will likely make some concessions, cutting some spending or staggering his program’s funding, but if he runs up large deficits markets will continue to react negatively with lower investment and growth.
Wake up smarter with an assessment of the stories that will make headlines in the next 24 hours. Download The Daily Brief.
