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article imageMarket jitters as Mexico's Lopez Obrador takes office

By Yussel GONZALEZ (AFP)     Nov 29, 2018 in Business

He has tried hard to sound like a business-friendly budget balancer, but Mexico's next president, the anti-establishment leftist Andres Manuel Lopez Obrador, still has the markets spooked.

Mexican stocks and the peso have slid as the veteran politician prepares to take office on Saturday for a six-year term.

And the central bank cut its economic growth forecast for 2019 by one-tenth of a percentage point on Wednesday -- to a range of 1.7 to 2.7 percent -- over uncertainty about the future of Latin America's second-largest economy.

Lopez Obrador, 65, won Mexico's July 1 election in a landslide, and euphoric supporters are full of hope that the fiery populist will bring sweeping change, slash poverty and fight endemic corruption.

But his critics -- and he has many of them -- worry he will be autocratic, radical and bad for business.

"AMLO," as he is widely known, has had a combative relationship with the business elite, but sought to sound more soothing as president-elect, promising market-friendly policies and naming the respected economist Carlos Urzua as finance minister.

"The new government will maintain financial and fiscal discipline. State obligations with domestic and foreign companies and banks will be respected," he said in his victory speech.

- People power vs. markets -

Despite that message, the five-month transition period has been full of tension with the business world.

Stocks fell 4.2 percent after Lopez Obrador canceled construction of a new $13-billion airport for Mexico City -- a project backed by the multi-billionaire Carlos Slim -- following a referendum on the issue that was marred by irregularities.

Moves by lawmakers in his coalition to slash banking fees and bring pension funds under state control have also caused market routs.

In all, stocks have lost more than 12 percent since his election. On Monday they hit their lowest level since March 2014.

Rating agencies have taken note. Fitch revised its outlook for Mexico to negative after the airport decision, and Moody's warned the move had created "volatility" and "uncertainty."

Lopez Obrador, a populist fond of "letting the people decide," nevertheless went ahead with a second referendum -- this time on building a tourist train linking Mexico's most famous Caribbean beaches with the ancient Mayan ruins of the Yucatan peninsula, and a host of other pet projects.

With no supervision by electoral authorities, he won the support of nearly all 950,000 voters who took part.

- All eyes on budget -

That decision-making style has some analysts worried.

"Uncertainty about how the next government's policy decisions will be made could have an impact on investment, both foreign and domestic," said Carlos Serrano, chief economist at BBVA Bancomer bank.

Others say the markets will just have to get used to the new president's style, after decades of buttoned-down governments from the same two parties that had ruled Mexico for 89 years.

"He is different from what markets are accustomed to," said Pamela Starr of the University of Southern California.

But he "will be less radical than the markets are fearing" and "work closely with the private sector," she said.

All eyes are now on Lopez Obrador's first budget, which he must send to Congress by December 15.

"We'll see in that first federal budget whether his team actually puts together a balanced budget, conservative and austerity-driven, or whether they're really going to cut loose and spend," said Duncan Wood, director of the Mexico Institute at the Wilson Center in Washington.

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