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Leftist presidential candidate Andres Manuel López Obrador. Experts remain divided over whether he will hurt business or not if he wins next month's elections in Mexico. (Photo: lopezobrador.org.mx)
Wednesday, June 20, 2018
Perspectives

Mexico: Will AMLO Be Bad for Business?


Would Andres Manuel López Obrador be bad for business in Mexico?

BY LATIN AMERICA ADVISOR
Inter-American Dialogue

Leftist presidential candidate Andrés Manuel López Obrador, the front-runner ahead of Mexico’s July 1 election, met earlier this month with leaders of some of the country’s biggest companies to discuss trade, job creation and corruption. López Obrador’s campaign has generated anxiety among some in the business community, both at home and abroad, over concerns that his policies could be unfriendly to the private sector. The meeting was the latest step in a steady push among López Obrador’s economic advisors to assure investors that they would not take dramatic steps away from current central bank independence and orthodox monetary policy. If elected, what sort of changes would López Obrador and his team most likely make to Mexico’s economic policy? How would his administration engage with the private sector? Will Mexico’s business climate change dramatically for domestic and foreign companies, and what industries or sectors could turn out to be the biggest winners and losers?

James Jones, member of the Advisor board, chairman of Monarch Global Strategies and former U.S. ambassador to Mexico: López Obrador is not anti-business per se. He is wary about the close and in his view corrupt relationships in the past between powerful businesses and the old PRI political regimes, which he opposed during his developing political career. But AMLO is a pragmatist. He recognizes that in order for him to be able to help his constituency, the poor and disadvantaged, he must grow the economy. He knows that economic growth doesn’t come from government. It comes from a competitive private economy. I’ve known him for 25 years. I’ve argued with him over different policies. While he may have pre-conceived notions, he will listen and sometimes be persuaded by different facts and opinions. He has come to support NAFTA and other trade outreaches because he sees these improve economic opportunities for Mexicans. He clearly wants to restore Mexico’s energy production, especially in alternative energy such as solar power. He recognizes that in energy as well as other economic areas foreign investment is needed and will be welcomed. There is every indication that he will continue to respect the independence of the central bank although that will have to be closely monitored. I fully expect him to be conservative in fiscal policy, thus sending to the world a message of balanced fiscal and monetary policies.

Developing a warm and trusting relationship between AMLO and the business community will take time. But it is possible to achieve largely if both sides park their harsh rhetoric and recognize that both are needed if Mexico is to achieve its potential.

Amy Glover, CEO for Mexico at Speyside Corporate Relations: During the campaign, Andrés Manuel López Obrador has made frequently contradictory statements with regard to the private sector and his economic plans. For example, he has in the past voiced general disagreement with the energy reform and the new Mexico City airport, but has also said about both that he would simply review the contracts awarded to date. He has used the term ‘the mafia of power’ very loosely to imply that business people are also part of the problem that the country has with corruption. That said, AMLO is a career politician who understands that if he wants to be successful, he cannot pursue an open fight with business. While the more populist rhetoric gains him points with a frustrated general public, López Obrador understands that he will need to court the private sector if he wants to ensure the economic growth that will allow him to move forward with a more ambitious social investment plan.

Perhaps the most worrisome thing about AMLO’s philosophy—if it can be called that—is that he does believe that the state should play an important role in spurring economic growth, the implications of which are hazy. Whether that means more directstate intervention or more social investment (for example, infrastructure, health and education) remains unclear. And of course, uncertainty implies risk. Regardless, fears that a López Obrador government will be radically different or damaging to private-sector interests have been overblown. If he does win the election, he and his team need to be educated on the complexities of international economic issues and, to date, those close to him have been willing to listen.

AMLO supports a modernized NAFTA and has simply requested that someone from his team be included in the discussions during the lengthy transition period from July to Dec. 1. Mexico faces a complex domestic and international context over the coming months, but the silver lining remains that the size of its market and its youthful middle  class make it too important for business to ignore, politics be damned.

Amanda Mattingly, senior director at The Arkin Group in New York: The anxiety in the business community in Mexico and abroad is warranted. If elected, López Obrador will introduce a level of uncertainty into the Mexican economy, business climate, financial markets and NAFTA negotiations that will no doubt lead to slower economic growth, a cooling of foreign investment, higher inflation and a weaker peso. It is possible that López Obrador and his economic team will establish more orthodox monetary, fiscal and trade policies once the election is past and the realities of governing settle in after he takes office in December. But if López Obrador wins by a significant margin— right now, he enjoys a 17-point advantage over his closest rival, Ricardo Anaya—he could claim a mandate to implement dramatic changes in the management of the Mexican economy. In this scenario, López Obrador could take a more interventionist role, which could mean the return of state-owned entities in strategic sectors, government subsidies for Mexican farmers,  and a roll back of market-friendly reforms, namely in the energy sector which current President Peña Nieto opened up in 2014.

Despite efforts by advisors to allay concerns in the business community, López Obrador has built his political career and current campaign on promises to fight the ‘mafia of power,’ meaning not just the political establishment but also the business community and wealthy elite who he believes have disproportionately benefited from economic liberalization in the NAFTA era. It seems likely he would make good on these promises, and that would change the business climate for domestic and foreign companies alike.

Republished with permission from the Inter-American Dialogue's daily Latin America Advisor

 

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