The López Obrador Effect: a plummeting peso

May 7, 2018

May, 1 2018 (Panampost)

The Mexican economy had remained relatively immune to the possibility of Andrés Manuel López Obrador triumphing in the next presidential election; that is, until recently, when this false sense of tranquility disappeared. Markets are now beginning to factor in the danger that López Obrador represents.

For some, peso exchange rates have more to do with other causes: Syria, Korea, the revision of the North American Free Trade Agreement, the increase of interest rates in the US, etc. Although the truth is that the fluctuations took place following a sharp disagreement between the presidential candidate and business leaders, especially with Carlos Slim about the new Mexico City Airport, which gives strength to the idea that they are a reaction to his prominent position in the polls.

While many in the business community appeared to give the benefit of the doubt to a possible López Obrador government, the last few days have evidenced a growing alarm towards his proposals.

Thus, scenarios begin to circulate involving a strong deterioration in the main economic indicators in the event of an Obrador victory; increase in inflation, high interest rates, outflow of investments, and there is talk that the price of the dollar could reach 25 Mexican pesos, as opposed to 19 today, which would be a disaster for all Mexicans.

The growing self-confidence in his probable victory has emboldened the rhetoric of López Obrador and his allies (not to mention his huge army of online-bots and trolls with which he attacks his critics with racism, classism, and misogyny), as they seek to offer up an amnesty to criminals.