(Bloomberg) -- With just four days to go before Mexico’s presidential election, the man leading the polls has said little to nothing about his plans for the finance industry. His silence has some of the country’s top bankers fearing the worst.
Imagined scenarios if Andres Manuel Lopez Obrador wins on Sunday range from the extreme -- nationalization of the banking industry -- to the mundane -- rising loan delinquencies from policies that zap economic growth.
Lopez Obrador, the leftist candidate for the Morena party who’s pledged to put an end to corruption and poverty, has held a steady lead since November by appealing to Mexicans’ uneasiness with the status quo. He’s campaigned on promises to invest in oil refineries, reverse education reforms hated by teachers’ unions and slow the opening of the country’s energy sector -- moves that trouble many in the business elite.
“The Mexican government is going to be fiscally constrained, so finding resources for his spending plans will be difficult,” said Carlos Petersen, a political analyst at Washington-based Eurasia Group. “He can find pockets of liquidity in the financial sector,” especially pension funds, Petersen said. “It’s one of the sectors that he will try to put some pressure on.”
While this is the former Mexico City mayor’s third shot at the presidency, little is known about the 64-year-old’s views on banking because the subject rarely features in his speeches. The topic barely comes up in his 461-page party platform aside from a pledge to promote policies that expand access to credit.
His campaign didn’t reply to a request for comment.
Conversations with executives and top deal-makers at a half dozen of the largest banks in Mexico revealed a wide range of anxieties, as executives fill in the blanks with possible outcomes should Lopez Obrador win. All asked not to be identified, citing internal policies that forbid them from talking publicly on politics, and so as not to be seen speaking out against the potential incoming administration.
One common theme: Lopez Obrador’s silence on banks means he has leeway to improvise, making it impossible to anticipate what’s to come.
In bankers’ worst dreams, the new president governs in the same style as Hugo Chavez, the Venezuelan dictator who made his mark by nationalizing the country’s biggest industries. Lopez Obrador, they say, could draw support in Congress to undermine the independence of the Mexican central bank and parlay that into a plan to nationalize lenders.
The candidate has said he would respect the autonomy of the central bank, but some are skeptical. And although the nationalization scenario is probably the least likely, they say, at least one banker is taking no chances. He keeps just enough pesos in his local account to cover a single month’s expenses, fearful that any unneeded funds would quickly lose value in a currency crisis or financial upheaval.
Another fear: The new president caps interest rates and requires banks to lend more to riskier sectors of the economy. The combination would hit banks’ profitability and endanger their balance sheets.
But the biggest and perhaps most likely changes to the financial sector could be reforms affecting pension funds, which are the largest institutional investors in Mexico. The last time he ran for office, in 2012, Amlo’s campaign coalition floated the idea of nationalizing a portion of the pension fund system.
The information vacuum since then has left bankers to their own imaginations. Some speculate he may force employers to put more money into pension funds and then restrict investments available to asset managers. The combination could damage Mexican financial markets and make it harder for companies to raise capital by either artificially bidding up asset prices or sapping demand for initial public offerings and new debt.
Bankers who fear Lopez Obrador’s unpredictability pointed to his tendency to flip-flop on key issues and even party affiliations. Amlo, as he’s come to be known, has been associated with at least three political parties in the past 35 years. He started off his career representing the establishment PRI party from Tabasco, his home state, in 1983. By 2000, he’d switched to the left-leaning PRD party and won the race for mayor in Mexico City. After failing twice to win the presidency running as the PRD candidate, he formed the Morena party in 2014.
While the candidate might never impose policies that directly attack banks, his plans to increase government spending, roll back reforms that allowed the privatization of the energy industry and reverse the standardization of the education system may be enough to derail economic growth, bankers said.
Some of those interviewed said they had been taking comfort from the argument that Amlo is only touting extreme views to appeal to the masses eager for change of any kind. He’ll become more moderate once he’s in office, that thinking goes.
But that thread of optimism took a beating in March, when Lopez Obrador spoke to the banking industry’s annual convention in Acapulco. Even though he promised his support, many bankers said they left the event more apprehensive, struck by what was perceived as a thinly veiled threat at the end of his speech: Amlo implied that if he were to lose the election, it would only be because it had been rigged against him. And he said that would spark mass protests, which he wouldn’t try to calm.
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