AMLO Won't Halt Mexico's $13 Billion Airport -- At Least Not Yet

(Bloomberg) -- Andres Manuel Lopez Obrador, Mexico’s next president, is no longer seeking an immediate suspension of Mexico City’s new $13 billion airport, according to a member of his economic transition team.

Abel Hibert, who attended a planning meeting with Lopez Obrador and about 100 aides from the transition team on Tuesday evening, said it was clear that there’ll be no immediate demand to President Enrique Pena Nieto to suspend construction of the airport, at least until a review of the contracts.

Lopez Obrador won the election by a landslide on Sunday, though he won’t succeed Pena Nieto until December. The leftist leader, who campaigned on pledges to increase spending on benefits for the poor and cut back on wasteful government outlays, has made it clear since elected that he wants to start implementing his agenda right away. But he’s also careful to placate investors who were anxious that his program will rack up debt and hurt business.

The airport has been a focus of such concerns. Bonds sold to finance the project have fallen 6.9 percent this year, more than three times the average decline for emerging market quasi-sovereign debt. They’ve pared losses in the past two weeks.

‘One Alternative’

Canceling the project is “one alternative, but not the main one, and they’ll evaluate all of the alternatives,” Hibert said. Meanwhile, “the construction will continue.”

Lopez Obrador, known as AMLO, had originally threatened court injunctions to halt the airport construction. He’s backpedaled more recently, saying he’d review all options. Javier Jimenez Espriu, who’s set to become his transportation minister, told the Reforma newspaper nothing will change for a month. Not long before the election, Jimenez Espriu and other key aides insisted the construction would be immediately halted until a final decision was made.

Hibert said AMLO mentioned three possibilities on Tuesday: auctioning the airport to the private sector, moving it to an alternative site (which would mean losses on construction that’s already happened), or going ahead with the current plan. The possibility of referendum on the project, which had caused concern among investors, didn’t come up at the meeting, Hibert said.

Lopez Obrador hinted at a more pragmatic approach on Tuesday after meeting Pena Nieto, saying that once the election results are formally announced, “a joint team will begin to analyze what would be in the best interest of the public.” His pick for finance minister, Carlos Urzua, told Televisa on Wednesday that selling the project to the private sector may be the easiest way to proceed.

Oil Hedge

In his interview with Bloomberg, Hibert also had a message for energy markets: At least one key policy won’t likely change. He said the new government will probably continue its annual oil-output hedge, one of the largest deals of its kind. Mexico has spent an average $1 billion a year buying put options, and Hibert said the procedure is “working fine.”

One potential cloud in the sky for investors came with Urzua’s predictions for inflation next year. He said inflation is likely to rise between 4 and 5 percent -- significantly more than the current central bank’s 3 percent target, and the 3.65 percent forecast by economists in a central bank survey.

That’s led to some head scratching by analysts. "We don’t understand the context," said Ociel Hernandez, an analyst at BBVA in Mexico City. "With the information we have, it would be difficult to get to 5 percent."

--With assistance from Amy Stillman.

To contact the reporters on this story: Nacha Cattan in Mexico City at ncattan@bloomberg.net;Justin Villamil in Mexico City at jvillamil18@bloomberg.net;Cyntia Barrera Diaz in Mexico City at cbarrerad@bloomberg.net

To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Ben Holland, Carlos Manuel Rodriguez

©2018 Bloomberg L.P.