AMLO's First Week Widens Divide Between Markets and Fans at Home

(Bloomberg) -- Andres Manuel Lopez Obrador sailed into power with overwhelming support from Mexicans embracing his vows to fight crime and corruption. But the headlines in his first week as president were dominated by, of all things, airport bonds.

The new leader’s plan to dismantle a $13 billion airport project sparked concern on global trading desks that his government would have to immediately pay $6 billion in bonds sold to finance the construction. It provided a stark example of how AMLO, as he’s known, has few qualms about roiling the business community.

His followers, though, are still fresh off the glow of his inauguration celebration a week ago. To them, AMLO’s presidency is exemplified by the man on his knees covered in a cloud of incense at an indigenous ceremony, in front of a crowd of 150,000 in a public square. Or the two-hour speech that followed, where he rattled off 100 promises to end corruption, pull them out of poverty and stop a grisly crime wave.
The president’s first week in power has widened the gap between his base -- which is growing by the day as his approval rating keeps rising -- and his critics, who see a man who appears to care less and less about what the world and their markets think of him. The next test for investors will come when he delivers the budget next Saturday, which some worry may not offer realistic proposals to pay for all the social programs he’s promised.

AMLO's First Week Widens Divide Between Markets and Fans at Home

“Despite recognizing the collective wisdom of the market, AMLO has made it clear that his priorities lie in governing Mexico and consulting the people, rather than listening to investors in New York or London,” said Duncan Wood, director of the Mexico Institute at the Woodrow Wilson International Center for Scholars in Washington. “Ultimately AMLO may find that he compromises his own capacity to govern.”

Costly Exit

AMLO dug himself into a hole with investors by promising to cancel the mega-airport, saying he would save taxpayers money from a project he said was bloated by graft. But he may end up spending as much as $10.5 billion just to pay off investors and contractors, according to Banco Bilbao Vizcaya Argentaria SA, with no world-class airport to show for it.

A big chunk of that would come from redeeming bonds, $6 billion of which could come due immediately if the airport cancellation triggers a default. AMLO’s government presented a buyback plan to placate bondholders two days after he took office, but a group of them say they wouldn’t accept the conditions. He’s been barraged by questions about the airport at his daily press conferences.

AMLO's First Week Widens Divide Between Markets and Fans at Home

In his inaugural address, AMLO came out swinging against some policies favored by markets. He called an energy reform that opened Mexico to private drilling “disastrous” and pledged to end the country’s neoliberal era, which is how he describes policies he sees as favoring investors over the best interests of the nation’s roughly 131 million people.

Memorable Images

AMLO would argue he does care about business interests. He told reporters he decided against repealing the energy reform altogether to prevent critics from attacking him. Past administrations have put markets first to help achieve stable but slow growth in an economy valued at more than $1 trillion.

AMLO's First Week Widens Divide Between Markets and Fans at Home

Regardless, most Mexicans won’t remember AMLO’s inauguration week for the energy reform, or the airport. They’ll recall images of cyclists approaching his white car on the way to his swearing in ceremony to shake his hand. They’ll hearken back to the tour his administration gave of the $219 million presidential Dreamliner he put on sale to save taxpayer dollars (though that may come at a $76 million loss).

Or perhaps they’ll point to AMLO converting the country’s verdant presidential mansion into a cultural center the day he took office. In a week, it’s already been visited by more than 100,000 people.

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