Mexico to Vote in Project Referendums That Have Sunk Markets
Concern about consultations have sent the peso tumbling.
(Bloomberg) -- Mexico will hold public consultations this weekend to decide the fate of 10 infrastructure projects, including a train across five southeastern states and an oil refinery in Tabasco state. The process has roiled local markets.
Fresh on the heels of an October referendum that ended in the cancellation of a partially built $13 billion airport in Mexico City, the consultations will take place on Saturday and Sunday.
Critics say that the process is being used as a political tool. The airport decision involved only about 1 million people, less that 1 percent of Mexico’s population, and was organized by incoming President Andres Manuel Lopez Obrador’s Morena party. This time around, the president-elect is pushing heavily for his pet projects, even releasing a video arguing in favor of the Mayan Train.
"The rise in uncertainty that these consultations bring to the table is definitely unhelpful to Mexican assets," said Alvise Marino, a strategist at Credit Suisse in New York.
The Mexican peso -- once the world’s top-performing currency -- has slid 5.5 percent since the airport announcement on Oct. 28. While few expect a large market reaction from this weekend’s consultations, Capital Economics said in a note that investors may still sour on Mexican assets. Among other projects to be decided on are social programs focused on the elderly and the disabled and the development of the Isthmus of Tehuantepec.
JPMorgan analysts estimate that the social programs alone would cost as much as 1.9 percent of gross domestic product. The Mayan Train and refinery would require at least 0.8 percent, with little guidance on the cost of other projects such as the development of the Tehuantepec Isthmus.
Mario Delgado, the majority leader in the lower house, said after the airport decision that a law will be passed to give future consultations a legal framework. Lopez Obrador has even vowed a referendum on the question of creating a national guard.
To contact the reporter on this story: Justin Villamil in Mexico City at jvillamil18@bloomberg.net
To contact the editors responsible for this story: Rita Nazareth at rnazareth@bloomberg.net, Philip Sanders, Alec D.B. McCabe
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