Business

Will Mexico's economy tank if leftist wins vote?

Wednesday, May 16, 2018

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MEXICO CITY, Mexico (AFP) — The fiery leftist Andres Manuel Lopez Obrador looks increasingly hard to beat in Mexico's upcoming presidential election — drawing dire warnings from some in the business community that he would wreck Latin America's second-largest economy.

The trillion-dollar question facing Mexicans as they prepare to cast their ballots on July 1 is: would he?

The sharp-tongued, silver-haired former Mexico City mayor, who has a double-digit lead in most recent opinion polls, is locked in an escalating clash with the business world.

After Lopez Obrador said top tycoons do not want him to win because they “don't want to stop stealing” and “think they own Mexico”, two prominent business groups took out full-page newspaper ads painting the candidate as a divisive autocrat and threat to the economy.

Other detractors warn Lopez Obrador would turn Mexico into the next Venezuela, whose socialist “revolution” has unravelled into economic catastrophe.

Lopez Obrador — widely known by his initials, AMLO — is trying hard to downplay such fears. But he is also accused of sending mixed messages, depending on who his audience is.

The same Lopez Obrador who fires up crowds with talk of fighting the “mafia of power” and overhauling the country's economic model, reassuringly tells business leaders he will respect private investment and run a fiscally responsible government.

The two-time presidential runner-up says his economic policy would be based on Mexico's economic model of the 1950s to 1970s, known as “stabilising development”.

That strategy coincided with a period of rapid economic growth often called the “Mexican miracle”.

But critics say its principles of State-led development are antiquated and discredited.

Not that things are going so well for Mexico in its current free-market economy.

So far this century, Mexico's gross domestic product (GDP) has grown an underwhelming two per cent per year, on average.

There are some bright spots: since Mexico entered the North American Free Trade Agreement (NAFTA) with the United States and Canada in 1994 the country has become a major exporter with a thriving manufacturing sector.

But the boom has been isolated, and 53.4 million Mexicans — 44 per cent of the population — live in poverty.

Frustrated at being left behind, and fed up with crime and corruption scandals under President Enrique Peña Nieto, many Mexicans are looking for change.

In a country governed for the past 89 years by the parties of his two main rivals — Ricardo Anaya of the conservative National Action Party (PAN) and José Antonio Meade of the ruling Institutional Revolutionary Party (PRI) — many see Lopez Obrador as the best bet to do things differently.

 

AMLONOMICS

Lopez Obrador says he has a simple solution to kick-start the economy: wipe out the corruption plaguing Mexico, which he estimates sucks up 500 billion pesos (more than US$25 billion) a year, and use that money to fund public investment and social programmes.

Many economists say it is not so simple.

“Even if you add up everything that's lost to corruption and embezzlement, you don't get to 500 billion pesos,” said Marco Oviedo, an economist at British bank Barclays, who puts the real figure closer to 90 billion pesos.

“The numbers don't add up,” he said.

The candidate's controversial proposals to review the contracts from Peña Nieto's landmark privatisation of the energy sector and halt public funding for a new US$13-billion airport for Mexico City have also raised investors' eyebrows.

Raymundo Tenorio, head of the economics department at the Monterrey Institute of Technology and Higher Education, warned that Lopez Obrador's policies would lead to “financial disorder” that would hurt Mexico's credit.

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