IN 2002 VICENTE FOX, then president of Mexico, ended a honeymoon with foreign investors by giving in to machete-wielding peasants and dropping plans to build an airport near Mexico City. On October 29th history repeated itself when President-elect Andrés Manuel López Obrador said he would halt construction of an airport after it was rejected in a vote involving barely 1% of the electorate. The move battered Mexico’s peso, which fell to its lowest level in four months, as well as its stockmarket and its bonds. Creditors, who had been hopeful on Mexico, turned hostile.
Mr López Obrador, a left-wing populist, had sought to reassure investors. Despite troubles in other emerging markets, investment in Mexico remained relatively buoyant; the optimism was bolstered by a new trade agreement with the United States. By putting a complex infrastructure project to a poorly conceived vote, the president-elect soured the mood.
Hardest hit by the repercussions are holders of $6bn of bonds issued to fund the airport’s construction. Prices fell to levels implying default. Prominent business people took a hit, too. They include Carlos Slim, Mexico’s richest man, whose construction company is involved in the $13bn project. Mr López Obrador plans to keep the existing airport and convert a nearby airbase. That may reduce the number of planes that can fly safely.
The bigger worry, however, is that the incoming government is prepared to tear up big contracts for a project that has funding in place, a third of which is already built, using the bogus referendum as an excuse. That sent all the wrong messages in a country that needs foreign investment, and has recently liberalised its once untouchable energy industry to attract it.
Other factors are darkening the horizon for Mexico, such as slowing global growth, higher American interest rates and falling oil prices, says Ociel Hernández, a strategist at BBVA Bancomer, a bank. J.P. Morgan, a brokerage, has lowered its estimates for Mexican growth in 2019 to 1.9% from 2.4%.
The biggest concern of foreign investors is what Mr López Obrador might do in the future. Some fear that he could milk Pemex, the world’s most indebted state oil company, by requiring it to build public projects. That would risk damaging Mexico’s sovereign-bond ratings, scaring away foreign capital.
It is possible that, having given a sop to left-wing supporters by axing the airport, he may pursue a more sensible economic policy. More will become clear on December 1st, when Mr López Obrador takes office, and two weeks later, when he proposes a budget. His economic team insists fiscal rectitude will prevail.
But damage has already been done. Creditors say they will refuse to finance Mr López Obrador’s ambitious infrastructure projects unless he changes his tune. Michael Conelius, of T. Rowe Price, an asset manager, says that if he tries the same gambit with energy reform as he did with the airport, he will struggle to raise any capital and “will have even more pain to feel”. That sounds threatening, but Mr Conelius is unrepentant: “bonds…are supposed to act like vigilantes. And it usually works in emerging markets.”