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Mexico Is Looking Left

02 July 2018 by lberuti

Over the week-end, Andres Manuel Lopez Obrador was the first left-wing president to be elected in Mexico in decades. He was brought to power by a public revolt against rampant crime, corruption and misery. He defeated the candidates of the business-friendly parties. While he said he would “give preference to the poorest and to the forgotten” during his acceptance speech, he also made a point of allaying market concerns. He promised to respect the central bank autonomy, to avoid raising taxes in real terms, and to stay within legal channels as he reviews oil deals approved under the outgoing president. He also promised not to nationalise companies nor quit Nafta. He said his program of social reforms can be funded without increasing the country’s deficit, with the money saved by eliminating graft. Economists are sceptical and investors do not want the new government to become another left-populist regime similar to the ones that ran Venezuela or Brazil into the ground. There was no massive rush for the exit, but Mexico’s 5-year risk premium was nevertheless marked 10bps wider at 140bps.