After pledging not to expropriate private assets or “act in arbitrary ways,” Mexican President Andrés Manuel López Obrador has done just that — and the consequences for the country’s business climate could be severe.
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The images of Navy personnel occupying a big infrastructure project in the early hours of the morning were reminiscent of scenes of hard-line leftist governments elsewhere Latin America. More fundamentally, AMLO’s expropriation ends a kind of détente between him and Mexico’s business elite, which had lasted for the first five years of his tenure: Businesses were mostly left alone as long as they didn’t interfere in politics.
AMLO was not business community’s choice. But it appreciated the political stability he represents, as well as his drive for fiscal austerity — even as it worried about his nationalistic tendencies. Now those worries have become reality.
Businesspeople are “deeply concerned about the negative effects that this type of decision generates,” the country’s top business lobby said in a statement after the seizure. The peso, which has been a favorite of investors, was one of the world’s worst main currencies on Monday, dropping to a two-week low.
Unless there is a last-minute deal, the case appears to be headed for a protracted legal battle. And that’s certain to hurt Mexico’s business climate and the government’s credibility with investors.
So the question is: Why did he do it?
AMLO’s public explanation emphasized the strategic importance of the project. “The rail, which belongs to the nation, will return to the domain of the nation, for national security and for the public interest,” he told reporters when asked about the case, adding that he is seeking to prevent a privatization of crucial assets by future governments. “We aren’t acting in an authoritarian way,” he noted. “We are acting according to the constitution and the laws.”
The economic wisdom of AMLO’s decision is questionable, given Mexico’s historic opportunity to capture foreign investment that is no longer going to China. But the way to understand it is purely through politics.
AMLO is obsessed with his succession and his place in Mexico’s history. With just 16 months left in his six-year term, he is rushing to finish several landmark infrastructure projects, most of them of dubious utility, that face cost overruns and delays.
The government has also suffered several political defeats in courts in the last few months, despite its effective control of congress and an approval rating of almost 60%. The president is undoubtedly eager to sharpen his dispute with his political enemies — a group that includes technocrats, judges and journalists — as the general election approaches.
It’s also hard not to see AMLO’s takeover as a message to Larrea, Mexico’s second-richest man, who is on the cusp of clinching the purchase of Citibanamex, the Mexican unit of Citigroup Inc. The president revealed that during negotiations over the railway, Larrea asked for 9.5 billion pesos ($531 million) in compensation for returning the concession, a price AMLO called “abusive.” Although AMLO said the dispute isn’t related to the Citibanamex deal, which had already received his blessing, it’s unlikely the president was happy about one of Mexico’s oldest and most iconic banks going to a businessman he has frequently clashed with.
The railway seizure gives AMLO a way to show his supporters he is still fighting corporate interests, which could be especially helpful if the bank deal is completed as expected. At the same time, it serves as a reminder of his growing unpredictability — to the business community as well as the rest of Mexico.
Elsewhere in Bloomberg Opinion:
• Mexico Fails the Clean Energy Challenge: Eduardo Porter
• AMLO’s Austerity Is Hurting Mexico’s Economy: The Editors
• Mexico’s Democracy Is Crumbling Under AMLO: Shannon O’Neil
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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Juan Pablo Spinetto is a Bloomberg News managing editor for economics and government in Latin America.
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