Page 67 - Bloomberg Businessweek - November 19, 2018

Bloomberg Businessweek The Year Ahead 2019 Global Economics

Fitch Ratings Inc. downgraded its outlook expect the record- setting U.S. expansion to end
on Mexico’s sovereign debt from stable to nega- sometime in the latter half of 2020. That gives
tive, citing policy uncertainty. JPMorgan Chase AMLO about one year to make good on his
& Co. cut its 2019 economic growth forecast by campaign pledge to lift millions of Mexicans out
half a percentage point, to 1.9 percent, on the of poverty.
same basis. For a preview of how he plans to do that, look
AMLO said the decision on the airport had to his first draft budget, which is due to Congress
been made by the Mexican people, but the refer- by Dec. 15. Although the president-elect has
endum was hardly an expression of the popular pledged to safeguard the country’s hard-won
will. Organized and administered by his Morena reputation for fiscal rectitude, investors worry
Party, it had the participation of just 1.07 mil- that he’ll resort to deficit spending if he can’t
lion voters. It was also rife with accusations of find enough cost savings to fund social spend-
ballot stuffing, with social media showing peo- ing plans, which include doubling pensions for
ple, including apparent volunteers at polling sta- the elderly and introducing payments for unem-
tions, voting multiple times. ployed youth.
The incoming president supports chang- Says Michael Roche, a fixed- income strat-
ing the constitution to make it easier to orga- egist at Seaport Global Securities LLC in New
nize plebiscites, even though the parties that York: Investors are “learning that President-
backed his candidacy hold a majority of seats elect López Obrador is not running the coun-
in Congress. A proposal for a $7.3 billion tour- try solely to please them.” <BW> �Eric Martin and
ist train line in the Yucatán Peninsula—a project Justin Villamil
many believe is destined to be a money loser—
said he’s not interested in a second term.) ECB
may also be put to a popular vote. Some analysts
worry AMLO might also follow in the footsteps

erendum to change the constitution to allow for
18 of Venezuela’s late Hugo Chávez and stage a ref-
presidential reelection—a taboo untouched since
the end of the Mexican Revolution, when single
six-year presidential terms were enshrined to
guard against dictatorships. (López Obrador has

Investor fears that AMLO and his allies in
Congress will legislate against business inter-
ests were rekindled when the Senate leader for
the Morena Party introduced a bill on Nov. 8 to
eliminate some fees and commissions charged ▷ Mario Draghi’s parting gift for Europe
by banks. Shares of the country’s biggest lenders could be a rate hike� If Italy behaves itself
swooned, until the president-elect called a press
conference on Nov. 9 to say he had no intention
of changing banking laws for at least three years. One day next fall, Mario Draghi may do something
The message from AMLO is, “There is a new he hasn’t done in seven years as European Central
president in town, and he is going to make sure Bank president: raise interest rates.
things change,” says Carlos Bravo, a political sci- The 71-year-old Italian is in his final stretch as
entist at Mexico City’s Center for Research and the Continent’s crisis-fighter-in-chief after a ten-
Teaching in Economics. “López Obrador is trying ure defined by multiple volleys of monetary eas-
to restore some degree of political autonomy to ing. With the ECB poised to halt a buying spree
the presidency vis-à-vis economic powers.” that hoovered up €2.6 trillion ($2.9 trillion) of the
AMLO earned some goodwill with the busi- region’s bonds, Draghi and the other members
ness community by endorsing the update of of the bank’s Governing Council are hinting that
Nafta negotiated by the outgoing administration, their first move to undo more than half a decade
praising it for bringing certainty to investments of stimulus might come just before his exit at the
and allowing Mexico to benefit from an accel- end of October.
erating U.S. economy. Yet the country’s oppor- Europe’s economy no longer faces the specter
tunity to profit from its northern neighbor’s of deflation that Draghi and a generation of U.S.-
success may be small, given that most analysts educated central bankers steeped in the history