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Brazilian assets may be rallying like it’s 2010. Not so in Mexico.
Mexico’s stocks and currency are taking it on the chin on Monday, with both sinking to multi-months lows, after Mexicans overwhelmingly voted in favour of scrapping a new $13bn airport that is already under construction.
While the vote isn’t legally binding, president-elect Andrés Manuel López Obrador has said he would abide by the results. This has dealt a blow to investor confidence over the strength of the rule of law in doing business in Latin America’s second most important economy.
The peso fell 2.3 per cent to a near four-month low of 19.80 per dollar. The IPC stock index dropped as much as 1.7 per cent to 45,022, its weakest level since the start of June.
The sharp moves lower come after results of a four-day nationwide public consultation showed that participants have voted two-to-one to cancel construction of the new Norman Foster designed airport in Mexico City, which local residents and environmentalists have strongly opposed.
The vast airport project — covering 5,000 hectares — bustles with activity, including the partially-built air traffic control tower and the giant X-shaped terminal building, where 14 of the 21 latticed structures designed to support the 45m high arched roof have already been erected.
Some 305 companies are involved in building the new airport project, according to the state-controlled airport company GACM. A cancellation of the project would have far-reaching financial implications.
Contractors have committed 170bn pesos ($8.8bn) and spent some 60bn pesos so far, said GACM and they would be unlikely to recover that in full.
In addition, $9bn in bonds have been issued, meaning the new government could find itself having to sell fresh debt to repay bonds, on top of paying compensation.
“If the project is cancelled, we have to leave the site as we found it,” said Santiago Monroy, a senior official at GACM. “There are three impacts from a cancellation — financial from the money that has already been sunk into the project and can’t be recovered; claims from contractors; and 48,000 direct and indirect jobs. The reputation of the country is on the line, how will we look in the eyes of the world?”
Investor confidence in Mr López Obrador has been already been somewhat shaken by his stance on other issues, including statements suggesting he would re-examine recent energy contracts.
But the “people’s poll” on the airport — which was called by Mr López Obrador himself — had prompted concern that the leftist-nationalist could return to his previous radical rhetoric, in contrast to the more moderate image he has been trying to present during this, his third presidential campaign.
Mr López Obrador is due to speak later on Monday on the results of the vote.
