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MEXICO CITY (Reuters) – Mexico's new president announced Monday that his government would cancel the construction of a new $ 13 billion partially-built airport in Mexico City, which left investors worried about how it would manage the economy and would result in a sharp fall in the currency and the stock market.
A general view shows part of the terminal area at the construction site of the new Mexico City International Airport in Texcoco, on the outskirts of Mexico City, Mexico, October 29, 2018. REUTERS / Henry Romero
President-elect Andrés Manuel Lopez Obrador said his administration, which will take office on 1 December, will take into account the results of the informal referendum that called for the abandonment of the current project.
Instead, a military airbase north of the capital will be converted for commercial use to reduce the overcrowding of the current hub.
This decision puts Lopez Obrador's government at odds with the country's business elite, whom he criticized during his election campaign, but sought to calm down after his landslide victory. The markets praised Lopez Obrador's promise to stick to orthodox fiscal policies after his election.
Companies belonging to the family of Mexican billionaire Carlos Slim, who was once the richest man in the world, participated in the design, financing and construction of the project. Mexican pension funds also inject money through an infrastructure investment fund.
"The people had left Lopez Obrador the benefit of the doubt that he would be a pragmatic governor. This is essentially collapsed. People are reassessing everything about Mexico, "said Gustavo Rangel, an economist at ING in New York.
"I do not think the administration has understood the importance of this decision."
The Mexican peso fell about 3.6%, exceeding the key level of US $ 20 after the announcement of Lopez Obrador.
Peso losses were the largest of all major currencies on Monday, as the country's benchmark closed down 4.2%. Both the currency and the stock market have had their worst single day loss since the election of US President Donald Trump in November 2016.
Several economists have said that peso losses make the central bank's interest rate rise more likely.
The public was invited to participate in a four-day public consultation that took place from Thursday to Sunday to explain the fate of the new airport. Lopez Obrador, who had called for the referendum and opposed the new airport, is committed to respecting the result. .
About one million people, about 1 percent of Mexico's electorate, participated.
"The decision is to obey the will of the people," Lopez Obrador told reporters at a press conference.
He said the decision was "rational" and the government would save about 100 billion pesos ($ 5 billion). He also said that it was "normal" for the peso to weaken.
"It's normal.Once there will be more information, things will calm down.That's not significant … there is nothing to worry about," said Lopez Obrador at about the sharp decline of the peso.
The 10-year benchmark Mexican peso benchmark yield was up 37 basis points to 8.74%, pushing the price down. It 's the biggest rise in day – to – day returns since Trump' s election, fearing that it is hindering the free trade agreement with the US. NAFTA Mexico.
"It has not yet taken office, but it has already succeeded in canceling the largest infrastructure project in Mexico based on the decision of 1% of the population. Markets do not like uncertainty, "said Aaron Gifford, Emerging Markets Bond Analyst at T. Rowe Price in Baltimore.
Lopez Obrador said the investors in the new airport project would be protected and bonds issued to support its construction were guaranteed. Bond yields financing the new airport have skyrocketed.
Mexican President Pena Nieto said on Monday that the project, which administrators say is almost complete, will continue until the end of its mandate in late November.
He also added that the cancellation of the project would likely involve paying in advance the $ 6 billion of bonds issued to fund it.
During the election campaign, Lopez Obrador said the new airport was corrupt and would be expensive to maintain because of the geological complexity of the terrain. It is under construction on the drained Lake Texcoco bed east of Mexico City since 2015.
The referendum was organized by the National Regeneration Movement of Lopez Obrador, without the national electoral authority INE. Opposition parties said the consultation did not follow proper rules.
Several local media reported cases of people having been able to vote more than once and highlighted the shortcomings of the software used to register voter identification cards, while the parties of Opposition suggested that the vote had been rigged.
Other reports by Michael O 'Boyle and Miguel Angel Gutierrez; Edited by Tom Brown and Cynthia Osterman
