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MEXICO CITY (Reuters) – Elected Mexican President Andres Manuel Lopez Obrador announced on Monday that his government would abandon a new $ 13 billion airport for Mexico City, which was partially built, plunging Mexican financial markets into a collapse.
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
Lopez Obrador said his administration, which will take office on 1 December, will take into account the results of a referendum calling 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 raises concerns that leftist Lopez Obrador could change economic policy more than expected and put his government in confrontation with the country's economic elite, which he blasted during his election campaign but had sought to calm down after his overwhelming 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 paid money.
The Mexican peso dropped about 3.5%, exceeding the key 20% level after the announcement of Lopez Obrador.
The peso's losses were the biggest of all major currencies on Monday, and it was heading toward its worst daily loss since the election of US President Donald Trump in November 2016. The country's stock index dropped more than 4% at its lowest level since early 2016.
The markets had welcomed Lopez Obrador's promise to stick to orthodox fiscal policies after his election, but investors said the decision to cancel the airport could mark a shift in sentiment toward the new government.
"The honeymoon may be on the rocks even before it takes office," said Andrew Stanners, Emerging Markets Fund Manager at Aberdeen Standard Investments in London.
"The airport is the first question the market is asking whether it has become a little too complacent about the true meaning of a Lopez Obrador administration."
The public was invited to participate in a four-day public consultation that took place from Thursday to Monday 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 benchmark 10-year Mexican peso bond benchmark yield rose 37 basis points to 8.74%, pushing the price down, posting the largest gain in a day since the start of the year. Trump's election, fearing he will reach a free trade agreement with Mexico.
"The market is adapting to the new perceived reality of what will be the next six years (Lopez Obrador)," said Aaron Gifford, an equity analyst for emerging markets 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.
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
