Mexico City Airport threatens to turn into confrontation between government and private sector

According to Bloomberg, the referendum on the future of Mexico City’s partially built airport this week is shaping up to be president-elect Andres Manuel Lopez Obrador’s first standoff with investors who have taken a wait-and-see approach to the new government.

The nationwide vote from Oct. 25 to Oct. 28 will ask people whether they want to push ahead with the $13 billion Texcoco project, or go for a cheaper alternative further away from Mexico City. According to a national poll by El Financiero last month, 63 percent of respondents support the continuation of the airport construct

As the referendum approaches though, investors are getting increasingly nervous. The yield on $6 billion of bonds sold to finance the new airport has soared to a record this month after AMLO, as the president-elect is known, said in a Facebook video that “we can’t finance this project” and one of his advisers warned it was two years behind schedule. It could become a litmus test of the new government’s approach to business and financial affairs.

“There have been growing risks that the consultation results in a negative outcome” for the Texcoco project, Bank of America analysts wrote in a note Monday. If that happens “investors will revise upwards the probability that AMLO enacts less market-friendly policies than what his economic team has put in front of investors.”

While this week’s so-called public consultation is not legally binding, Lopez Obrador is pledging to respect the outcome, which should be announced Sunday. The exercise will be unprecedented in Mexico given that it includes the referendum in more than 500 towns and a face-to-face survey.

The market jitters have even reached the peso, which has weakened 3.4 percent in the past five trading sessions, the worst performance among emerging markets.

High Cost

“There has been mixed signaling over Lopez Obrador’s preferred choice but comments over the past week are making us more skeptical that he will decide to continue the construction,” Eurasia said in a research note last week.

The airport’s cancellation would come at a high cost. The project is already 32 percent completed, according to the last estimate by Enrique Pena Nieto’s administration in September, and much of the money for its completion has been raised.

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