All eyes will be on Mexico’s presidential election on Sunday, but the key to the country’s future will rest on how the congressional contests shake out.
According to a poll conducted in late June by Mexico-based Parametria, the left-wing Morena party is poised to win the most seats in the lower house and the Senate. The poll showed Morena had 41 percent of voter support in the Chamber of Deputies and 38 percent in the Senate.
Morena is led by leftist firebrand Andres Manuel Lopez Obrador, known by his initials AMLO, who holds a commanding lead in the country’s presidential race. Some of Lopez Obrador’s policy proposals have scared investors intodumping Mexican stocks, however, fearing they will cripple Mexico’s economy. But whether or not Lopez Obrador can move forward with them will depend on how much support from Ccongress he gets.
“The main factor people should be looking out for is the composition of the lower house and Senate,” said Reggie Thompson, Latin America analyst at Stratfor. “That’s really going to determine what kind of legislative measures he will pursue.”
“If AMLO wins by a significant threshold and gets a majority in Congress, that will signal a very significant shift in Mexican politics on a very fundamental level,” Thompson said. “If he doesn’t get a majority, … he’ll be far less powerful.”
Lopez Obrador wants to give free access to telecommunication services like the internet and to double the pension for the elderly. He also wants to reverse key reforms enacted by the current administration that opened Mexico’s energy industry so that oil never “falls back into the hands of foreigners.”
AMLO, the former mayor of Mexico City, is the runaway favorite to win the Mexican presidency. A poll released last Sunday by Mexico City-based Consulta Mitofsky showed Lopez Obrador with 37.7 percent of voter support. Candidates Ricardo Anaya and Jose Antonio Meade lagged with just 20 percent and 17.7 percent of voter support, respectively.
“AMLO’s expected victory possibly represents the largest change in the political regime of the country in modern times,” Cristobal Arias, Latin America economist at TS Lombard, wrote in a note on Tuesday. “Moreover, his victory could lead to significant gains in congressional seats too, as Mexicans have historically voted for the same party in both the presidential and congressional ballots.”
His campaign gained momentum in part because of his pledge to fight widespread corruption plaguing the country.
AMLO said Wednesday that, if elected, “the country will be cleansed” of corruption, adding he would “pull up by its roots the corrupt regime,” which he blames for the country’s chronic violence and widespread poverty.
May was the deadliest month on record in Mexico, with nearly 3,000 people being killed, according to government data. Leading up to Sunday’s election, more than100 politicians have been killed. In all, more than 13,000 Mexicans have been slain since January. About 40 percent of the county’s population lives in poverty, according to World Bank data.
“Corruption is one of the top issues with Mexicans just exacerbated by what they have seen,” said Jason Marczak, the director of Atlantic Council's Adrienne Arsht Latin America Center. “The Mexican people will be looking for someone who will address those concerns.”
Fearing the potentially negative impact of AMLO’s economic policies, investors have pushed Mexican stocks down sharply. The iShares MSCI Mexico exchange-traded fund (EWW), which tracks Mexican equities, is down 8.9 percent this quarter. The peso is down 8.4 percent over the past three months against the dollar despite a 6.1 percent percent rally over the past two weeks.
“We suspect market participants under-rate the negative implications of an AMLO presidency,” Rafael Elias, an analyst at Exotix Capital, wrote in a note earlier this month. Elias added that “an absolute congressional majority for [AMLO’s] Morena party would come as an unwelcome surprise.”
The rise of AMLO and Morena comes as Mexico continues negotiations with Canada and the United States on a new trade deal. President Donald Trump has railed against the current deal, NAFTA, calling it the worst ever.
Trade tensions between the U.S. and Mexico have risen recently. Earlier this month, Mexico slapped tariffs on several agriculture products, including pork, cheese and apples. Mexico implemented the charges in retaliation for U.S. levies on Mexican steel and aluminum products.
“AMLO supports NAFTA but would not bet on fostering international relations, particularly in an era of trade tensions,” said TS Lombard's Arias. “While we expect the NAFTA negotiations to resume after the election on 1 July, we believe the next administration will take a nationalist stance on NAFTA while it pursues the trade diversification agenda introduced by the current government in light of US protectionism.”