Fear of Political Unrest Roils Mexican Markets

The possible ouster of a leading contender from the 2006 Mexican presidential race is rattling financial markets here, with investors wary of a full-blown crisis that could derail a promising economic recovery.

Fear of political turmoil has sent Mexico’s stock market tumbling 12% in recent weeks, as Mexico’s Congress prepared for a crucial vote today. Legislators are expected to strip popular Mexico City Mayor Andres Manuel Lopez Obrador of his official immunity from prosecution -- a privilege granted to high-level elected officials in Mexico -- so that he would have to stand trial in a land dispute.

He faces prison and under Mexican law could be deemed ineligible to run for the presidency while his case winds through the legal system. That could block him from the ballot even if he is ultimately cleared.

A feisty populist who leads all would-be presidential hopefuls in opinion polls, Lopez Obrador has won the admiration of millions of average Mexicans for spending on anti-poverty programs as well as for his criticism of free-market economic policies that have failed to solve Mexico’s employment woes.

But those leftist leanings have alarmed many of Mexico’s business and political elite, whom Lopez Obrador blames for the legal tangle that could trip up his aspirations for higher office.

The mayor has vowed to campaign from behind bars if need be. And he has called on his supporters to engage in peaceful demonstrations.

With tens of thousands of protesters expected to rally today in the capital and in cities around the nation, analysts fear the start of months of unrest that could lead to paralysis or violence.

In addition to the stock market slide, long-term bond yields have surged and the peso has declined, signs that investors are voting with their feet. Although economists say Mexico’s fundamentals are sound, several major investment firms are warning clients of a bumpy ride in a nation where previous bouts of political turbulence sent the economy into a nose dive.

“I have rarely been as concerned as I am today regarding the course of political events unfolding in Mexico,” said Morgan Stanley senior Latin American economist Gray Newman in a report this week. He is predicting moderate gross domestic product growth, a weaker peso and a slowdown in foreign investment “premised on a prolonged bout of political turmoil.”

Lopez Obrador’s legal troubles stem from allegations that his administration defied a 2001 court order to halt construction immediately on a hospital access road crossing private property. Prosecutors have pursued the case on the grounds that no one is above the law, not even the powerful mayor of the Western Hemisphere’s largest city.

But in a nation where murders, drug crimes and massive corruption cases go unpunished, some Mexicans are incensed at what appears to them to be a case of selective enforcement over a relatively minor construction project.

“Pure exaggeration,” said Rosario Montesinos Flores, a 40-year-old secretary, of the charges against Lopez Obrador. “They don’t want him to become president, so now they’re inventing things.”

The growing tension has many worried about a repeat of Mexico’s mid-’90s peso crisis. Many trace its origins to a series of political shocks leading up the 1994 presidential election, including the elimination of the leading candidate by an assassin’s bullet. The peso devaluation that followed the election destroyed thousands of businesses and wiped out the savings of millions of Mexicans.

Analysts note that Mexico’s economy is on much better footing than it was a decade ago. The peso now floats freely, acting as a shock absorber that can adjust to changing economic conditions. Mexico has abundant foreign reserves. Its ratio of debt to GDP is healthy. Inflation is tame. Oil prices are riding high, good news for the world’s fifth-largest producer, and the maquiladora export factory sector is humming again.

The economy last year grew at a healthy 4.4%, the fastest clip since 2000, and the Mexican stock market rallied 58% between year-end 2003 and early March, making it one of the world’s best performers and a strong reflection of growing investor confidence.

President Vicente Fox, who opposes Lopez Obrador’s policies but is legally barred from running for reelection, and Guillermo Ortiz, head of the nation’s central bank, have gone out of their way to say that the market volatility is nothing to be concerned about. Experts attribute some of the stock market decline to profit taking, while rising interest rates are driving up long-term bond yields everywhere, not just in Mexico.

Some wary Mexicans are having none of it.

Accountant Ernesto Garcia Serrano had to pull his two daughters out of private elementary schools after the peso crisis. A decade later, one of them is attending a private university. Potential unrest over the approaching election has given Garcia an unsettling sense of deja vu as he makes those tuition payments.

“Really, I’m fearful that another crisis would come ... and that my daughter would be left without her university studies,” he said.

Retiree Jose Hernandez also has the feeling that history is about to repeat itself.

“The country has gotten used to economic crisis,” said the former transport worker. “The bad thing is it’s the people that suffer, always us poor people.”

Hernandez’s frustration goes to the heart of Lopez Obrador’s popularity and the rise of the left throughout Latin America, where free-market economic policies have failed to solve the region’s entrenched poverty and inequality.

The North American Free Trade Agreement has transformed Mexico into the world’s 10th-largest economy and an exporting superpower. Yet half of Mexico’s population lives in poverty. The underground economy is the principal engine of job growth. And the nation’s second-largest source of foreign exchange, behind petroleum, is cash remittances from expatriates, most of them illegal immigrants in the United States.

“Some Mexicans have done well because of NAFTA and neo-liberal economic policies, but the great mass of them haven’t,” said George Grayson, a Mexico expert at the College of William & Mary. “And it’s the masses who identify with Lopez Obrador.”

Indeed, the mayor has won legions of loyal admirers among the capital’s elderly, who now receive government handouts of about $60 a month under a program he launched. It’s the kind of anti-poverty effort he has talked of taking nationwide.

Lopez Obrador also opposes privatization of the state-owned oil and electricity monopolies, which many Mexicans view as a sacred patrimony even though they are woefully inefficient. And he has talked of renegotiating the parts of NAFTA where he thinks Mexico got a raw deal.

Without naming Lopez Obrador directly, Fox and business leaders have warned the Mexican people about the dangers of populist “messiahs” who could scare off foreign investors and reverse the nation’s hard-won economic gains. Many of Lopez Obrador’s political opponents are no doubt thrilled that a legal entanglement might disqualify him from the presidential race.

With political pressure now building, analysts say that may well turn Lopez Obrador into a martyr and provoke the social and economic instability many were hoping to avoid.

“There is a huge risk of this whole thing backfiring,” said Alberto Bernal, head of Latin American research for New York-based IDEAglobal. “You get 500,000 people in the streets in support of Lopez Obrador and that’s political noise that the markets don’t like.”

Times researcher Cecilia Sanchez contributed to this report.

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Andres Manuel Lopez Obrador

Born: 1953, in Tepetitan in the Mexican state of Tabasco

Education: Bachelor’s degree in political science and public administration, National Autonomous University of Mexico

Career highlights

1977: Named head of the Indigenous Institute of Tabasco.

1984: Moved to Mexico City to work at the National Consumer Institute.

1988: Unsuccessfully ran for governor of Tabasco.

1994: Lost another election to become Tabasco’s governor.

1996: Named head of Democratic Revolution Party.

2000: Elected Mexico City’s mayor.

2001: Allegedly violates a court order by having a hospital access road built over disputed land.

Today: The Mexican Congress is expected to vote on lifting the mayor’s immunity, allowing him to be charged with contempt of court.

Source: Times research

Los Angeles Times