Fitch Ratings changed its outlook on Mexico’s long-term foreign-currency debt issues Wednesday from “stable” to “negative,” citing the potential policies of President-elect Andres Manuel Lopez Obrador.
The leftist Lopez Obrador has tried to smooth anxieties in the business community, but upset many on Monday by cancelling a partly built, $13 billion new airport on the outskirts of Mexico City.
The private sector had strongly backed the airport project, but Lopez Obrador called it wasteful. Instead he plans to upgrade existing commercial and military airports. He made the decision based on a public referendum that was poorly organized and drew only about 1 percent of the country’s voters.
Alfredo Coutino, Latin America director at Moody’s Analytics, said the decision to cancel the airport project “added not only volatility but also uncertainty to the economy’s future, because it signals that policymaking in the new administration can be based more on such kind of subjective consultation and less on technical or fundamentals consistent with the country’s needs.”
“The cancellation has certainly introduced an element of uncertainty in markets and investors,” Coutino wrote, “which could start affecting confidence and credibility.”
Fitch confirmed its BBB+ investment-grade rating for Mexican government debt, but said Wednesday “there are risks that the follow-through on previously approved reforms, for example in the energy sector, could stall.”
Lopez Obrador has said he will review private concessionary oil exploration contracts granted under current President Enrique Pena Nieto’s energy reform, but won’t cancel them if they were fairly granted. The fear is that future exploration contracts may be delayed or cancelled.
Lopez Obrador won’t take office until December1, but has already announced major policy decisions.
Some of his policy announcements – like fiscal restraint, respect for the independence of the central banks and a pledge to avoid new debt – earned praise from investors.
But Fitch noted the decision to cancel the airport “sends a negative signal to investors.”
Lopez Obrador has also pledged to have the state-owned oil company, Pemex, build more refineries to lower imports of gasoline.
Fitch wrote that this type of proposal will “would entail higher borrowing and larger contingent liabilities to the government.”
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