An Uncertain Future for Foreign Investment in Mexico?
On October 31, Fitch Ratings lowered its long-term outlook for Mexico from stable to negative, while keeping the country’s sovereign credit rating at investment grade. This, largely in reaction to Mexico President-Elect Andres Manuel Lopez Obrador’s (also known as AMLO) statement on October 29 that once in office he plans to cancel the continued development of the US$13.3 Billion partially-constructed New International Airport of Mexico City (NAIM). The NAIM, sited on the outskirts of Mexico City in Texcoco, is considered the largest airport under construction in the world. Such move comes as a result of AMLO’s presidential campaign promise to combat alleged corruption and overspending on such project, and to hold a referendum for the public to determine whether to shut down its continued construction. Bolstered by the results of such referendum held on October 29, AMLO has announced that instead of continuing with the NAIM, he will support a plan to revitalize and expand an existing military airport to supplement the capacity of the Benito Juarez International Airport that currently receives 44 million passengers per year, but was originally only designed to handle 32 million annual passengers.
Setting aside the obvious material, direct adverse consequences that would result in connection with the cancellation of contracts and other capital commitments made in connection with the project, such a shutdown will likely negatively impact investor confidence in the Mexican market as a whole. The high-profile move may call into question the new Administration’s resolve to follow-through on previously approved reforms, like those in the Energy sector. Furthermore, its effects may well hinder Mexico’s ability to raise capital and add to growing state liabilities in connection with the development of other AMLO promised infrastructure, such as the Tren Maya in Yucatan, among others.
AMLO has taken a bold move in meeting a campaign promise without even having yet taken office. However, in doing so he may be jeopardizing his reputation among those foreign investors that he will need to help meet his other campaign promises.