What's this? A populist favored to win the presidency of Mexico? Could NAFTA have two opposing nationalists going at each other's throats in 2018?
Polls show Andres Manuel Lopez Obrador, aka "Amlo" has been leading the ruling Institutional Revolutionary Party (PRI) of unpopular president Enrique Pena Nieto all summer. If Amlo wins, the question is whether he will be more like Brazil's Luiz Inacio Lula da Silva, a two-term labor party president or more like Venezuela's Hugo Chavez, revolutionary who took up the mantle of protecting the downtrodden and more indigenous populations of the country in the Socialists United Party's perennial war against Yankee imperialists.
"It's unclear yet if Amlo will be more Lula than Chavez," Gerardo Rodriguez, a former official with the Mexican Finance Ministry and now fund manager at BlackRock told me this winter.
Like Lula, Amlo rails on and on about the corrupt government running things in Mexico City. Worth noting, Lula has been indicted in Brazil's worst ever corruption scandal.
Like Chavez, Amlo wants to give voice to the more indigenous populations of Mexico, who often are seen as second class citizens to the ruling elites that look more Spaniard (like Amlo, himself) than Aztec.
The political uncertainty has some investment firms betting against the peso, a currency that has gained handedly against the dollar this year following an onslaught between the November election of Donald Trump and his inauguration in January. On Thursday, Nomura Securities upped their forecast for the dollar against the peso, predicting a 19.25 exchange rate from current levels of 17.68. Their previous estimate for the first quarter of 2018 was 18 pesos to the dollar.
If Amlo wins, NAFTA will have two opposing populists going at it. But one of them, Trump, holds most of the cards. Mexico is more dependent on the U.S. than the U.S. is on Mexico.
As Amlo looks more powerful in the polls, both sides should move faster on making a better NAFTA deal, or risk Amlo and Trump being such polarizing forces that the whole thing ends up in the scrap heap.
As it is, following last month's fairly contentious first round of NAFTA trade talks, investors are rethinking the base case that NAFTA gets a positive upgrade and now thinking that maybe NAFTA is canceled. Both Mexico’s economy secretary, Ildefonso Guajardo, and its foreign affairs secretary, Luis Videgaray, have stated that if the U.S. government activates NAFTA trade agreement article item number 2205, giving six month withdrawal notice to partner countries, then Mexico would consider NAFTA dead, Reuters reported. This takes on extra importance with Amlo breathing down everyone's necks. He is more likely to take a zero tolerance approach to the Trump team than Pena Nieto's administration, which prides itself on its close ties with Washington despite a belligerent, tough-talker in the White House. Moreover, unlike Amlo, Pena Nieto is aware of how important the U.S. market is for his country. Amlo won't come into power recognizing that immediately, just as Trump did not come to power recognizing the difficulty of fixing American immigration laws.