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The Rise of AMLO: Part II

By Confluence Investment Management. Originally published at ValueWalk.

In their next general election, Mexicans will cast their vote for the 64th president of the country’s history. The two frontrunners are Margarita Zavala from the National Action Party and Andres Manuel Lopez Obrador (AMLO) from the National Regeneration Movement (MORENA). Although the election won’t be held until July 2018, current polls suggest that AMLO would win by a small margin if the election were held today. His recent surge can be partially attributed to growing nationalism in Mexico due to Donald Trump’s election as president of the United States.

AMLO
By Andrés_Manuel_López_Obrador_en_2008.jpg: David Agren from Mexico City, Mexicoderivative work: Addicted04 [CC BY 2.0 or CC BY 2.5], via Wikimedia Commons

AMLO’s core supporters can be broken into two groups, those who are against neo-liberal economic reforms and those who want more social benefits. He derives most of his support from the southern region of Mexico, primarily in the states of Tabasco and Chiapas, where there is a significant indigenous population. To get an idea of how his supporters view him, imagine a politician with Bernie Sanders’s righteousness and Donald Trump’s brashness. AMLO is known for participating in protests, and was once left bloody from an altercation with police. He also hurls insults at his political rivals in the PRI and PAN parties, labelling them as the “mafia elite.” Recently, he held a pep rally in California to criticize Donald Trump’s immigration policies and vowed to take his complaints to the United Nations. If AMLO wins the presidency, it could adversely affect the already tense relationship between the U.S. and Mexico.

This week’s report will be divided into three sections. First, we will offer a brief biography on AMLO. Next, we will analyze his possible policy agendas and discuss the likelihood that he wins the presidency, followed by possible market ramifications.

AMLO from the Beginning

Andres Manuel Lopez Obrador was born in 1953 in Macuspana, Tabasco, located in southeast Mexico. The oldest of six children, he was raised in a middle-class family. His parents were Andres Lopez and Manuela Obrador. He studied political science and public administration at the National Autonomous University of Mexico from 1972 to 1976.

Upon graduation, AMLO joined the Institutional Revolutionary Party (PRI) to campaign for poet Carlos Pellicer’s senatorial bid in his home state of Tabasco. As a reward for his efforts, he was offered the head job at the Indigenous People Institute (INI), which worked to preserve the culture of indigenous people as well as establish communication between indigenous groups and the local government. While working at the INI, he developed a knack for mobilizing large masses of people to pressure the federal government. In 1982, he stepped down from his position at the INI to join Enrique Gonzalez Perdero’s campaign for governor of Tabasco. Perdero noticed AMLO’s gift for attracting a loyal following and upon winning the nomination he selected AMLO as the PRI party’s president of Tabasco.

pon taking office, he immediately developed a reputation for being controlling and overbearing. His insistence that representatives should allocate at least 10% of their budget to social programs was seen by many as an overreach. As a result, many of the representatives grew agitated with him as they were already being forced to make budgetary cuts. AMLO’s tenure as PRI president was also hindered by the Mexican Debt Crisis which constrained his policy initiatives. Frustrated, AMLO stepped down in 1983, the same year he assumed the position. Despite his abrupt departure, he still remained loyal to the PRI. The following year, he accepted a position at the National Institute of Consumer Protection (INCO), another government agency, as the director of Social Promotion.

During his time at INCO, AMLO associated himself with the left-wing of the PRI party and began embracing “neo-Cardenismo,” named after former Mexican president Lazaro Cardenas.1 Neo-Cardenismo is a form of populism that favors government control of natural resources and land. People who subscribe to neo-Cardenismo are generally opposed to reforms that promote free-market liberalism as it encourages the privatization of land and resources by foreigners. Many, including AMLO, credit this ideology for the “Mexican Miracle” that took place from 1940 to 1970.

As alluded to last week in Part I of this report, Cardenas’s contribution to the Mexican Miracle is debatable. Due to resource depletion and diverted revenue, Mexico had to finance projects related to oil exploration and refinery development through debt. In other words, the Mexican Miracle was a debt-fueled boom that couldn’t be sustained. In

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