Why Mexico’s Airport Is Rattling the Bond Market

Even before Mexico’s new president, Andres Manuel Lopez Obrador, took office Dec. 1, he roiled markets by holding a public “consultation” to decide whether to continue building a $13.3 billion international airport that he had called a waste of taxpayer money mired in corruption. Lopez Obrador, or AMLO, as he’s known, then announced that he would cancel the project after almost 70 percent of voters in the October referendum gave the airport a thumbs down. Yields on bonds surged 57 basis points in the days following the widely criticized vote. Now that he’s in office, Lopez Obrador is being conspicuously silent on the matter, as any official statement about scrapping the project could open the door to a default on $6 billion in bonds.

The biggest infrastructure project of the previous president, Enrique Pena Nieto, is two years behind schedule and faced numerous problems because it was being built on a former lake bed in an earthquake-prone region. During his campaign, Lopez Obrador called for stopping construction as part of pledge to cut back wasteful government costs; he wanted a more modest replacement instead, which aeronautics experts have said is not viable. After the election, he backed away from the harsh language, and said that the people should decide the fate of such a big project. The consultation was widely criticized, as only little over 1 million people voted. Experts saw the referendum as a way for Lopez Obrador to cancel a project he never really liked with “the people’s” support.