News Not In the News: Mexico City's mayor

With all eyes on the Vatican, I'm sure that the plight of Mexico City's mayor won't be getting much attention from the international press. However, it's bound to be a huge story in the next few months.

It's a complicated case which no one understands clearly, but here's the gist: the government, with help from the ruling party (the PAN) and the nation's largest party (the PRI), is trying to convict Andrés Manuel López Obrador (aka AMLO), the mayor, for violating a court order related to a very minor land use dispute. If this happens, he can't run for the presidency next year.

AMLO is by far the most popular politician in Mexico and polls show he is way ahead of other presidential candidates. This is why nobody believes that the accusations against him are a matter of "upholding the rule of law", as the government says. If he's out of the way, the PAN and the PRI would vastly improve their chances of winning the top prize in 2006.

Now, AMLO is a smooth and tough politician. He's already upped the stakes for his opponents by calling for massive demonstrations in the streets. Polls show that 80% of the population backs him in this dispute. It's hard to predict what will end up happening, but Mexico will certainly be rocked by an all-out political dogfight even before the electoral process starts. Things will probably get very nasty.

We're talking about one of the largest emerging markets. As it is, this asset class will have a very tough time over the next few months due to rising interest rates in the U.S. and a weaker global economy. Trouble in Mexico will probably raise its risk-premium and this may spill over, although it probably won't have a direct short-run impact on that nation's macroeconomic indicators.

But what really scares me is the medium and long-term picture. Mexico badly needs structural reforms in countless areas. AMLO is a left-wing populist (probably more Lula than Chávez, though) who will not carry them out if he wins. If he's brought to trial, this will create a climate of intense polarization which will make it impossible for important agreements to be reached even if a more pro-reform candidate wins in 2006. It seems poor Mexico is set for yet another lost decade.