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Elections And Business In Mexico

Ilya Adler

Every time there are presidential elections in Mexico, there is a panic that the country is about to enter a new crisis. This is to a large extent based on past experience, so much so, that it is part of the "Mexican mindset." The end of various past administrations has been experienced with strong devaluation of the Mexican peso, shocking political decisions made at the last minute (for example, when former President José López Portillo decided to nationalize the banking industry), assassinations during the campaign (Luis Colosio), promises never carried out, like the 7% growth promised by President Fox, and many other events which have created what I call a ritualistic panic.

In 2006, the country will hold presidential elections, and the panic will be no exception. In fact, already rich Mexicans have taken a lot of their money (and themselves) outside of the country, waiting to "see what happens." Panic is even higher than predicted because the front runner as of now is the leftist candidate Andrés Manuel López Obrador. Will he be a Hugo Chávez, or a Lula? Is he going to nationalize everything? Is he going to raise the taxes for the rich? Is he a populist who will eventually ruin the country?

Forget that by comparison, the country is doing relatively well, the peso is actually stronger, and President Fox is hardly considered an important president whose replacement is to be feared. The panic is simply a political-cultural element in Mexico, part of a collective mindset, regardless of who is or is not ahead in the polls. This panic, of course, becomes a self-fulfilling prophecy. Since everyone is sure the peso will be devalued, many people rush to buy dollars, and eventually some devaluation does take place. When the waters are calm, dollars come back in equally large numbers, and the peso goes back to its expected level.

Interesting enough, non Mexicans are not as prone to see or feel the panic, since they tend to rely on macro economic indicators that do not tend to predict the actions of future presidents. That is why many foreign investors are actually investing heavily in Mexico now, and if I were one, I certainly would do it as well. It is taking advantage of a collective hysteria, no doubt, but it is a good opportunity as well. In fact, if I were an investor I would wait until one week before the elections, and hoped that López Obrador was still the front runner. Then I would go on a buying spree, since most anything would go down in price. This is what the richest man in Mexico does, Carlos Slim. And this is how many fortunes were made in the past: Use collective panic to your advantage. Unlike Roosevelt's famous statement, "The only thing to fear is fear itself," I would turn it around and say that what we need not fear is fear. Fear, in this case, can be our best business ally.

But many business people are not as rational as we think they are. In previous columns, I have explained that business people are not always thinking truly or correctly about their profits, and are prone to let their own prejudices get in the way of better business decisions. If it were the contrary, businesses would have long known that it was good for business to let women work, minorities participate more in the economy, and so on. Like other human beings, they permitted their own personal prejudices to influence their thinking, even making idiotic statements that the concept of inclusion was bad for business. So I am not really impressed with this most recent panic. I take it as a cultural characteristic, but nothing more. It's like food in Mexico - it's spicy, but it is not dangerous.

Published or Updated on: January 1, 2006 by Ilya Adler © 2008
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