Saturday, April 09, 2005

Merrill Lynch fears that desafuero has made AMLO stronger candidate...

Well, duh. According to an article in La Jornada, Merrill Lynch analysts sent a report to investors last week indicating that the desafuero would have two effects: to unify the PRD around AMLO as a presidential candidate and to increase his name recognition throughout the country.

For investors, those things could only be bad. But how bad?

Yes, the PRI and PAN are shooting themselves in the foot by prosecuting AMLO. They are making him look like a political victim. That only makes million of Mexicans rally around the underdog.

To what lengths will the PRI, PAN, and PRD go to win this political battle, and what will be the effects on the economy?

I think all the parties recognize the importance of foreign investment and understand how potentially destabilizing investment flight can be. They learned that in 1995. The PRI and PAN shouldn't believe they could blame AMLO for an economic crisis created by captial flight in response to the desafuero. They will stop short of creating enough chaos to shake markets. Even the PRD is sensitive to foreign investment and the perception of instability. AMLO has certainly tried to calm markets by repeatedly urging his supporters to be nonviolent. The parties will reach a negotiated outcome before real instability becomes likely.

Whether the markets understand this, is another question. Whether investors will panic prematurely is unclear. Any crisis will be self-fulfilled prophesy by the investors, rather than a rational response to any real threat of instability. But isn't that usually the case? Markets are skittish, and decidely not very rational. I think market sentiments are the real threat to the Mexican economy, not the parties or the desafuero.

posted by Michelle @ 5:56 PM,

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