The confrontation between Mexico City mayor Andres Manuel Lopez Obrador and the administration of President Vicente Fox hit the country's leading financial indicators this week. The stock market took its biggest loss of the year, interest rates hit a new two-year high and the peso lost value as concerns mounted over political tensions.
A million supporters of the mayor –militants of his PRD party and sympathizers—were to mass at the city's main square, the Zocalo, from 8am Thursday morning as the lower house of Congress, the Chamber of Deputies, debates his political future. The process could strip Lopez Obrador of political immunity and ultimately disqualify him from running in the presidential race in July 2006.
The procedure in the Chamber, which was taking place as Emerging Markets went to press, promises high drama. The government's prosecutor will present charges for 30 minutes. Lopez Obrador, who has pledged to manage his own defence, has 30 minutes to reply. The simple majority required to remove the mayor's immunity is likely assured as the government's PAN party and the former ruling party PRI support the move and can carry the vote.
Lopez Obrador is charged with failing to obey an order to cease construction of an access road to a hospital.
The mayor holds at least a 10-point margin over all other probable presidential contenders for next year's race. If the Chamber voted yesterday that he should stand trial, this would disqualify him from running for the presidency. Mexican law states that anyone who is under prosecution is ineligible to run for high office.
Lopez Obrador and his PRD party have pledged to wage a campaign of "peaceful civil resistance" if he loses political immunity.
The stock market lost 2.32% on Wednesday, interest rates on benchmark 28-day Treasury bills known as CETES rose 0.07% to 9.64% and the peso lost 4 cents to trade at 11.35 to the dollar.
Asked about the market's sudden volatility on the eve of the decisive moment in the government's case against Lopez Obrador, Mexican central bank governor Guillermo Ortiz said: "Obviously we are in a moment of greater uncertainty and everyone knows this. We have solid institutions and mechanisms for absorbing and managing this uncertainty and once these factors begin to dissipate the water will return to its level."
Ortiz also said that market movements this week do not signal an imminent financial crisis but are due to external conditions that create greater risk aversion and also to political factors in Mexico.Early this week, Wall Street firms became more cautious about Mexico investments.
In recent months, foreign investment in Mexican bonds reached the highest level since 1994, a total of about $10 billion. This month, foreign investment in the bourse jumped 7% to a total of about 30% of market.
The 2000 presidential contest achieved a peaceful political transition with no disruption to the economy and the historic handover of power from the PRI regime, which had ruled Mexico for 71 years to the opposition PAN party. That succession was the exception in every way as during the previous 24 years Mexico had suffered an economic crisis following each presidential race.