June 25: Investors prepare for AMLO

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Many commentators in Mexico may still be arguing that next Sunday’s presidential elections are too close to call, but Wall Street has already made up its mind.

According to a survey of 193 investors carried out last week by Credit Suisse First Boston in New York, Andrés Manuel López Obrador, the leftwing candidate, is going to win by almost 4 points over Felipe Calderón, his centre-right rival, on July 2.

But while only 51 per cent of local investors included in the survey thought that Mr López Obrador of the Democratic Revolution Party (PRD) would triumph against 49 per cent for Mr Calderón of the ruling National Action Party (PAN), an overwhelming 69 per cent of foreign investors thought Mr López Obrador would win against just 31 per cent for Mr Calderón.

The results are supported by the latest betting on intrade.com, the event futures and prediction market trading exchange, in which the odds are tipped decidedly in favour of Mr López Obrador.

So what is leading local investors to be more cautious? There is more than a chance that it is simply wishful thinking. After all, Mexican investors do not like Mr López Obrador. They see him not as a modern leftist in the mould of Ricardo Lagos, Chile’s former president, but rather as an authoritarian one who has little regard for Mexico’s still fragile institutions.

There is probably some truth in that – during his time as mayor of Mexico City, Mr López Obrador showed his scant regard for Mexican law on more than one accasion. But to conclude that all this means he will be a Hugo Chávez, Venezuela’s radical leader, once in power is to overestimate Mexico’s legal system and to underestimate the man himself: if Mr López Obrador has shown one thing it is his ability to be pragmatic, and that is why he deserves the benefit of the doubt – at least for now

Morales faces new regional battles…

For years supporters of Bolivia’s leftwing President Evo Morales have hailed the new constituent assembly that is to be elected next Sunday as a fundamental turning point in the country’s history. Now the new legislature looks set to be a bit of damp squib, its deliberations overshadowed by an intensification of regional tensions between the pro-government western highlands and more independent-minded lowland departments such as Santa Cruz and Tarija.

Morales and his supporters look set to dominate the constituent assembly, which they may use to push plans to seize and redistribute unused land. The big question is how they will deal with demands from wealthier departments for greater autonomy.

Next Sunday’s referendum on autonomy – to be held simultaneously with the assembly poll – is likely to give new confidence to those arguing for additional powers. Mr Morales’ claims that autonomy campaigners simply want to “keep power in order to traffic in land and exploit natural resources” will not help the cause of peace and prosperity. And the idea that the government might redesign the country’ administrative geography will simply add fuel to the fire.

...and loses leverage with Argentina

If during a trip to Buenos Aires this coming Thursday Mr Morales secures the $6 per million BTU that Bolivia now says it wants for its gas exports to Argentina, who will cheer – or jeer – the loudest?

Certainly, Bolivia - which currently receives $3.35 per million units - would benefit from the increased revenues. And on the surface, Argentina would appear to be the loser.

It has already agreed to pay $5 per million units. It might even agree to pay more if it could secure enough extra supplies to help meet long-term export commitment to Chile, Bolivia’s bitter enemy in the region as a result of a war 125 years ago between the two countries.

On the other hand, Argentina is also a winner from events in Bolivia. Repsol of Spain – one of the main victims of the move – recently announced it will redirect attention to Argentina. It is to bring forward $2bn to its 2006-2009 investment plan, an increase of 30 per cent, the bulk of which will go towards new exploration – precisely what Argentina needs in order to increase its own production and reduce long-term dependence on its poorer northern neighbour.

On your marks…

The race to Brazil’s elections in October is taking shape. Luiz Inácio Lula da Silva, the president, confirmed his candidacy for the leftwing PT on Saturday. So too did Heloisa Helena of the further-left P-SOL, a spin-off from the PT created by former members disgusted by the alleged cash-for-votes scheme with which Mr Lula da Silva has bought governability.

Already declared were Geraldo Alckmin of the centrist PSDB, the main challenger to Mr Lula da Silva; Cristovam Buarque of the leftish PDT; and Luciano Bivar of the PSL. Also expected to announce their candidacy soon are José Maria Eymael of the PSDC and Rogério Vargas of the PSC.

Mr Lula da Silva starts the race well in the lead with about 48 per cent in opinion polls – a big enough share of the valid vote to win outright with no need for a second round run-off. Mr Alckmin trails with about 19 per cent. Other candidates get one or two percentage points each.

But the race begins in earnest from July with saturation TV and radio election broadcasts. According to an analysis by LatinSource, Mr Alckmin’s alliance has the advantage: between 9 minutes 12 seconds and 10 minutes 30 seconds of each 25-minute slot, depending on how party alliances shape up. Mr Lula da Silva will get between 7 minutes 16 seconds and 8 minutes 44 seconds, with other candidates getting one or two minutes each.

At this stage Mr Lula da Silva’s lead looks unassailable. But with about half the electorate so far never having heard of Mr Alckmin, the opposition candidate has everything to play for.

Chávez’s anti-inflationary move

Economists at the central bank of Venezuela will this week put the finishing touches to a study on the feasibility of a government proposal to introduce a new currency to replace the bolívar.

President Hugo Chávez has proposed the idea of knocking off three zeros from the exchange rate and printing something akin to a “nuevo bolívar”, ostensibly as a move to keep a lid on inflation, a structural economic problem in Venezuela during the past two decades.

But central bank officials have already hinted that it’s not such a smart idea. At a rate of about 15 per cent per year, Venezuela can hardly be described as living through hyperinflation, an environment that justified similar moves elsewhere in Latin America in the 1980s and early 1990s.

More importantly, it will be a waste of time if Chávez fails to rein in his huge parallel budget. As Domingo Maza Zavala, a central bank director, puts it: “If such a measure is not taken, [a new currency] will be but a mirage.” Will Chávez take notice?

One last chance for Varig

It has been D-Day every other day for Varig over the past few weeks but this week really seems to present the final chance for the airline to get the last-minute rescue its thousands of staff have been praying for. Otherwise, it must surely be grounded for good.

The white knight takes the form of Matlin Patterson, a US distressed equity firm behind a group called Volo that bought VarigLog, the airline’s logistics subsidiary, for about $48m six months ago.

Volo’s purchase of VarigLog was approved by ANAC, Brazil’s civil aviation authority, only on Saturday. ANAC was questioning whether Volo met regulations limiting foreign ownership of aviation companies to 20 per cent. It may have had cause for complaint but, if so, this was par for the course. Brazilian law offers ample structures to get round this kind of restriction and foreign investors are used to working with them.

ANAC’s eleventh-hour approval was reportedly a response to strong political pressure. No surprises there. The “judicial recovery” law under which Varig has been protected from its creditors for the past year has been bent in all kinds of directions to keep the airline flying. To let it collapse for lack of ANAC approval would have been a pointless victory of bureaucracy over expediency.

Notes by Adam Thomson, Richard Lapper, Benedict Mander, Andy Webb-Vidal and Jonathan Wheatley.

Contact richard.lapper@ft.com

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