Monday, July 03, 2006

Mexico Will Recount Votes With Calderon Leading (Update2)

July 3 (Bloomberg) -- Mexican election authorities will conduct a recount to determine who won yesterday's presidential vote, with nearly complete returns showing former Energy Minister Felipe Calderon in front by the slimmest of margins.

Calderon, of President Vicente Fox's National Action Party, had 36.45 percent of the vote, followed by former Mexico City Mayor Andres Manuel Lopez Obrador with 35.4 percent, based on 96 percent of ballots counted. The two candidates, separated by 392,728 votes, both declared victory. A recount will start July 5, and authorities will say that night how long it may last. The electoral court has until Aug. 31 to decide any challenges.

Mexico's peso, bonds and stocks rose on optimism Calderon, 43, will triumph and maintain Fox's pro-business policies of the last six years that brought down inflation, erased a budget deficit and promoted free trade.

``The voting stations that are yet to be included allow us to say that the spread will widen as the ballots are counted,'' Calderon said in an interview with Grupo Televisa SA today. ``In terms of probability, a reversal is impossible.''

The election, the first since Fox won in 2000 and ended 71 years of rule by the Institutional Revolutionary Party, is a test of the Latin American nation's fledgling democracy. Election

Lopez Obrador, 52, a member of the Party of the Democratic Revolution, told cheering supporters last night he would respect the final results announced by the electoral institute. At the same time, he said the authorities must respect his victory.

``We are going to defend our triumph,'' Lopez Obrador told thousands of supporters packed in the Zocalo square in Mexico City's colonial center, raising yellow party flags and chanting ``Obrador, Obrador.'' ``We are not going to permit those who want to manipulate the election results to succeed.''

Mexico's electoral institute last night said it couldn't determine a winner because the two leading candidates were separated by too narrow of a margin in a sampling from about 7,300 voting stations. Exit polls also were too close to call, according to Mexico's two broadcasters.

``This situation is very unfortunate and there'll be a lot of tension in the next few days,'' said Soledad Loaeza, a researcher from El Colegio de Mexico and author of six books on Mexico and Latin American politics. ``If the final results don't show that Lopez Obrador won, he'll challenge the results.''

Peso, Bonds
The peso surged 1.4 percent, its biggest gain since January 2004, to 11.1812 pesos to the dollar at 8:39 a.m. New York time. Earlier, the peso had declined as much as 1.5 percent to 11.5125 to the dollar, near its weakest level since November 2004.

The yield on Mexico's dollar bond due in 2033, one of the country's most actively traded fixed-income securities, fell 6 basis points, or 0.06 percentage point, to 6.92 percent. The bond's price, which moves inversely to the yield, rose 0.75 cent on the dollar to 107 cents, according to JPMorgan Chase & Co.

The peso's gain ``is like a reflex reaction,'' said Alonso Cervera, a senior Latin American economist with Credit Suisse in New York. ``The process is going to be more complex than what the market is suggesting.''

The frontrunners are promising opposing agendas for Mexico's future: Calderon pledges a continuity of Fox's pro- business policies while Lopez Obrador vows ``profound change'' to improve living standards for Mexico's poorest citizens.

Lopez Obrador, who ran on the slogan ``For the Good of Everyone, the Poor Come First,'' promised to spend more on pensions and social programs and stop signing free-trade accords that he says only benefit the rich. His message resonated with the nearly half of Mexico's 103 million people who can't afford housing, shoes, clothes or electricity.

Calderon, who ran as the ``President of Employment,'' vowed to attract investment and create jobs by keeping free-trade policies and public spending restraints.

`Leftist Platform'
``It's a choice between a leftist platform, with increased government intervention, less respect for the law and a bigger social role, and a plan to have an economy with more private investment and more respect for the law,'' said Jorge Chabat, a political scientist from the Center of Economic Research and Teaching in Mexico City.


The vote has implications for the U.S., which shares a common border that extends almost 2,000 miles and purchases almost 80 percent of the nation's exports. Every year, more than 400,000 Mexicans enter the U.S. seeking work both legally and illegally, according to the Pew Hispanic Center in Washington.

``I am convinced Mexicans will wait patiently and prudently as the Federal Electoral Institute reviews'' the ballots,'' Tony Garza, U.S. ambassador to Mexico, said in a statement. ``The United States looks forward to working with the President-elect -- whoever is declared the winner -- on the broad range of ongoing and important U.S.-Mexico issues.''

Calderon's National Action Party is poised to control 33.9 percent of the lower house, up from 29.6 percent currently, based on 92 percent of ballots counted. A coalition led by Lopez Obrador's Party of the Democratic Revolution will increase its share of lower house seats to 29.1 percent from 21.6 percent. Support for the coalition led by the Institutional Revolutionary Party, or PRI, fell to 27.3 percent from 44.2 percent, the preliminary count showed.

The PRI's presidential candidate, Roberto Madrazo, placed third, according to the preliminary vote count.

Mexico's $770 billion economy is the second largest in Latin America after Brazil. The election served as a referendum on Fox's pro-business policy of the past six years that favored free trade, spending limits and more private investment.

Under Fox, Mexico's year-end annual inflation rate fell to a record low 3.3 percent in 2005 and the budget deficit narrowed to 0.1 percent of gross domestic product last year from 1.1 percent when he took office in December 2000.

Borrowing costs also tumbled. The average extra yield investors demand to buy Mexican dollar-denominated bonds instead of U.S. government debt dropped to 0.95 percentage point on Feb. 27 from 3.85 percentage points when Fox took office, according to JPMorgan Chase & Co.

To contact the reporter on this story:
Adriana Arai in Mexico City at

Last Updated: July 3, 2006 10:32 EDT

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