A Victim of Trump (and Fundamentals), the Peso Falls

11/14/2016 Forbes.com, Mexico Institute Blog

By Viridiana Rios, Global Fellow, Mexico Institute

pesoI write today as a middle class Mexican whose savings lost 10 percent of their value when American voters elected a leader who pledged to renegotiate NAFTA and tax us to pay for a wall. As a result of the election and other factors, the Mexican peso has overtaken the Argentine peso and the South African Rand to become the emerging markets 2016 worst performer.

The Mexican Peso was a barometer for the presidential campaign. It lost 10 percent of its value when Clinton lost, 1.9 percent in the week after the FBI reignited Clinton’s email controversy, and hit its historical low in the days following the election as speculation turned to the potential impact of Trump’s first months in office. The peso spiked 1.3 percent in less than an hour during the first presidential debate, and when Trump’s lewd conversation about women broke, it gained 2.2 percent.

Read more…

 

To BNP, Mexico Is Too Optimistic About Growth as Debt Balloons

10/28/16 Bloomberg

4350685550_dbd28c7e50.jpgMexico’s economic projections are way too rosy for BNP Paribas SA. Marcelo Carvalho, an economist at the bank, says Mexico will grow by just 1.5 percent in 2017, the weakest in five years. It’s well below growth of as much as 3 percent forecast in a budget approved by lawmakers last week.

Carvalho isn’t alone. Economists at Barclays Plc to Nomura Holdings Inc. are concerned that Mexico’s longer-term growth estimates may also be unrealistic, threatening to undermine the government’s pledge to stem a debt spiral. S&P Global Ratings and Moody’s Investors Service have already placed their credit ratings for Mexico on negative watch, citing rising indebtedness.

 “A combination of slower growth, higher interest rates, and fiscal disappointment is not good for the debt dynamics and could increase chances of a rating downgrade,” said BNP’s Carvalho.

Pemex Isn’t Mexico’s Only Debt Problem as States Owe $28 Billion

4/19/16 Bloomberg Business

14238061995_8018a2dc0e_mMexico’s debt-laden oil producer has largely dominated investors’ attention in recent months because of the threat it poses to the government. But that’s not the only potential debt crisis facing the nation.

States including Veracruz, Nayarit and Zacatecas are drowning in red ink after racking up about $28 billion in obligations, the most in two decades. Their finances are about to deteriorate even further as many governors ratchet up spending to bolster their chances of winning elections in June, according to Moody’s Investors Service analyst Francisco Vazquez. On April 1, the ratings company lowered the outlook for all but one of Mexico’s 31 states to negative.

“A state crisis is coming,” said Rodolfo Navarrete, a Mexico City-based analyst at Vector Casa de Bolsa, and the most accurate Mexico economic forecaster according to data compiled by Bloomberg. “I expect state governments will look for more financing, either by trying to increase transfers from the federal government or by raising bank debt. This will increase public-sector debt,” which could affect the nation’s credit rating.

Read more… 

Mexico Will Defer Oil Exploration Projects to Slash Spending

3/1/16 ABC

energy- oil pumps 2The state-run oil company, Petroleos Mexicanos, said Monday it will slash spending 22 percent and cut unprofitable production about 100,000 barrels a day as it struggles with liquidity problems and past-due payments to suppliers.

The company, known as Pemex, said it will cut $5.5 billion from its 2016 budget, delay deep-water exploration and decrease production of super-heavy crude because of low world oil prices.

Delaying production and exploration projects will account for about two-thirds of the $5.5 billion spending cut.

Pemex still faces a serious issue: It owes suppliers almost $7 billion, a debt the company acknowledges is a problem.

Read more…

New Publication: Now for Public Debt in Mexico: Policy Lessons for the Effective Oversight of State and Municipal Government Finances

mexican pesosBy Heidi Jane M. Smith

Read the publication

While Mexico has a very low debt-to-GDP ratio that is slightly above forty percent, its state and municipal portion hovers around 2.5% (IMF, World Economic Outlook Databases, 2012). Subnational governments have consistently been accused of taking on too much debt, allowing irresponsible repayment plans and consenting to outright political corruption. Especially since 2001, the first full year since the country revised its laws governing subnational borrowing rights, Mexico has experienced a significant rise in the indebtedness of its states and municipalities. During the past decade, total subnational debt went from $990 pesos per capita in 2001 to $3,450 pesos per capita in 2011 (ASF 2011). Although Mexico’s overall subnational debt is still at reasonable levels compared to other countries, this nation’s high vertical fiscal imbalances and de facto soft subnational budget constraints could continue to fuel observed trends unless national legislation governing the rights and responsibilities of subnational governments are made. One can argue that the pace of increasing debt has been constant, but it accelerated during the 2009 economic crisis when National GDP decreased substantially (around -6%). Actual proposals to harmonizing accounting standards among state and local governments, increase transparency and improve reporting requirements by the Mexican Ministry of Finance (Secretaría de Hacienda y Crédito Público, SHCP) are only a few steps towards improving fiscal policy at the local level. Reviewing policies to understand debt sources and improving bankruptcy laws to cope with moral hazard issues will help to maintain strong sustainable fiscal balances into the future.

This policy paper argues that alternative revenue sources are necessary for economic growth at the local level, but continued soft budget constraints and lax regulatory environments may also put Mexico’s future into jeopardy. Lessons learned from the United States’ state and municipal financing could provide valuable policy options for Mexico–thus, the paper provides policy recommendations for future public financial management considerations.

Read the publication

Videgaray Says Mexico to Hedge 2016 Oil Exports, Limit New Debt

4/18/2015 Bloomberg Business

luis videgarayMexico will hedge its 2016 oil exports to protect against lower prices even with crude near a six-year low, and the nation has little room to increase its debt to avoid spending cuts, Finance Minister Luis Videgaray said.

“There are certainly lower prices that can happen and could represent risk, so yes we will hedge,” Videgaray said in an interview Saturday in Washington. “Certainly it will not be a hedge at the price we were able to get for this year’s hedge, but we’ll take what the market gives us.”

Read more…

Three Keys to Understand the 2015 Budget Debate in Mexico

By Christopher Wilson and Pedro Valenzuela

mexican pesosEach fall, Mexico’s Congress debates the adminstration’s budget proposal. It was sent to Congress by the Peña Nieto administration in September, and a final version must be passed no later than the end of October to authorize revenue streams and by November 15 to detail expenditures. This is the first budget debate since Mexico’s 2013 fiscal reform was implemented, offering an important opportunity to analyze the impact of the tax policy changes on public income, and consequently, also on expenditures. The administration’s proposal represents a real increase of 1.2%, which, according to the government, will provide the funds to implement the structural reforms and fund new infrastructure and social programs. As a result of the increased spending and a dip in petroleum revenue, the government will continue to run a deficit, and Mexico’s public debt will continue to grow. Each of these three issues—tax collection, public expenditure, and the national debt—are explored in this article, all in context of Mexico’s structural reforms and brightening yet somewhat volatile economic prospects.

At the time of publication, the revenue proposal, which must be passed by both houses of congress, had been approved by the Chamber of Deputies and was in committee in the Senate. The Senate is expected to move the bill to the floor and approve the final version during the last week of October. The Chamber of Deputies made moderate changes to the executive proposal, including an increase in the expected exchange rate from 13 to 13.4 pesos per U.S. dollar and a drop in the expected reference price for oil from $82 to $81 dollars per barrel. After the ley de ingresos, or revenue law, is passed, attention will turn to the ley de egresos, the budget of expenditures, which only needs to be approved by simple majority in the lower house.

Read the article here.

This article was also published on Forbes.com. A shorter, Spanish version of this article is also available.