The ‘Ramírez de la O Factor’

On June 9, 2021, President Andrés Manuel López Obrador announced the appointment of Rogelio Ramírez de la O as Mexico’s new finance minister. Two months later, at the beginning of August, the Mexican Congress ratified the high-ranking official's appointment, legally empowering him to occupy one of the most relevant positions within this country’s federal public administration.

The new minister’s academic profile, his professional experience and the unanimous recognition of his talent and capacity generated great expectations regarding what his participation within Mexico's "Fourth Transformation" might trigger. More than a few are convinced that with Ramírez de la O at the head of the Finance Ministry, Mexico’s prospects regarding its financial, fiscal, spending, income and public debt matters will improve.

These expectations are not limited to the possibility that some of the political problems afflicting the country will find a solution in the technical capabilities of the finance minister. Nor are they reduced to the possibility that the influence that this official exerts over the president could be a factor for overcoming the notion that in Mexico "everyone can make decisions about everything." Rather, these expectations reflect the desire that a person whose strong interaction with the president is recognized can help move the government in a different direction.

This long-awaited change of direction implies that Ramírez de la O, through his decisions, will try to influence the progress of key sectors, such as energy. In this sense, many investors hope that Mexico’s new finance minister can promote a change in Lopez Obrador's energy policy to make it more pragmatic and less ideological. What the official acknowledged before legislators just before his ratification ­– that he would demand to be informed and have a say in all matters related to PEMEX and the Federal Electricity Commission (CFE) – encourages these expectations.

This change of direction also means that the work of the finance minister will help create a better investment environment, thus favoring greater economic growth. More than a demand, this is a vindication for the private sector: as long as the government signals that the rule of law is respected, companies will continue to invest in Mexico.

It is worth noting that the expectations the private sector has built regarding the appointment of Ramírez de la O differ from those that the head of the Executive has of him. From López Obrador’s perspective, Ramírez de la O joined the federal public administration to deepen the guidelines upon which Mexico's macroeconomic policy has been conducted in times of the "Fourth Transformation." The components of this macroeconomic policy rest on a public spending program that does not include the increase nor the creation of new taxes or public debt, emphasizing instead the austere execution of the public budget.

In the background, which seems more like a concession to the private sector than an authentic conviction, President López Obrador has also suggested that the arrival of Ramírez de la O to the Finance Ministry has the purpose of stimulating synergies between public and private investment. But what could the person in charge of the public coffers do in this regard?

Although the expectations are as broad as they are contrasting, the truth is that, in practice, the scope of action of the finance minister is limited by the convictions of his boss, by the limitations that the law imposes on him and by the moment in which he takes on the reigns of this government branch. The latter is important because, in the second half of a six-year term, the dynamics of power and the decision-making process are beginning to turn progressively in function of the games of the presidential succession.

On this note, it is likely that Ramírez de la O will carefully work on two instruments to achieve greater synergies between public and private investment. These instruments are closely linked and their proper execution seems mandatory if the country aspires to promote a high and sustained economic growth.

The first of these instruments is the public budget. In this regard, Ramírez de la O, as the main responsible party for preparing the draft budget for 2022, has said that public investment is not subjected to cutbacks and will remain without any substantial changes. For the new finance minister, this issue is very important because, from his perspective, the maturation of the most relevant public projects, such as the new oil refinery in Tabasco, will turn the private sector into an important supplier of goods and services for the government during the upcoming year.

The other instrument has to do with the presentation of a third infrastructure package that will contemplate the joint participation of public and private investment. In this regard, Ramírez de la O has indicated that he will personally make sure to know every detail of these infrastructure projects to guarantee that private companies receive all of the government’s support in the management of legal, regulatory and social issues.

In any case, aside from the expectations generated by the “Ramírez de la O factor,” it is clear that the arrival of this official to the Mexican government represents a breath of fresh air that will help prop up economic growth. Although the political situation will make agreements between the different political forces increasingly difficult to reach, the action of the head of one of the government's strategic offices, such as the Finance Ministry, can contribute decisively to strengthening the rule of law to guarantee legal security, equal access to opportunities, the promotion of profitable investments and economic stability.