Banxico Says No to PEMEX’s ProposalBy Paloma Duran | Tue, 11/24/2020 - 10:13
PEMEX has asked Banxico to use a portion of its international reserves to pay its oil debt. However, the central bank said this proposal is not feasible. In November, international reserves totaled US$194.361 billion, reported El Economista.
Gerardo Esquivel, Deputy Director of the central bank, said PEMEX’s loan proposal is not feasible according to the bank’s Art. 19 and 20. In addition, Manuel Sánchez, former Member of the Government Board at Banxico, said these articles state that the reserves can only be invested in assets considered first-rate in international markets, denominated in foreign currency and by governments other than Mexico’s.
Luis Gonzali, Strategist at Franklin Templeton, said PEMEX bonds are not safe and that the oil company has been unstable for a year. As a result, it does not comply with the requirements and conditions needed for a Banxico investment, reported El Economista.
Gonzali mentioned Banxico has the right to manage the country’s international reserves and therefore, it has independence. No entity can tell the bank where the money should be allocated. He said that if PEMEX wants to obtain these reserves, the NOC would have to convince the Ministry of Finance and Public Credit (SHCP) and change Banxico’s law.
However, Gabriel Yorio, Deputy Minister of Finance, said using international reserves to acquire PEMEX’s oil bonds is prohibited by law. Yorio said the government should focus on reducing the fiscal burden by managing efficiently the debt and reducing it, reported El Universal.
Alejandro Díaz de Leon, Governor of Banxico, said any reduction in assets means that Banxico would be in debt to finance something that is outside the Bank’s responsibility, reported Infobae.
According to El Economista, since the beginning of López Obrador’s presidency, MORENA legislators have insisted on using Banxico’s reserves.
In July, MORENA Deputy, Aleida Alavez Ruiz asked Diaz if Banxico would hand over its international reserves to the government in case of an emergency. Diaz explained that international reserves are not a heritage that Banxico is keeping. These reserves are generated when the government or PEMEX sell dollars to the bank by placing foreign debt or selling crude oil, reported El Economista.
Marco Oviedo, Director of Research for Latin America at Barclays, said Mexico should consider the International Monetary Fund (IMF) option of an Open Flexible Credit Line. He emphasized this credit could be feasible if the government guarantees the use of resources to buy back PEMEX’s debt.
However, Gonzali warned that if the government accepts the credit line, the debt will be registered as a government debt, which would raise concerns among creditors. Gonzali mentioned that one of the benefits is that the IMF’s credit line has a 0.40 percent market rate, which is lower for the prepayment of PEMEX’s debt. Currently the company is paying at a market rate of 7 percent, reported El Economista.