Image credits: Joakim Honkasalo
News Article

Mexico’s Macroeconomy Unlikely to Change

By Paloma Duran | Thu, 06/17/2021 - 14:38

Mexico´s mid-term elections and  changes in leadership at the Bank of Mexico (BANXICO), and the Ministry of Finance and Public Credit (SHCP) are unlikely to have a significant impact on the country´s macroeconomy and fiscal policies, reports credit agency Moody's.

Mexico’s midterm elections held on June 6 revealed strong opposition views against President Lopez Obrador’s current mandate. With one of the highest voting turn outs in recent years, (over 52 percent). MORENA, the president´s party fell short of a two-thirds majority in Congress.

Nevertheless, the party kept its majority in the lower chamber, controlling 197 of 500 seats against the 256 it held before the election. This means MORENA lost its absolute majority in the lower chamber and now it will have to rely on votes from its political allies the Workers Part (PT) and the Green Party (PVEM).

Moody's explained that despite MORENA losing its absolute majority in the chamber, it maintained a simple majority, and will be able to control the legislative agenda. Therefore, MORENA is expected to continue to pursue and achieve its main government objectives, such as strengthening PEMEX, continuing with its many social programs and the approval of the federal budget in 2022. Nevertheless, Moody's emphasized that the new chamber configuration could reduce the risks of constitutional changes that would impede the arrival of investments.

Furthermore, President López Obrador recently announced that Arturo Herrera, Minister of Finance, will become the next president of BANXICO in November. Meanwhile,  economist Rogelio Ramírez de la O will become the Minister of Finance at the end of the year.

Based on Herrera's position and political record, his monetary policies are expected to be moderate, and he is expected to maintain the bank's independence, which is an important factor in the credibility and efficiency of economic policies in improving Mexico's sovereign credit profile, Moody's reported.

In addition, Herrera has expressed his willingness to improve the transparency of BANXICO, in regard to its earnings, payments and administration of reserves and currencies. Nevertheless, it is not clear which direction BANXICO could take in its monetary management; however, radical changes are not expected.

Meanwhile, Ramírez de la O is expected to take a more independent financial and fiscal management at SCHP compared to Herrera. However, Moody's said it expects the fiscal austerity stance that has characterized the López Obrador administration to continue. Nevertheless, it will be more difficult to carry out these policies since opposition parties will have a greater presence in the lower chamber in September.

On May 21, Moody's gave Mexico a Baa1/negative outlook rating, which "indicates an intermediate degree of solvency and a moderate risk of default and therefore may present certain speculative characteristics."

The data used in this article was sourced from:  
Economista, Moody’s, Milenio, MBN
Photo by:   Joakim Honkasalo
Paloma Duran Paloma Duran Junior Journalist and Industry Analyst