Positive Economic Expectations Despite Worrying SignsBy Alejandro Salas | Wed, 03/11/2020 - 13:07
The COVID-19 outbreak and the price war between Russia and the OPEC that led to a drop in oil prices have created a perfect storm that is now threatening Mexico. On Wednesday, both BMV’s and BIVA’s reference indexes plummeted over 1 percent, which puts the Mexican market back in a rocky position after a slight increase in oil prices on Tuesday. The S&P/BMV IPC index fell 1.71 percent to 38,890.6 units, while FTSE BIVA stumbled 1.47 percent to 803.81 units. Among the biggest losers are Genomma Lab with a 7.9 percent drop and Orbia Advance with -6.26 percent.
Despite these negative results and the peso’s depreciation against the dollar, which now stands at an exchange rate over MX$21, the Minister of Finance Arturo Herrera says the Mexican economy and its public finances are shielded against global turmoil. During a press conference, Herrera said the Ministry is taking prudent action to face these complications without creating a negative impact on the country’s debt. “Since 1995, we have tried to build public finances that are designed with extreme caution. We are trying to shield the economy against highly negative scenarios,” he said.
Herrera also highlights that the country can still rely on its credit lines from the IMF and the US Treasury of US$61 billion and US$9 billion, respectively. In addition, Mexico can make use of the stabilizing funds FEIP and FEIEF of MX$158 billion (US$7.4 billion) and US$60 billion (US$2.4 billion), respectively, in cases of reduced income. The FEIP, however, has already been partially depleted in 2019 to face income shortages.
Lastly, the Minister pointed at the coverage that PEMEX has contracted to secure a minimum price of oil of US$49 per barrel, although an El Economista report says the production volume covered by this insurance was not disclosed. “We are watching how the situation evolves and analyzing how we can support PEMEX. However, we keep in mind that this might be a temporary conflict,” said Herrera.
The government is also implementing internal measures to shield the economy. While tax incentives are not being considered to reactivate the economy, Herrera said tender processes have been accelerated to kickstart infrastructure works. Gabriel Yorio, Deputy Minister of Finance, also highlighted that most of the country’s debt is valued in pesos and negotiated at a fixed rate, which limits the effect of the peso depreciation against the dollar.