The abrupt and abrupt resignation of Mexico’s finance minister on Tuesday highlights the difficulty that leftist President Andrés Manuel López Obrador has faced in turning his unfinished ideas into economic gains – with potentially disastrous consequences for a country facing a shortage of investment and a real risk of recession.
Carlos Urzua, a highly respected academic economist tasked with the seemingly impossible task of keeping Mexico’s budget on a level playing field and advancing López Obrador’s unorthodox agenda, has finally called for quitting in acerbic language resignation this gave credence to months of rumors of political clashes at high levels in Mexico’s new government.
“There were a lot of differences of opinion on economic issues”, he writes, before continuing bluntly: “I am convinced that any economic policy must be based on evidence, given the consequences that such politics can have and free from extremism, whether right-wing or left-wing.” Urzúa concluded by saying he was “driven to resign.”
The abrupt and abrupt resignation of Mexico’s finance minister on Tuesday highlights the difficulty that leftist President Andrés Manuel López Obrador has faced in turning his unfinished ideas into economic gains – with potentially disastrous consequences for a country facing a shortage of investment and a real risk of recession.
Carlos Urzua, a highly respected academic economist tasked with the seemingly impossible task of keeping Mexico’s budget on a level playing field and advancing López Obrador’s unorthodox agenda, has finally called for quitting in acerbic language resignation this gave credence to months of rumors of political clashes at high levels in Mexico’s new government.
“There were a lot of differences of opinion on economic issues”, he writes, before continuing bluntly: “I am convinced that any economic policy must be based on evidence, given the consequences that such politics can have and free from extremism, whether right-wing or left-wing.” Urzúa concluded by saying he was “driven to resign.”
Tensions between López Obrador, commonly known as AMLO, and Urzúa had been building for months, ever since the new president, who took office in December 2018, canceled a partially-built $13 billion airport in Mexico City and is launched into a series of mistreatments. has advised ventures, such as a high-speed train across the Yucatan Peninsula and an $8 billion oil refinery that no foreign oil company could or would build.
Added to this are the president’s repeated attacks on Mexican institutions, such as the energy regulator, and – more chilling for foreign investors – apparent attacks on the country’s high-profile energy reforms, which aimed to open up the Mexico to foreign oil and gas. investments after eight decades of isolation. More recently, López Obrador castigated a standard contract for natural gas deliveries struck by the previous administration as ‘unfair’, spooking foreign investors who fear the leftist president will seek to tear up oil exploration contracts struck under recent policy changes energy.
“This is extremely troubling in terms of Mexico’s respect for contracts and the rule of law, and Mexico’s ability to attract investment,” said Antonio Ortiz-Mena, a former trade negotiator and Mexican economic expert.
Urzúa’s deputy, Arturo Herrera, will take on the unpleasant job of mediating between López Obrador and economic reality. Late on Tuesday, Mexico’s president expressed complete confidence in the World Bank alumnus and longtime civil servant as Herrera stood by, looking so uncomfortable he might have been in a hostage video posted on López Obrador’s Twitter feed. The new economy chief looked the other way as López Obrador spoke of the need to complete his economic reforms after decades of what he calls failed attempts at liberal economics.
“Herrera looks like he’s about to be put before the firing squad — he knows what he got himself into,” said Duncan Wood, director of the Mexico Institute at the Wilson Center in Washington.
The market immediately reacted to Urzúa’s resignation by sending the peso sharply lower, where it remained on Wednesday. Given that López Obrador measures his success largely by the value of Mexico’s currency, it gives Mexican watchers reason to hope that the president realizes that investors are watching the country closely and worried about instability. of the economics team. The first question is whether Herrera, who has been repeatedly undermined by López Obrador in public in recent months, will have the wherewithal to fend off unworkable economic ideas.
“I hope Herrera has, say, the guts to stand up to the president,” Wood said.
The bigger question is whether López Obrador, who still enjoys generally high approval ratings, understands the need to change course on his economic policy, or whether he is doubling down. Beyond the weakened currency and frightened foreign investors, Mexico’s economy faces the prospect of essentially zero growth or even a recession, at a time when its No. 1 trading partner, the United States , is booming economically.
“Given his past experience and knowing AMLO, he’s incredibly stubborn – Herrera is going to take a beating, as will the Mexican economy,” Wood said.
The high-profile departure of a senior economic official over concerns about the president’s economic ignorance, his extreme ideas and the imposition of clearly unqualified people for the highest positions – another Urzúa complaint – invites obvious comparisons with the northern neighbor of Mexico.
But there are some key differences between President Donald Trump’s United States and López Obrador’s Mexico. First, despite Trump’s trade wars, massive budget deficits and state economic policies, GDP growth is robust, unlike Mexico. Second, Trump doesn’t have a blank check to implement policies – again, unlike Mexico.
“Trump is constrained by Congress and by the Supreme Court, and we don’t see the same checks and balances in Mexico,” Wood said. López Obrador’s political party controls both houses of the Mexican legislature, and Mexican lawmakers are just as flexible, if not more so, than Republicans in the United States.
“The president says something, and the congressional base says, ‘He must be right,'” Wood said.
The big fear is that López Obrador will scare away the foreign investment needed to spur the economic growth he has promised, which will require billions from domestic and international sources. In the past, Mexico sought financial stability, such as balanced budgets and controlled inflation, to appease foreign investors. But now there’s a bigger bogeyman, and he’s in the presidential palace.
“AMLO rightly criticizes previous governments for failing to achieve economic growth,” said Ortiz-Mena, who is now at Albright Stonebridge Group, a consultancy. “But investors are looking far beyond fiscal and monetary policy. There is a very dangerous misunderstanding that investments will continue as long as there is stability. The way he goes about it will be extremely counterproductive.
This is what makes López Obrador’s rhetorical attacks on the previous administration’s energy reform, such as the threat to take gas pipeline contracts to arbitration, so disturbing. It’s not just that Mexico needs massive foreign investment to rejuvenate its tired oil fields and build new refineries. It is that rules-based energy investment is the key to unlocking foreign and domestic investment in all sectors of the Mexican economy.
“What the president fails to understand is the contagion effect – energy reform is key to making Mexico an investment location, and by undermining that, he is undermining the investment profile of the whole country” , Wood said.
