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Mexico's new finance minister vows fiscal calm, hews to surplus target

Economy Jul 09, 2019 11:36PM ET
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By Anthony Esposito and Stefanie Eschenbacher

MEXICO CITY (Reuters) - Mexico's new finance minister, Arturo Herrera, vowed to extend the tight fiscal grip exerted by his predecessor, moving to restore calm after the stormy departure of his former boss from the cabinet of President Andres Manuel Lopez Obrador.

Mexico will not stray from a commitment to run a primary budget surplus of 1% set by former finance minister Carlos Urzua and will probably set a similar target for the 2020 budget, Herrera said late on Tuesday.

"The most important anchor point of fiscal policy for this year is a primary surplus of 1%," he said. "It's most likely that for next year we will have a similar number."

Budget parameters will be presented on Sept. 8, he added.

Urzua resigned on Tuesday with a letter that shocked Mexico, as well as investors around the world.

A self-declared moderate, Urzua blamed his exit on policy "extremism," unspecified conflicts of interest among high officials, uninformed policy-making and interference in ministry appointments.

Urzua's commitment to fiscal discipline was seen as a bright spot in Lopez Obrador's administration, which has rattled investor confidence with abrupt moves against business interests in major infrastructure projects.

By naming Urzua's protege, Herrera, to the top job within an hour of the former's resignation, Lopez Obrador stemmed a sell-off in Mexican assets that saw the peso fall as much as 2% and the stock market drop 1.4%.

Seeking to further soothe nerves after the resignation dramatics, Herrera said he did not think Mexico's first-quarter economic contraction would herald a recession, adding that he would keep on good terms with investors.

"I don't see a recession around the corner," Herrera said. "I see that there has been a slowdown on a global level but we are very, very far from thinking that we are close to a recession."

Despite his comments on fiscal discipline, Herrera made clear he was also on board with Lopez Obrador's expansive infrastructure plans, and vowed to stay in the post until asked to leave.

Familiar to investors and seen as a competent economic manager, Herrera must now revive growth while kickstarting flagging investment and fending off downgrades from ratings agencies worried about indebted state-oil company Pemex.

"(Herrera) is a well-known figure with good dialogue with market participants and is not perceived as a ... dogmatic individual," said Alberto Ramos, head of Latin American research at Goldman Sachs (NYSE:GS).

"But in light of the unusual content of Urzua’s resignation letter there is out there the lingering question of who is ultimately in charge of running economic policy."

ACADEMIC HAWK

Despite winning appreciation for holding down spending and debt, Urzua's seven months in office were marked by a sovereign debt downgrade and contracting economic growth as he stuck to fiscal targets while setting aside money to support Pemex and Lopez Obrador's plans for a new oil refinery.

Like 64-year-old economist Urzua, Herrera has known Lopez Obrador for many years, with both having served as his finance minister when he was mayor of Mexico City in the early 2000s.

Announcing Herrera's appointment, Lopez Obrador said Urzua had been uncomfortable with decisions upending what the president frequently calls Mexico's neoliberal era, dating from the 1980s.

"We are committed to changing economic policy that has been imposed for the past 36 years," Lopez Obrador said in a video message.

"We can't put old wine in new bottles," he added. "We believe there will be economic growth, that we will progress by fighting corruption and ... with a policy of austerity."

Mexico's new finance minister vows fiscal calm, hews to surplus target
 

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