June 10, 2021


MEXICO: No step change in economic policy

BY Nicholas Watson

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President Andres Manuel Lopez Obrador (AMLO) announced yesterday, 9 June, that Finance Minister Arturo Herrera would replace Alejandro Diaz de Leon as governor of the Central Bank (Banxico). Rogelio Ramirez de la O will in turn replace Herrera at the Finance Ministry (SHCP). Herrera’s appointment requires Senate approval but this should be straightforward.

Herrera was strongly tipped to succeed Diaz de Leon after AMLO in May confirmed that Diaz de Leon’s term would not be renewed when it expires on 31 December. AMLO always saw Diaz de Leon as an appointee of the “neoliberal order” but the recent tussle over Banxico’s operating surplus effectively ended Diaz de Leon’s chances of a second term as governor. Similarly, Ramirez de la O’s appointment is not a huge surprise given his long association with AMLO; he has been in the frame for the SHCP since AMLO’s 2018 election victory.

The more pertinent question is why AMLO is making this move now. AMLO suggested it was to avoid market jitters over the Banxico succession, which is plausible. It also seems logical to try and avoid a disjointed budgetary process; Ramirez de la O, who will take up his position in around a month, will take on the 2022 budget, which should go to Congress, where the governing National Regeneration Movement (Morena)-led coalition’s majority will be less robust, by September. Ramirez de la O will also lead the fiscal reform initiative, which is at an early draft stage.

The other key questions that arise from this reshuffle concern both Herrera and Ramirez de la O’s independence from and ability to stand up to AMLO. AMLO and Herrera both continue to talk the talk when it comes to Banxico’s autonomy. It is also true that there are two recent examples of officials making the switch from the SHCP over to Banxico (Guillermo Ortiz and Agustin Carstens) without causing any damage to the bank’s autonomy or reputation. However, a majority of the Banxico board will have been appointed by AMLO. A test for Herrera could come if AMLO revives a controversial bill that would have obliged Banxico to become the buyer of last resort for excess USD that commercial banks are sometimes unable to return abroad.

Ramirez de la O may actually have greater latitude and authority to challenge AMLO given how far back the two men go. Energy policy could be a potential flashpoint if rumors about Ramirez de la O’s reported wariness towards Octavio Romero, CEO of state oil company Pemex, are to be believed. However, it is difficult to believe that AMLO is considering any great shift on energy policy, or indeed on economic policy in general. The other big challenge facing the new incumbent at the SHCP will be the fiscal reform drive if AMLO continues to insist on limiting new taxes.

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