Friday, June 21, 2024

Mexico records net outflow of foreign capital in government securities since 2018

President Andrés Manuel López Obrador is set to conclude his six-year term as the first Mexican president in over 20 years to see a net outflow of foreign capital invested in government securities.

Citing data from the Mexican bank Banco Base, the newspaper Reforma reported Monday that a net total of just under 349.86 billion pesos (US $20.7 billion) in investments in government securities was taken out of the country between the commencement of the current federal government on Dec. 1, 2018 and the end of last year.

AMLO
Under President López Obrador, more than US $20 billion has left the country, with some experts blaming uncertainty about the president’s economic policies. (lopezobrador.org.mx)

Reforma described the accumulated capital flight as a “record” for a six-year period of government. During the 2012-18 government led by former president Enrique Peña Nieto, a net total of almost 666 billion pesos in foreign capital flowed into government securities.

Gabriela Siller, director of economic analysis at Banco Base, told Reforma that López Obrador, who will leave office Oct. 1, is on track to be the first president since Ernesto Zedillo (1994-2000) to record a net outflow of foreign money invested in government securities. A total of 68.97 billion pesos left Mexico when Zedillo was in office.

Siller said that the COVID-19 pandemic — which caused the Mexican economy to contract sharply in 2020 — was not the main cause of foreign investors’ withdrawal of money invested in government securities, noting that the capital flight began in early 2019 shortly after López Obrador took office. She concluded that uncertainty about economic policy in Mexico was the reason for the departure of funds early in López Obrador’s six-year term.

Siller also noted that a significant amount of foreign capital left Mexico last May, the month in which the federal government took over three sections of railroad operated by the rail company Ferrosur.

Ferrosur railway facilities occupied by Mexican military
A soldier watches over Ferrosur railway facilities that the government took over last year. The incident is believed to have triggered the departure of a significant amount of foreign capital. (Ángel Hernández/Cuartoscuro)

Citing data from the Bank of Mexico, Reforma said that just under 64.9 billion pesos invested in government securities left the country in May.

“There have been significant actions that generate fear and therefore [foreign investors] leave government securities,” Siller said.

She said that the wide difference between the Bank of Mexico’s benchmark interest rate — currently set at 11.25% — and that of the United States Federal Reserve (5.25%-5.5%) should bring more foreign capital into the country, but in the case of government securities that hasn’t been the case.

“It’s possible in 2024 that we’ll see a moderate inflow of capital [to government securities], but it won’t be enough to offset the net outflow recorded so far,” Siller said.

Claudia Sheinbaum, former mayor of Mexico City and Morena candidate for president in 2024. Siller believes that a Sheinbaum government would reduce the flight of capital from securities. (Cuartoscuro)

A large “wave” of foreign capital inflows is needed for this six-year term of government to end “in positive territory,” she said.

While she cited political uncertainty as a reason for the large exodus of foreign capital, Siller said that “fear” about the López Obrador administration has subsided.

She predicted that the flight of capital from government securities will decline during a government led by Claudia Sheinbaum. The former Mexico City mayor is the presidential candidate for the ruling Morena party and a heavy favorite to win the June 2 election.

At the end of 2023, foreign investors had 1.78 trillion pesos (US $105.4 billion) invested in Mexican government securities, according to the Bank of Mexico. The figure declined around 16% during the first five years of López Obrador’s term.

On a more positive note, foreign direct investment (FDI) has increased in recent years, and reached almost US $33 billion in the first nine months of 2023.

FDI is expected to continue rising in coming years as more and more foreign companies set up operations in Mexico to take advantage of proximity to the United States, affordable labor costs and other factors.

With reports from Reforma 

2 COMMENTS

Have something to say? Paid Subscribers get all access to make & read comments.
Posted currency exchange rates outside of a bank

Peso rallies slightly after Sheinbaum names her first cabinet picks

0
After Sheinbaum named her first six cabinet picks, including ex-Foreign Affairs Minister Marcelo Ebrard, the peso strengthened 0.3% against the US dollar.
Chinatown area of Mexico City

How is an influx of Chinese commerce impacting Mexico City?

6
A recent series published by Reforma newspaper delved into how the "tsunami" of Chinese-owned shopping plazas and warehouses has affected locals.
Employees in an avocado processing plant in Michoacan move around large carts of avocados

US pauses Michoacán avocado inspections, citing agent safety issues

3
After two USDA inspectors reported an incident, the U.S. paused avocado inspections in Michoacán, Mexico's No. 1 exporter of "green gold."