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Finance Minister Herrera: four lines of defense. Finance Minister Herrera: four lines of defense.

Mexican economy well fortified amid global volatility: finance minister

Its lines of defense are public finance policies, strong credit lines, solid stabilization funds and oil price hedging

The Mexican economy has four lines of defense that protect it against events such as the slump in global oil prices, the depreciation of the peso and the spread of coronavirus, Finance Minister Arturo Herrera said Tuesday.

He told a press conference that carefully designed public finance policies, strong lines of credit, healthy stabilization funds and the government’s oil price hedging program all serve to insulate the economy from uncertainty and volatility.

Since 1995, the Finance Ministry “has tried to build public finances [within] a framework of extraordinary caution,” he said. “In other words … leave the economy protected in the face of very bad scenarios.”

The minister said that 78% of Mexico’s public debt is in pesos and that 81% of the amount owed is subject to fixed interest rates. He added that 100% of Mexico’s external debt is subject to fixed interest rates and most of it is repayable over long periods.

Secondly, Mexico has “extremely strong” lines of credit that allow it to “confront any storm,” Herrera said, explaining that the government, if required, could access up to US $61 billion from the International Monetary Fund and $9 billion from the United States Treasury.

Thirdly, the minister said, the government has healthy stabilization funds – mechanisms set up to protect against commodity price fluctuations and other unfavorable circumstances. One fund currently has 158 billion pesos (US $7.4 billion) and another has 60 billion pesos, Herrera said.

“The fourth line of defense has to do with the hedging of oil income,” he added.

The government said in January that the Finance Ministry had locked in a $49-per-barrel price for oil worth a total of $1.37 billion, while Pemex CEO Octavio Romero said the same month that the state oil company had already contracted a “small portion” of its 2020 hedge, although he didn’t reveal the price it had locked in or the number of barrels of oil to which it would apply.

Herrera’s remarks came a day after the Mexican peso fell to more than 22 to the United States dollar after a sharp decline in global oil prices due to a price war between Saudi Arabia and Russia. The currency has since recovered some of its loss, with one greenback buying about 21.4 pesos at 3:00 p.m. Wednesday.

Herrera said that Mexico and other countries are seeking to mediate between Saudi Arabia and Russia with a view to ending the price war. “We along with some other countries are looking to be a type of third party to build bridges,” he said.

Some analysts said that the decline in global oil prices precipitated by the price war places additional pressures on the already ailing finances of Pemex and could affect its credit rating,

Another cause for economic concern, not just in Mexico but around the world, is the global spread of Covid-19. The infectious disease that originated in Wuhan, China, late last year is having a huge impact on economies around the world as cases, and deaths, continue to climb, despite efforts to contain it.

The United Nations Conference on Trade and Development (UNCTAD) said in a report earlier this month that the slowdown of manufacturing in China due to the outbreak of Covid-19 is disrupting world trade and could result in a $50-billion decrease in exports across global value chains.

According to UNCTAD estimates, Mexico will be the eighth most affected economy, with exports predicted to decline by $1.37 billion.

There are currently only eight confirmed cases of Covid-19 here but a Mexico City infectious disease specialist believes that the real number of cases is much higher, while a professor of medicine in the United Kingdom predicts that more cases linked to the growing outbreak of the virus in the United States will arrive in Mexico and other Latin American countries in coming weeks.

Source: Milenio (sp) 

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