Neither NAFTA nor AMLO worry S&P. Neither NAFTA nor AMLO worry S&P.

Stability with AMLO, without NAFTA: S&P

Standard & Poor's sees economic stability should AMLO win or NAFTA lose

Mexico will maintain a stable economic outlook in 2018 even if the North American Free Trade Agreement (NAFTA) is dismantled or Andrés Manuel López Obrador wins the presidency.

That’s the assessment of global ratings agency Standard & Poor’s (S&P), which said in New York yesterday that it expected Mexico would maintain its BBB+ rating next year.

The company’s sector specialist for sovereign ratings in Latin America and the Caribbean said that he didn’t foresee either of the eventualities having a considerable effect on Mexico.

“We have a stable outlook for Mexico despite the threats that appear every day around potential changes to NAFTA and other factors that could affect trade or foreign investment,” Joydeep Mukherji said.

“The fundamental pillars that maintain the rating in Mexico will continue no matter who wins the election. The Bank of México will remain autonomous and continue the flexible exchange rate and credible monetary policy,” he added.

Critics of the leftist, third-time presidential aspirant commonly known as AMLO argue that he could take Mexico down a similar economic path to that trodden by Venezuela’s Hugo Chávez and Nicolás Maduro should he win next year’s election.

But López Obrador has sought to dispel concerns that the party he leads is anti-business, and did so when he presented Morena’s political platform last month.

S&P raised its outlook on Mexico’s credit rating in July from negative to stable, saying at the time that it didn’t expect debt levels to worsen and also praising the government’s “prompt reaction . . . to recent negative shocks.”

President Enrique Peña Nieto’s administration has continued to strengthen monetary policy first implemented by that of his predecessor, Felipe Calderón.

The Mexican economy has now grown for the last 31 consecutive quarters, with the trend continuing despite concerns arising after the election of United States President Donald Trump and his hardline rhetoric about the future of the two countries’ trade relationship.

Economy Secretary and Mexico’s chief NAFTA negotiator Ildefonso Guajardo last month rejected that a U.S. withdrawal from the 23-year-old trilateral agreement would be devastating for the Mexican economy although he did concede there could be a “short-term impact.”

Mukherji believes that even if NAFTA is dismantled, production chains and capital flows that are already established in the common North American market will continue for at least a year after any possible termination of the deal.

“Our scenario is that whether NAFTA is renegotiated soon or the negotiations extend or even if the treaty is canceled and not replaced by another agreement, we expect that this relationship will be maintained,” he said.

Only an alteration of production chains, trade and investment “would change the baseline scenario of S&P,” and trigger a revision of its outlook, Mukherji explained, but added “that scenario is not the most probable.”

The sovereign ratings specialist also said that the Bank of México had responded in a “timely manner” to inflationary pressures caused by the devaluation of the peso and had raised interest rates to a level that is consistent with its goal of keeping inflation to 3%.

Source: Milenio (sp)

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