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Mexico New Finance Chief Pledges Austerity as Predecessor Quits

Mexico New Finance Chief Pledges Austerity as Predecessor Quits

(Bloomberg) -- Mexico’s incoming Finance Minister Arturo Herrera vowed to meet the country’s fiscal target and respect the central bank’s autonomy after the surprise resignation of his predecessor stirred investor concerns.

“Even with this change of position, the main objectives of this administration remain the same,” Herrera, a former World Bank official, said at his first press conference after being nominated for the position. “I am not planning any changes at the ministry.”

Mexico New Finance Chief Pledges Austerity as Predecessor Quits

President Andres Manuel Lopez Obrador named Deputy Minister Herrera to replace Carlos Urzua after his abrupt decision to quit and publish a letter denouncing conflicts of interest in the government. The resignation, the first major cabinet loss since Lopez Obrador took office in December, stunned the nation and its financial markets.

Herrera dismissed the comments Urzua made in his letter, saying his experience at the finance ministry doesn’t match that of his predecessor. “It’s a strictly personal decision,” he said about Urzua.

In response to questions about whether he’ll be able to convince Lopez Obrador to listen to him when a close ally like Urzua was frustrated enough to resign, Herrera said he and AMLO have also worked together for decades and he has the ear and respect of the president.

Old Ally

Urzua had been a long-standing ally of Lopez Obrador, having been his finance secretary when AMLO was mayor of Mexico City at the start of the last decade. Herrera is also a former finance minister of AMLO’s in the nation’s capital.

The resignation comes as Mexico faces this year its lowest growth rate in a decade amid a decline in oil output and public spending cuts. Herrera denied Mexico has entered recession after its economy contracted in the first quarter. Bank of America Merrill Lynch forecasts Latin America’s second-largest economy shrank again in the second quarter, which would mean a technical recession.

We’re “very, very far” from thinking the country is entering recession, Herrera said. However, he’s taking into account slower global growth as he designs next year’s budget to be released in early September, he added.

Herrera played down the episode when he was quoted as saying a mega project to build a new refinery wouldn’t go forward, only to have AMLO say the opposite hours later. He now says he wasn’t properly cited by the media. The $8 billion project is as a small portion of what Pemex is investing in, he said, and the indebted oil major will focus much of its investment on exploration and production, according to its business plan, which he said is due any day.

Rate Cut

Yet policy disagreements highlighted by Urzua’s departure may delay the possibility of a rate cut by the central bank, according to Gabriel Lozano, Mexico’s chief economist at JPMorgan Chase & Co.

“The timing is not good at all,” Lozano wrote in a research note. “We do not expect any rate cuts this year, and provided fiscal policy uncertainty and political tensions extends further, we would not be surprised by rates on hold for longer”.

To contact the reporter on this story: Nacha Cattan in Mexico City at ncattan@bloomberg.net

To contact the editors responsible for this story: Juan Pablo Spinetto at jspinetto@bloomberg.net;Walter Brandimarte at wbrandimarte@bloomberg.net

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