Leading Latin American Economists Issue Mexican Economic, Pemex Reform Recommendations

WASHINGTON (July 2, 2019) -- The Latin American Committee on Macroeconomic and Financial Issues (CLAAF by its Spanish acronym) met in Washington today to discuss ‘Mexico’s financial risks: Solving Pemex for a Solvent Mexico.’ The CLAAF explored some of the major macroeconomic issues facing President Andrés Manuel López Obrador (AMLO), the new leader of Mexico, such as declining per-capita income growth, fiscal and monetary issues, and the country’s finance and trade integration with the US and larger international system, and made a series of related reform recommendations in a policy statement.

The CLAAF is a group of prominent economists and academics who have served as government ministers, central bank governors, and/or senior officials at multilateral institutions like the Inter-American Development Bank, International Monetary Fund and the World Bank. Twice a year, the group convenes to analyze major national or regional macroeconomic issues and then release a series of policy recommendations to change course and advance greater economic and financial stabilization.

Cognizant of and analyzing some of the major domestic and international pressures on the AMLO administration (such as NAFTA legacy and the manufacturing sector, the new USMCA, US Federal Reserve activity, rule of law and corruption issues, and more) the CLAAF centers in on Pemex, the state-owned oil company, “by far the single most important fiscal problem faced by the AMLO administration.  Lack of investments in exploration and extraction have led to a steady reduction in oil production, while the company has issued a large stock of debt in international markets.  Investors have become increasingly weary of holding Pemex bonds,” the group states.

To avoid a sovereign rating downgrade or an additional deterioration of Pemex, either of which could severely curtail capital inflows to Mexico, and improve the country’s economic outlook, the CLAAF believes that:

• the paramount task for the government is to address the critical situation at Pemex:  

• a corporate restructuring of Pemex is required, and should be complemented by a number of additional actions, including attracting new private funding for investments in exploration and extraction;

• a comprehensive corporate restructuring plan can also help avert Pemex’s debt crisis. Currently, Pemex is on a collision course that may lead to a debt restructuring; and

• while rationalization of current expenditures is needed, the success of the government’s plan of using primary surpluses to finance public expenditure projects requires well-developed and substantive feasibility studies.

“The first priority for the Mexican government should be the prompt resolution of Pemex’s deep financial problems,” said Liliana Rojas-Suarez, president of the CLAAF and director of the Latin American Initiative at the Center for Global Development. “If this issue is not addressed in time, a downgrade of Mexico´s sovereign debt is likely. This, combined with the current external challenges arising mainly from US policies, could further curtail Mexico’s economic growth prospects and performance.” 

CLAAF members participating in the June-July 2019 session:

Laura Alfaro, Warren Albert Professor, Harvard Business School, Former Minister of  National Planning and Economic Policy, Costa Rica

Augusto De La Torre, Former Chief Economist for Latin America and the Caribbean, The World Bank. Former Governor, Central Bank of Ecuador.

Guillermo Calvo, Professor, University of Columbia; former Chief Economist, Inter-American Development Bank

Roque Fernandez, Economics Professor, UCEMA University; former Minister of Finance, Argentina

Pablo Guidotti, Professor of the Government School, University of Torcuato di Tella; former Vice minister of Economy, Argentina

Paulo Leme, Executive in Residence Professor of Finance, Miami Business School, University of Miami.

Enrique Mendoza, Presidential Professor of Economics, University of Pennsylvania. Director, Penn Institute for Economic Research.

Guillermo Perry, Non-Resident Fellow, Center for Global Development. Former Chief Economist of the Latin America and Caribbean Region, World Bank

Carmen Reinhart, Minos A. Zombanakis Professor of the International Financial System at the Harvard Kennedy School.

Liliana Rojas-Suarez, president, CLAAF; Senior Fellow and Director of the Latin American Initiative, Center for Global Development; former Chief Economist for Latin America, Deutsche Bank

Full Statement Here

Video of Findings and Discussion Here

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