Mexico’s Slick Oiled Machine Mastery

Mexican PRI standard-bearer Pena Nieto returned the party to Los Pinos after a decade in opposition in a 5-point victory over presidential runner-up AMLO in a race marred by vote fraud allegations. The ruling PAN nominee finished a distant third despite her novelty as the first major female entrant as she suffered from the unpopularity of the outgoing Calderon administration and failed to articulate a competing vision. Shares rose with the clear margin, but were restrained by the legislative results which split the ticket and will require compromise to advance proposed energy and tax adjustments. The winner who takes office in December called on Pemex to “do more” with private partners without offering specifics. Advisers admit consideration of Brazil’s Petrobras model where a stake is publically listed on the exchange but point to the revenue sensitivity of ceding ownership, placing emphasis on additional fiscal measures through VAT and corporate levies. Initial progress was notched the past six years on these fronts but the tax take still hovers around 10 percent of GDP with additional security and social spending embedded in the budget. President Calderon cited such achievements in his valedictory as the G-20 summit host in Los Cabos, where big emerging markets committed lines to double the IMF’s loan capacity. He departs on a positive note with economic growth and inflation both at 4 percent on a steady peso which has allowed the central bank to stay hands off. Post-election the currency has been a favorite overweight against the prevailing Euro-crisis trend of depreciation against the dollar, and is reflected in 30 percent foreign holding of local bonds. With FDI also steady even as drug gangs appeared to target multinationals, foreign exchange reserves have doubled since the Lehman period and the next government may decide not to extend the IMF’s pre-approved backup facility.

At the company level, Pena Nieto’s antitrust stance will be closely followed in media and telecoms, as wealthy groups continue to expand within the region, including billionaire Slim’s purchase of nationalized YPF stock in Argentina. In debt the Vitro bankruptcy saga continues to pit distressed funds against management in a fight that tests both the new Mexican chapter 11 code and traditional magnate prerogative. The trial turns on an inside maneuver that gave subsidiaries outsize creditor control and the proceedings have multiplied from Monterrey to US jurisdictions. These defaults stem from the post-2008 aftermath in contrast with Brazil, where utilities and mid-size banks have recently declared non-payment. A June report by Moody’s noted a “speedy” negative ratings drift by corporate issuers with their heavy commodity and cyclical exposure. As Pemex eyes the precedent Petrobras has consistently lagged production and profit forecasts and the fresh executive team has unveiled “more realistic” numbers taking into account the legacy of state interference.