Mexico’s Muffled Missing Student Instruction
Mexican bonds and stocks ended 2014 with losses as President Pena Nieto on his second anniversary in office two decades after the Tequila crisis flailed in dealing with suspected drug gang student murders and lower oil price fallout, as the Finance Minister joined his wife in receiving favorable housing terms from the same Hidalgo group winning government contracts. Economic growth came to 2 percent on 4 percent inflation as the central bank stayed its ground but reintroduced a $200 million daily foreign exchange auction when the peso fluctuates 1.5 percent against the dollar as forward prices projected a 15 handle. Next year’s petroleum export value has been protected through hedges as the first round of Pemex private company bidding was opened to lukewarm reception which could affect future fiscal plans. The deficit could go to 4 percent of GDP without expected investment in view of infrastructure spending and tax reform has already kicked in to dampen business and consumer sentiment. Pemex’s streamlining has also encountered trouble as senior executives and labor unions question procurement and safety rules. Opposition parties supporting the original pact have reverted to traditional petulance scuttling prospects for new security force legislation in the wake of the student killings which would allow federal takeover of state police. Foreign direct and portfolio inflows have halved compared with 2013 but manufacturing exports have helped absorb the slack on strong US demand. Brazil’s 20 percent MSCI tumble has been worse as 2015 growth will be barely positive on weak Chinese commodities appetite and domestic consumption hit by higher interest rates after another 50 basis point hike and a 1 percent of GDP fiscal adjustment under incoming Finance Minister Levy to restore confidence. The subsidized borrowing cost offered by development lender BNDES has already been increased but the popular Bolsa Familia social program will remain untouched, according to officials. Central bank head Tombini was kept in the post and the currency swap intervention regime will be extended although the real is due to suffer from broad emerging market aversion and the record 4 percent of output current account gap.
Ratings agencies have postponed a sovereign junk demotion with the second term initiatives but gross public debt has jumped to 60 percent of GDP and Petrobras’ quasi-sovereign fate hangs in the balance after it again delayed audit results leaving three month before bond covenant breach is declared. New York ADR buyers have already filed class action lawsuits alleging management fraud and malfeasance and Brazilian authorities are conducting their own civil and criminal investigations while the current chief executive appointed by President Rousseff had her resignation rejected. With $135 billion in debt outstanding and an upcoming $200 billion investment program, the oil giant has turned to local issuance while external access is suspended under the graft probes implicating other big construction and supplier names schooled in the machinery of Operation Laundromat.
