Finance Minister of the Year, Latin America
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Finance Minister of the Year, Latin America

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José Antonio Meade, Mexico

Fiscal discipline brings rating comfort

“Now we’re seeing a better functioning market”

It had only been a few days since Standard & Poor’s placed Mexico’s BBB+ rating on negative outlook, amid concerns about the growing debt-to-GDP ratio, when in September 2016 new finance minister José Antonio Meade presented his budget proposal for 2017. Meade immediately made his priorities clear, elevating the fiscal surplus target from 0.2% of GDP to 0.4%.

A year on, not only is Mexico on course to post its first fiscal surplus in nearly a decade, but the negative outlook from S&P — as well as its peer Fitch — has been lifted.

In what was predicted to be a very difficult year for Mexico given the hostile attitude of its northern neighbour’s new president, investors are impressed.

“His co-ordination with Pemex has been excellent, his fiscal stance has been very strong, and he has thus achieved very positive results,” says Graham Stock, head of emerging markets sovereign research at BlueBay Asset Management.

Certain Mexico City-based investment bankers talk of Meade’s “unrivalled” technical capabilities as he has stabilised the debt-to-GDP ratio — which had risen from 40% in 2014 to 44% in 2016.

It was Banxico that had to most carefully manage the depreciation of the peso after the election of Nafta-basher Donald Trump as US president. Yet the finance ministry’s commitment to pre-established fiscal consolidation targets has “made the central bank’s job easier”, Shelly Shetty, head of Latin America sovereign ratings at Fitch, tells GlobalMarkets.

Fuel price move

Shetty argues that Meade’s most praiseworthy move came in January, when he went ahead with a controversial gasoline price increase “despite a challenging election cycle in the state of Mexico”.

In conversation with GlobalMarkets, Meade admitted that liberalising a market is “always difficult” and that there is “never a good time”. But it was the right thing to do to open the market to investment, increase energy security in Mexico, and maintain fiscal consolidation, he said.

“I think that [the liberalisation of gasoline prices] added confidence to the Mexican economy [and] in the administration of our fiscal balance,” says Meade. “Now we’re seeing a better functioning market that’s receiving investment in all of its different sectors.”

Such confidence from investors is crucial as Mexico faces uncertainty in its relationship with the US. “Meade has also been part of an economic team that has remained very focussed on what it can achieve in terms of the renegotiation of Nafta,” says Stock. “They have not made outlandish claims about what they can do, and have honed their efforts where they do have room for manoeuvre.”

Focussing on what he can achieve, Meade sticks to the fiscal line.

“The most important thing is to keep to Mexico’s programme in terms of fiscal consolidation,” says the minister. “[That way] we can end the administration with a downward trend in our debt to GDP ratio, can keep to the trajectory that we committed to previously, and can find strength in both our numbers and our commitment.”

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