Photographer: Susana Gonzalez/Bloomberg
Mexico Dithers With Banxico Presidency as CPI Rises, Peso DropsBy
President Pena Nieto has yet to name a new central bank head
Current Governor Carstens leaves at the end of the month
In two weeks time, the central bank governor of the second-largest economy in Latin America will leave his post. No one seems to have a clear idea of who will replace him.
Agustin Carstens announced his plans to leave almost a year ago, yet Mexico’s President Enrique Pena Nieto hasn’t even proposed the name of his replacement. If he continues to dither, the bank’s longest-serving policy maker, Roberto del Cueto -- a lawyer by training -- will take over temporarily next month. It’s a stopgap measure that is unlikely to reassure the more-than-$10 billion-a-day peso market.
These are challenging times for Mexico’s central bank. Inflation has accelerated to 6.37 percent -- more than twice the 3 percent target -- and peso volatility has increased as talks with the U.S. and Canada to rework the North American Free Trade Agreement hit roadblocks. Carstens had already delayed his departure from July in order to reduce uncertainty. He is unlikely to do it again.
Having an interim governor at the helm of Banxico "would add noise to the market," said Benito Berber, senior economist for Latin America at Nomura. "There’s going to be a lot of macro risks, and that’s why you need to have someone with a lot of clarity about what to do with banking regulations, with monetary policy, with FX policy."
Del Cueto doesn’t immediately inspire confidence, partly because he is a lawyer and not an economist by training, Berber said.
The drama echoes recent events north of the U.S.-Mexico border, where President Donald Trump kept investors on edge for months over who he would pick to succeed Janet Yellen at the helm of the Federal Reserve. Trump spoke highly of several candidates, but in the end, he went with a safe choice: Fed Governor Jerome Powell, who is generally perceived to share Yellen’s philosophy.
As time passes with no successor, it has also raised speculation that President Pena Nieto is stalling in order to decide between choosing Finance Minister Jose Antonio Meade to run as his party’s presidential candidate or to head Banxico.
That in turn has raised concern about the independence of the central bank, said Gabriel Lozano, chief Mexico economist at JPMorgan Chase & Co.
"Once we pass the deadline, and if (and only if) there is no replacement, then it could get uncomfortable,” Lozano said. “In the meantime, so long as the deadline is respected, I cannot see why we should doubt the independence" of the central bank.
The PRI party will likely have a presidential candidate for July’s election by the first week of December, according to Economy Minister Ildefonso Guajardo. Still, calls for the president to make up his mind, are getting louder. On Thursday, three opposition senators from the Labor Pary called on Pena Nieto to propose a new member to the Banxico board.
According to Banxico’s bylaws, Pena Nieto will need to either send his proposal to the senate for ratification, or appoint the new governor directly if he’s already a member of the board. In the second scenario, a senate vote would only be necessary to fill the deputy governor spot left open by that appointment.
President Pena Nieto’s office didn’t comment. Banxico’s press office declined to comment.
Plenty of Time
Among names that have been floated by economists for governor, apart from Meade, are current Banxico board member Alejandro Diaz de Leon, deputy Finance Minister Miguel Messmacher and Pemex chief Jose Antonio Gonzalez Anaya. In February, a poll of economists also named Banxico board member Manuel Ramos Francia and former President Ernesto Zedillo among likely replacements.
While several economists warned against delaying the appointment beyond November 30th, most said they didn’t think that would happen.
"You have time," said Alonso Cervera, chief Latin America economist for Credit Suisse Group AG. "Don’t panic."
— With assistance by Matthew Boesler, and George Lei