MEXICO CITY (Reuters) – Mexico’s new finance minister Arturo Herrera is a pragmatic and respected policy maker who says he was inspired to study economics by the Latin American debt crisis that wrought financial chaos and wrecked livelihoods in his country.
Arturo Herrera, Mexico’s new Finance Minister, speaks during a news conference in Mexico City, Mexico July 9, 2019. REUTERS/Carlos Jasso
Decades later, he must boost investor confidence in a shrinking economy buffeted by what his predecessor and mentor Carlos Urzua called “extremism” that led him to resign on Tuesday with a strongly worded letter.
President Andres Manuel Lopez Obrador on Tuesday named former World Bank executive and long-time ally Herrera to succeed Urzua.
Urzua, who was seen as a moderate policymaker and disciplined manager of public finances, blamed meddling in the finance ministry and ill-thought-out economic policies for his abrupt resignation. It fueled concerns in Mexico and among investors around the world of disarray in the government.
In his first meeting with the media on Tuesday, Herrera said he had the support of Urzua, who he described as “my mentor, my teacher, my leader.”
A straight-talker, Herrera is well-regarded among investors who have become accustomed to seeing him at high profile events representing Latin America’s second-largest economy. He had already been put in charge of policies close to the president’s heart, such as bringing banking to more people.
Mexico was rich in resources “but is a country with a lot of poverty,” he told Reuters in an interview shortly after he was named deputy finance minister last year.
He spoke of the importance of focusing on growth without spurring the runaway inflation and currency crises that stunted Mexico in the 1980s and 1990s, themes he referred back to after assuming his new role.
His task will not be easy. He takes over as finance minister after the economy contracted in the first quarter, with economists warning of a looming recession.
Investors are increasingly concerned that Lopez Obrador will drive through his favorite development projects regardless of what the finance ministry says.
“The one calling the shots is Andres Manuel Lopez Obrador,” said Ricardo Adrogue, head of Barings’ global sovereign debt and currencies group.
Urzua did not elaborate on what policy steps led him to resign, but decisions by Lopez Obrador to cancel a partially built $13 billion airport, designate scarce funds to a new oil refinery and forcefully renegotiate gas pipeline contracts with Canadian and U.S. companies have all led to market volatility.
Herrera now faces a balancing act of meeting a 1% primary budget surplus target that has helped offset market worries about government policies and kept the peso broadly stable, while reviving the growth that Lopez Obrador on Tuesday said was his priority.
To achieve that Herrera must spur private investment and fend off downgrades from ratings agencies worried about indebted state-oil company Pemex [PEMX.UL]. He must also handle the frictions with others in the government alluded to by Urzua in his letter.
“Herrera has been the face of Mexico’s finance ministry in meetings with international investors in recent months and is a credible choice,” said Abbas Ameli-Renani, an emerging markets portfolio manager at Amundi.
“But the outgoing finance minister’s resignation letter confirms the waning influence of the office of the finance minister over key decisions.”
Herrera told Reuters in the interview last year that he was inspired to study economics by the Latin American debt crisis in the 1980s that saw the region’s largest economies crippled by heavy international debt repayments.
He said that he and his longtime friend Gerardo Esquivel, both of whom studied at the Colegio de Mexico social sciences institute, were motivated to understand what happened and figure out how to prevent a repetition. Esquivel became deputy central bank governor last year.
“We started studying economics in the middle of one of the most profound crises in the history of Mexico,” Herrera said. “Inflation, devaluation, the lack of employment were the topics that dominated life in Mexico.”
“Those are topics that pain me personally, but as an economist I have an interest in applying this knowledge to try and solve it,” Herrera said.
An avid rock climber, Herrera started his career in the Mexican finance ministry. Later, he became general director for financial management and finance secretary in Mexico City’s government when Lopez Obrador was mayor, a job earlier held by Urzua.
In 2010, he joined the World Bank.
When Lopez Obrador started his third campaign for president ahead of the July 2018 election, his promises to end corruption, fight poverty and inequality resonated with Herrera.
“The possibility to join an administration that is trying to resolve those topics was very tempting,” Herrera said.
Reporting by Stefanie Eschenbacher; Additional reporting by Anthony Esposito and Lizbeth Diaz; Editing by Frank Jack Daniel and Rosalba O’Brien