Mexico’s leftist president won a landslide last year on a manifesto of transformative change. Identifying the blights of corruption and wealth inequality, Andrés Manuel López Obrador proposed a combination of remedies: austerity in public spending, frugal, honest officials and ending “neoliberal” policies. Some investors did not take him at his word.
They looked at his record as a relatively pragmatic mayor of Mexico City from 2000-2005 and suggested Mr López Obrador would tone down his rhetoric in office. Yesterday’s sudden resignation of Carlos Urzúa, the respected finance minister and the strongest voice of fiscal prudence inside the administration, suggests those hopes were misplaced. Mr Urzúa’s resignation letter left no doubt about the reasons for his departure after only seven months. He accused the government of making decisions without sound justification and of imposing unqualified officials in key jobs with clear conflicts of interest.
Markets responded by marking Mexico’s stocks and currency down by 2 per cent. The Mexican president was unmoved, reiterating his commitment “to change the economic policy which has been imposed for 36 years”. The time period is important.
Thirty-six years ago, amid dire economic crisis, Mexico made a historic shift away from decades of nationalist, statist economic policy and towards a new era of market-oriented free trade and closer integration with the US.
This was not without challenges: in particular, the peso crisis of 1994, when excessive dollar borrowing nearly sank the economy, triggering a $50bn US-led rescue. But the free trade direction brought Mexico greater prosperity, the Nafta free trade deal, OECD membership and a reputation for prudent economic management. Mr López Obrador is proclaiming an end to this era. It is far from clear he can replace it with something better.