Mexican finance minister resigns on policy difference

Mexico's finance minister Carlos Urzua resigned today citing the administration's poor public policy decisions.

"There have been a lot of discrepancies in terms of the economy," Urzua said in a strongly-worded letter of resignation. "In this administration they have taken public policy decisions without sufficient reasoning."

Urzua has served as finance minister for just seven months. While he did not specify the areas of disagreement in his resignation letter, President Andres Manuel Lopez Obrador and the finance ministry have publicly and repeatedly butted heads over strategy for state-owned Pemex.

Lopez Obrador has made the revitalization of Mexico's refinery system, the construction of a new refinery in Dos Bocas and the increase of crude output a cornerstone of his administration, despite concerns that it will leave an already weakened Pemex over-stretched.

Pemex is struggling under more than $100bn in debt but fiscal reductions and bailout plans announced over the past six months have underwhelmed credit agencies. Fitch Ratings downgraded Pemex's dollar-denominated debt to junk status with a negative outlook on 6 June, while Moody's lowered Pemex's credit outlook to negative from stable.

Deputy finance minister Arturo Herrera said earlier this year that the Dos Bocas refinery might not proceed given budget restrictions, but he was swiftly and publicly contradicted by Lopez Obrador, with an ill-fated tender for the project announced just a few weeks later.

Lopez Obrador appointed Herrera as finance minister today.

"We are undergoing a transformation and sometimes people do not understand that you can not continue with the same strategy," Lopez Obrador said in response to Urzua's resignation.

Herrera, an economist with a master's degree from the Mexican Metropolitan University who is still enrolled as a doctoral student at New York University, has served as deputy finance minister since last December. He previously served as Mexico City finance minister during Lopez Obrador's mayoral term.

Urzua also announced plans earlier this year to use part of a budget stabilization fund to finance Pemex's debt repayments for this year, but Lopez Obrador later back-peddled on this announcement, discounting the possibility and instead calling for deeper reductions on Pemex's fiscal burden.

"I am convinced that all economic policy should be carried out based on evidence...free of extremism from either the right or the left," Urzua said in his resignation letter. "My convictions were not echoed."

Urzua also complained about the placement in some agencies of officials without knowledge or expertise in public finances, a practice that Lopez Obrador has replicated across his cabinet, state-owned companies and regulatory positions. Lopez Obrador claims to prefer people he can trust over people with sector expertise as part of his wider crackdown on corruption.

The peso dropped almost 2pc against the dollar on news of Urzua's resignation. The market continues to await Pemex's business plan, now more than a month overdue.