Author Topic: Mexico  (Read 420538 times)


Crafty_Dog

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Stratfor: AMLO's pension reform
« Reply #655 on: July 29, 2020, 06:28:37 AM »
Lopez Obrador Unexpectedly Moves to Safeguard Mexico’s Pension System
3 MINS READ
Jul 28, 2020 | 19:10 GMT

Mexican President Andres Manuel Lopez Obrador’s proposed overhaul to Mexico’s pension system will preserve investor confidence by maintaining the country’s current individual account system, while still addressing pressing concerns about the system’s long-term sustainability. On July 22, Lopez Obrador announced his proposed pension reforms, which the Mexican Congress will vote on when it reconvenes in September. The proposed changes to Mexico’s current pension system include doubling employer contributions over an eight-year period; increasing total contributions from 6.5 to 15 percent; limiting the commissions charged by Retirement Funds Administrators (AFOREs); and decreasing the number of years a worker needs to contribute to access a minimum guaranteed pension from 25 to 15 years, while increasing the number of such pensions by about 40 percent.

The overhaul will quell fears about Mexico reverting back to a defined benefits system. Lopez Obrador was a long-standing critic of Mexico’s pension system, which has been based on individual retirement accounts since the signing of landmark reforms in 1997. Over the years, the system had become a symbol of Mexico’s economic liberalization. But given Lopez Obrador’s previous criticisms and the need for funds to finance his government’s infrastructure projects, private sector leaders had feared he would seek to nationalize the pension system as Argentina did in 2008.

Latin American Pension Reforms

Across Latin America, politicians have been moving toward altering the defined contributions systems prevalent in the region. Chile recently voted to allow emergency withdrawals that will harm its individual accounts-based pension system. Peru and Brazil are also exploring changes to allow withdrawals that would hurt the long-term sustainability of their systems or create hybrid systems.

The timing of the announcement allows the Lopez Obrador administration to preempt more radical proposals that would have further hurt investor confidence in Mexico. Lopez Obrador’s hard-line supporters had floated several, more radical pension reform proposals, including the creation of a mixed system where low-income workers would be part of a separate “defined benefits” system. Some supporters had also pushed to nationalize current individual pension accounts.

The proposal could help repair Lopez Obrador’s relationship with the private sector, which has been steadily deteriorating since his more statist administration took office in December 2018. The pension reforms were designed with the input and approval of Mexico’s main business sector organization, the Consejo Coordinador Empresarial (CCE). The support by the business sector, unions and the leadership of Lopez Obrador’s party will also make it difficult for his hard-line supporters to oppose his reform proposal.

The proposal, however, is not problem-free as there are still legitimate concerns over the long-term impact of the increase in employer contributions on both formal employment and small businesses. The pension reforms also do not mitigate the risk of AFOREs being forced through legislation to invest in Lopez Obrador’s pet infrastructure projects.

Crafty_Dog

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PEMEX losses deepen Mexico's financial woes
« Reply #659 on: September 02, 2020, 10:09:48 AM »
Pemex’s Losses Deepen Mexico’s Financial Woes
3 MINS READ
Aug 31, 2020 | 19:41 GMT

HIGHLIGHTS

Mexican President Andres Manuel Lopez Obrador's failure to strengthen Pemex's finances and shore up domestic oil production will exacerbate Mexico's public finance woes from COVID-19.  On Aug. 24, Mexico's state-owned energy giant Pemex reported its lowest level of monthly crude oil production since 1979, with the company's July output totaling only 1.6 million barrels per day (bpd) -- marking a 0.6 percent decline from June and a 4.5 percent decline from July 2019. Pemex was already struggling before the current COVID-19 crisis, seeing record losses during 2019 and the first half of 2020. Lopez Obrador's attempts to strengthen Pemex's bottom line and increase domestic oil production, however, will continue to fail without new private investment to help increase long-term production, as well as a business plan that forces Pemex to focus on the most profitable areas....

Mexican President Andres Manuel Lopez Obrador's failure to strengthen Pemex's finances and shore up domestic oil production will exacerbate Mexico's public finance woes from COVID-19.  On Aug. 24, Mexico's state-owned energy giant Pemex reported its lowest level of monthly crude oil production since 1979, with the company's July output totaling only 1.6 million barrels per day (bpd) — marking a 0.6 percent decline from June and a 4.5 percent decline from July 2019. Pemex was already struggling before the current COVID-19 crisis, seeing record losses during 2019 and the first half of 2020.


Lopez Obrador's attempts to strengthen Pemex's bottom line and increase domestic oil production will continue to fail without new private investment to help increase long-term production, as well as a business plan that forces Pemex to focus on the most profitable areas.

Mexico's current oil fields in the Gulf, such as Cantarell and Ku-Maloob-Zaap, are nearing the end of their productive life. Any substantive increase in production thus needs to come from new developments in either deep-water fields or the unconventional fields in northeastern Mexico, which Pemex does not have the resources or expertise to develop alone.

Other national oil companies, such as Brazil's Petrobras or Colombia's Ecopetrol, have engaged in strategies to get rid of unproductive assets and focus on their resources on most productive areas. These strategies have helped prevent both Petrobras and Ecopetrol's credit rating from being downgraded in recent years. Pemex's debt, meanwhile, was downgraded this year and last.

Lopez Obrador has relied on Pemex's revenue and resources to boost government spending, which has spread the company's already scarce resources thin by forcing its involvement in unprofitable activities. This has included placing Pemex in charge of building a new refinery in southeast Mexico and modernizing various other refineries.

Lopez Obrador's administration has also barred Pemex from partnering with private firms on long-term exploration projects, further accelerating the deterioration of the company's finances and profitability prospects.

Pemex will increasingly become a drag on Mexico's already stressed public finances, which will impede Lopez Obrador's ability to mitigate the fallout from COVID-19 ahead of 2021 midterm elections by robbing his government of a key revenue source.
Amid the fallout from the pandemic, Lopez Obrador is facing mounting pressure to revive the Mexican economy, which was in a recession even before the onset of the global health crisis. But this time, he Mexican government won't be able to rely on Pemex to shore up spending, especially in the absence of any tax reform that would enable the company to diversify revenues, and may be forced to redirect its scarce resources to keep Pemex afloat.

Pemex has long been a key financing source for the Mexican government, which is one of the main causes of the company's chronic underinvestment. Pemex's revenues currently make up around 10 percent of the federal government's total revenues.
The Lopez Obrador administration has provided Pemex with debt relief and even some subsidies in the hopes of giving the oil company some room to make more productive investments. But given the magnitude of Pemex's cashflow erosion, that money has instead been used to cover the company's current expenditures.

In response to the COVID-19 crisis, Lopez Obrador's administration has also not passed any meaningful fiscal stimulus packages, and has instead continued to fund its pet infrastructure projects that are already underway, including the $8 billion Dos Bocas refinery.