AMLO’s assault

Mexico’s central bank, time to raise the drawbridge?

Last month, Mexico’s president Andrés Manuel López Obrador (“AMLO”) announced a rate rise hours before it was officially unveiled by the institution whose job it is to make such announcements – the country’s central bank (“Banxico”). The president later apologised – “I reiterate my commitment to respect the autonomy of the Bank of Mexico,” – but the episode has raised fears over an administration perceived to be too frequently undermining Banxico’s independence.  

A local Morena – AMLO’s party – deputy explained, “Banxico is a fundamental institution for the control of inflation, and it is widely regarded as one of the most competent institutions in Mexico. Its role is even more important currently given price pressures exacerbated by conflict in Europe. Whilst the federal government has broadly respected its autonomy, it is understood that there are jitters among staff.”

“Banxico… is widely regarded as one of the most competent institutions in Mexico.  Whilst the federal government has broadly respected its autonomy, it is understood that there are jitters among staff.”

A local Morena deputy, Mexico

In November, AMLO rattled markets by replacing his original nominee to serve as the Banxico’s governor – a respected economist – with an obscure civil servant and AMLO loyalist. This has not been the only episode of controversy. In 2020, a bill proposed by Morena sought to force Banxico to buy excess dollars, in a move that critics said undermined Banxico’s autonomy. The proposal was eventually shelved after strong opposition. 

Its new governor, Victoria Rodríguez Ceja, the first woman to hold the post, has sought to reassure markets and opposition lawmakers that she will carefully guard its autonomy. Markets are particularly cautious about political interference given that Banxico is trying to tame high inflation, which hit 7.29% in the first half of March. Analysts have since been revising down their expectations for growth.  

An economic consultant based in Mexico City said, “Banxico will continue to carry out its institutional remit. Realistically, it will be difficult for AMLO to reform its structure because the international reaction would be highly unfavourable. This is in large part because confidence in the Mexican economy is based on the high technical capacity of Banxico.”

“Realistically, it will be difficult for AMLO to reform [Banxico’s] structure because the international reaction would be highly unfavourable.”

An economic consultant, Mexico

More broadly, AMLO has sought to centralise decision-making through much of his presidential term which is why the administration tends to be hostile towards regulators and independent bodies. According to the economic consultant, “The National Electoral Institute wants to strip away much of Banxico’s independence. This will have a catastrophic effect on investor confidence and would exert a negative impact on the quality of Mexican democracy. AMLO is capitalising on his popularity to centralise power in Mexico – he may pause this agenda until the results of gubernatorial elections are known later this year.” 

The strongest opposition to AMLO’s political reforms has come from abroad – the administration is keenly aware of this and has chosen more clandestine ways of increasing its influence over autonomous bodies from Banxico to the Supreme Court – promoting politically allied commissioners and governors to key positions for example.  

Fortunately, in the case of Banxico, the institution remains dominated by staff of considerable technical skill – true, many are close to the presidency but “… they are making decisions based on what is best for the national economy,” according to the economic consultant. “This latest episode has certainly set off alarm bells, but market jitters mean AMLO will fall back into line and realise there is only so far he can go before investors start to get worried at a time when Mexico is in desperate need of foreign capital. His personality however, which remains glued to the idea of centralising power and that he knows best, will endure,” added the consultant. Pressure on Banxico independence will remain for the foreseeable future.  

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