Settling on a new trade agreement for North America sooner rather than later has put Mexico, the United States and Canada in a better strategic position to handle a growing list of global disruptions, whether it is an outbreak of a deadly virus in China, tensions in the Middle East or yet to be resolved trade disputes elsewhere, Mexico’s secretary of finance and public credit said on Wednesday.
Arturo Herrera, speaking at LatinFinance‘s 5th Latin America Capital Markets Summit in New York, said that completing the US-Mexico-Canada Agreement (USMCA) sets the region up as a safe harbor amid the global storms.
“We hope these global uncertainties will be settled soon. But while they settle, it would be much better to have certainty in North America because there will be some sort of rearrangement of the global value chains. The global value chains are going to start looking for these spaces of certainty and the first one they are going to find is the North American free trade agreement,” Herrera said.
Earlier on Wednesday, US President Donald Trump signed the the agreement in Washington DC, joining Mexico as having fully ratified the agreement and leaving Canada to complete the process
USMCA, which will oversee $1.2 trillion in annual trade flow between the three countries, updated the rules governing labor and automotive industries and essentially replaced the 26-year old North American Free Trade Agreement (NAFTA). But Herrera, who is part of the one-year old government of President Andrés Manuel López Obrador, warned the new agreement was not going to immediately result in greater investment flows.
“Now the fact that we are now basically there doesn’t mean that investment is going to happen just instantaneously. It means that we need to create the conditions for that investment to happen and that means issues related to permits, to licenses, etc,” he said.
Looking forward on the fiscal and financial side for Mexico in 2020, Herrera reiterated the pledge that the government would run a primary surplus, highlighting coordination with Mexico’s subnational governments and its dexterity in coming to the markets to issue debt early. In January, the government sold $3.7 billion worth of euro and US dollar-denominated debt.
Even as it came to the market quickly with a large deal at some of the lowest interest rates it has ever secured, Herrera said there still remains work to be done in “reanimating” the nation’s financial sector.
Herrera ran through a list of financial market metrics – initial public offerings, assets under management in the pension funds, retail bank accounts – where the country falls short against its regional peers.
“We changed the investment regime of the pension funds and we were barely able to make an impact. What we are doing now is a deep search in trying to understand, which are beyond regulation, the real obstacles to the financial sector,” he said.
Asked if there would be more money put to work in the state-owned oil company Pemex, Herrera was non-commital.
“Well, capacity, we have it. It is a matter of if we are willing to give more funds to Pemex,” he said, adding that two main concerns about the company were largely resolved in last year’s debt liability management operations and capital injections.
“So within two or three big issues, Pemex is already in much better shape. But what we would like is the company now to stand by itself. Of course, it is probably the most important asset, not only for the government, but for the country,” he said.
PHOTO: Mexican Secretary of Finance & Public Debt, Arturo Herrera, speaking at the LatinFinance 5th Latin America Capital Markets Summit in New York, 29 January 2020. Photo by Leandro Justen