01 Apr 2020
Despite ongoing global uncertainty, the Mexican economy is fortified with four lines of defense which can shield it from turmoil such as the spread of the coronavirus pandemic.
Earlier last month, Finance Minister Arturo Herrera stated that the four lines of defense: public finance policies, strong credit lines, solid stabilization funds and oil price hedging; can safeguard the economy from events such as a slowdown in global oil prices, a depreciating peso and the implications of Covid-19.
Speaking at a press conference on March 17, the finance minister said that the four lines of defense are all designed to cushion the economy rom uncertainty and instability.
Since 1995, the Finance Ministry “has tried to build public finances [within] a framework of extraordinary caution,” he said. “In other words … leave the economy protected in the face of very bad scenarios.”
First and foremost, Herrera noted that 78% of Mexico’s public debt is in pesos and that 81% of the owed amount is amendable according to fixed interest rates. He also added that 100% of Mexico’s external debt is subject to fixed interest rates, while the majority of the debt is repayable over the long-term.
Secondly, the minister also said that Mexico has “extremely strong” lines of credit which enable it to “confront any storm”, elaborating that if necessary, the government had access to up to US$61 billion from the International Monetary Fund (IMF) and $9 billion from the United States Treasury.
Thirdly, Herrera also highlighted the government’s healthy stabilization funds – which are systems established to shield the
economy from fluctuations in commodity prices or other adverse events. One fund currently has 158 billion pesos ($7.4 billion), while the other has 60 billion pesos, the minister pointed out.
“The fourth line of defense has to do with the hedging of oil income,” he added.
In January, the Mexican government said that the Finance Ministry had secured a $49-per-barrel price for oil, totaling to $1.37 billion. In the same month, Pemex CEO Octavio Romero also said that the state oil company has already developed a “small portion” of its 2020 hedge, although he did not disclose details on the price it had secured or the number of barrels of oil t which it would be applicable.