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Mexico Central Bank Defends Autonomy as AMLO Concern Lingers

Eric Martin
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Mexico Central Bank Defends Autonomy as AMLO Concern Lingers

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Mexico’s central bank on Friday called for the preservation of its independence amid economist concerns that President Andres Manuel Lopez Obrador may encroach on its independence, as he has with other autonomous institutions.

One by one, the four heads of Banco de Mexico over the past three-and-a-half decades took the podium to praise the benefits of autonomy and the importance of price stability for society at a conference in Mexico City celebrating 25 years of independence.

Governor Alejandro Diaz de Leon called autonomy, granted in 1994, one of the most important economic reforms of recent years. His predecessor Agustin Carstens, now head of the Bank for International Settlements, urged the bank to educate citizens about the benefits of independence, noting that more than a third of Mexicans are too young to remember life before Mexico tamed the double-digit inflation that characterized the 1980s and 1990s.

In private conversations, a half dozen economists and conference attendees, who asked not to be named due to potential reprisals, said that despite Lopez Obrador’s insistence that he respects the autonomy, they fear eventually he’ll be tempted to push the central bank for looser monetary policy to lift a frozen economy.

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Asked about Lopez Obrador’s view of Banco de Mexico, his spokesman, Jesus Ramirez, said that respecting its independence is a principle of the president’s economic policy.

“We haven’t intervened, and we aren’t going to intervene in the six years of the administration,” he said.

Policy Easing

Asked if he sees autonomy at risk, Governor Diaz de Leon avoided answering the question directly. Everyone is entitled to their own view of monetary policy, and the best way to convince society of the need for autonomy is for the bank to do its work well and meet its established goals, he said.

Part of the concern about autonomy stems from Lopez Obrador’s clashes with other independent institutions, from the energy regulator known as CRE to the Supreme Court. In July, Lopez Obrador said he’d like the central bank to place greater attention on growth. They’ve started to cut rates since then to the current 7.5% as inflation slowed, with Lopez Obrador’s two appointees voting for a larger cut in September, splitting the board 3-2.

Read more: Why Central Banks Have Become Political Punching Bags

“The risk remains given what has been observed in a number of regulatory boards and agencies,” said Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc. The possibility of interference “increases if the economic stagnation we have observed since late 2018 continues.”

From Turkey to India, central bank independence is under attack globally. That’s true of Mexico’s northern neighbor, where U.S. President Donald Trump has repeatedly criticized the Federal Reserve’s interest-rate policy, breaking with more than two decades of White House tradition of avoiding comments on monetary policy.

Mixed Signals

Lopez Obrador has worked to send the message that he respects the central bank’s autonomy. Yet in August he criticized the board for overreach when it suggested that his policies created uncertainty that held back investors. At the time, Diaz de Leon countered that policy makers have been consistent in highlighting that they need macroeconomic stability in order to achieve their 3% inflation goal.

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Unlike some other countries in Latin America, Mexico’s central bank is autonomous in its operations and management. The executive branch has no vote in its decisions, and board members can only be removed for serious violations of rules. The central bank also has a priority mandate of price stability, unlike the U.S., where the Federal Reserve’s mandate includes maximum employment.

While changing the central bank’s mandate would require a two-thirds majority in both houses of Congress to change the constitution, Lopez Obrador has built them for other initiatives.

“It’s clear that the risk exists” for the Lopez Obrador administration to intervene in the central bank, said Valeria Moy, director of the think tank “Mexico, Como Vamos” and an economist at the nation’s Autonomous Institute of Technology, a private university. “Even if no one wants to say it very loudly.”

To contact the reporter on this story: Eric Martin in Mexico City at emartin21@bloomberg.net

To contact the editors responsible for this story: Juan Pablo Spinetto at jspinetto@bloomberg.net, Robert Jameson

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