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Mexican central bank succession clouded by presidential race
November 9, 2017 / 10:42 PM / a month ago

Mexican central bank succession clouded by presidential race

MEXICO CITY (Reuters) - Nearly a year after Agustin Carstens said he was stepping down as governor of Mexico’s central bank, electoral politics is complicating his succession at a time when the economy is already under threat from Donald Trump’s trade policy.

FILE PHOTO: Governor of the Central Bank of Mexico Agustin Carstens awaits the start of the International Monetary and Financial Committee (IMFC) Meeting during the 2016 World Bank-IMF Spring Meeting in Washington April 16, 2016. REUTERS/Joshua Roberts/File Photo

The new governor must be nominated by President Enrique Pena Nieto, but stalling a decision is the fact that one leading candidate, Finance Minister Jose Antonio Meade, is also on the shortlist to be the 2018 presidential contender for the ruling Institutional Revolutionary Party (PRI), party officials say.

Carstens is due to step down on Nov. 30 to take charge of the Bank for International Settlements (BIS) in Basel, and the PRI presidential candidate may not be decided until mid-December or later, creating the risk of an interregnum.

Only the third governor since the bank became autonomous in 1994, Carstens announced his departure in December. He later agreed to stay on another five months as Mexico weathered uncertainty caused by Trump’s ascent to the U.S. presidency.

Trump’s threats to exit the North American Free Trade Agreement (NAFTA), which underpins much of Mexico’s commerce, helped push the peso to record lows and increased pressure on the bank to raise rates to an eight-year high.

Such concerns make the failure to provide clarity to markets about Carstens’ successor more damaging, and risked undermining the bank, opposition senator Juan Carlos Romero Hicks said.

“It’s one of the few institutions that still has credibility,” Romero, a member of the center-right National Action Party (PAN), told Reuters.

Banxico, as the central bank is known, helped cut inflation from double digits in the 1990s to a record low of 2.1 percent at the end of 2015. But the peso slump and a removal of gasoline subsidies in January drove inflation to a 16-year-high, above 6 percent, in 2017.

Carstens delivered his final monetary policy decision on Thursday, as the bank held interest rates unchanged at 7.00 percent.

“Markets are starting to wonder how long the president is going to wait to make the nomination, and that could cause nervousness,” said Alfredo Coutino, director for Latin America at Moody’s Analytics.

New board members must be confirmed by the Mexican Senate, which goes into a recess on Dec. 15. Pena Nieto has said the PRI presidential candidate should be announced before the pre-campaign phase for the July 2018 election begins on Dec. 14.

As long as Meade is in the running for the PRI candidacy and the central bank, questions will remain over the succession, according to three senior party officials, who spoke on condition of anonymity due to the sensitivity of the matter.

A spokesman for Pena Nieto’s office said he could not say when the new governor would be nominated. The spokesman and the central bank declined to comment on concerns that the drawn-out process could hurt the bank.

Among other leading candidates for the job mentioned by officials are deputy central bank governor Alejandro Diaz de Leon and Miguel Messmacher, a deputy finance minister.

If a new governor is not appointed before Carstens steps down, the law mandates that the longest-serving member of the bank’s five-strong board assumes control in the interim. That would pass responsibility to 10-year veteran Roberto del Cueto.

Moody’s Coutino expressed concern the government could nominate a finance ministry official who might be willing to push for lower borrowing costs to boost the economy.

However, Richard Hall, an emerging market analyst at T. Rowe Price in Baltimore, said he was not concerned.

“All the potential candidates would pass the basic test. They are all orthodox economists,” said Hall. “None of them are crazy-willing-to-take-orders-from-the-president kind of guys.”

Reporting by Sharay Angulo, Dave Graham, and Michael O'Boyle, Editing by Rosalba O'Brien

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