Mexico – The Psychology of AMLO

Carlos Urzua’s sudden resignation as finance minister has re-opened a series of questions about Mexican governance. Chief among these questions is that of the reemergent risks of the AMLO administration’s fiscal ( im )prudence. If that is not enough, there are credible concerns over the extent to which extreme ideology is being prioritized above pragmatism in AMLO’s administration. Further, it is unclear how intra-cabinet disputes are affecting policy. While these questions are all indeed important, they fail to capture this sui generis administration in its quintessence. This administration’s flavor of populism is unique. Contrary to the generic left-leaning populist playbook, this administration’s sticks to policies promoting fiscal prudence, free trade, and those that honor central bank independence. Despite this government targeting a higher primary fiscal surplus than those prior there is a very clear risk-premium. For example, if we take the year-to-date average of dollar bonds, we see that Mexican 10year bonds are trading in line with countries with a lower rating.