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AMLO Takes Fitch Credit Downgrade Personally


Mexican President Andrés Manuel López Obrador. Photo: Frontera Info

By RICARDO CASTILLO    

It’s hard to understand why Mexican President Andrés Manuel López Obrador (AMLO) reacted viscerally to the two-level downgrading New York-based Fitch Ratings made of the state-owned oil company Petróleos Mexicanos (Pemex) last Tuesday, Jan. 29.

In any case, if there is going to be a culprit for the heinous performance of Pemex finances, it is none other than former President Enrique Peña Nieto’s failed and much-touted Energy Reform – along with his Energy Secretary Pedro Joaquín Coldwell – both of which sunk the company to a near-junk-bond status from BBB+ to BBB-.

In short, AMLO has not been wrong in accusing Peña Nieto and Coldwell of “leaving behind a pigsty.”

Let me quote literally what AMLO said on Wednesday, Jan. 30:

“It’s highly hypocritical what these organizations (rating companies) do. They stayed put during the sacking, they endorsed the Energy Reform. They knew that foreign investment never arrived and that there was no investment in Pemex. That was what wrought the downfall of oil production in Mexico.

“Now that we are recuperating Pemex ,they come up with their ratings or trying to disqualify us … yes, we do care but these (Fitch  analysts) are not infallible judges.” AMLO also proclaimed Fitch Ratings as an “accomplice” of the Peña Nieto administration.

AMLO lacked patience (which is not unusual) to wait for other results and jumped the gun. Right after Fitch made its Pemex credit downgrading public, another of the “Big Three” credit ratings agencies, Moody’s Analytics, came to the rescue and announced that it was taking a “wait and see” approach to give AMLO “the benefit of the doubt.”

Moody’s senior vice president in Mexico, Nymia Almeida, said “we want to give him the benefit of the doubt because this administration is coming on strong with cost-cutting, and that’s just what the company needs. If there’s been no money for investment, to stabilize production, it’s because it has spent more than it should have in projects that in other parts of the world are a lot cheaper.”

In the first place, AMLO should not have reacted the way he did to opinions on Pemex from New York. (He’s already had a rift with the Wall Street Journal over gasoline purchase reductions, in which the WSJ turnout out to be correct.) He should just park even negative comments from the bunch of opinionmakers who hate his guts, and, let me tell you, they abound, particularly in the Mexican media.

Much to AMLO’s relief, Almeida emphasized the fact that, since 2015, Moody’s has been observing a marked decadence on Pemex’s credit. What she did not say, but hinted at, is that if Moody’s had had to issue a rating on Pemex now, instead of staying on the previous still-favorable rating, Pemex would have definitely been downgraded. If that would have happened, AMLO definitely would have taken it to heart. Certainly,  Fitch’s rating is damaging not just to Pemex, but to the government’s finances in general, since the giant oil company remains  its leading cash cow.

There is in AMLO’s actions two undeniable facts:

One is that he has launched a brutal anticorruption campaign within Pemex which has the nation in both awe and shock. Nobody ever imagined that the amount of theft of Pemex fuels was so great, but not as great as the corruption within the company, which allowed for several thousands of fuel theft taps in the main ducts of the nation’s company.

Moody’s Almeida statement that “projects in other parts of the world are a lot cheaper” really meant that they were cost-effective and even profitable, because there was no leeching corruption within them.

Two, and this apparently influenced Fitch’s position, was that there was the visit at the beginning of January of a group of AMLO’s top officials to New York, including Finance Secretary Carlos Urzúa and current Pemex CEO Octavio Romero.

Their trip was organized by the multinational investment bank Barclays, a company that had forecast that Fitch might cut the rating by two levels, but had suggested that that might not occur until the second half of the year. Instead, Fitch did it in the first month.

Reports are that AMLO’s officials did not leave a good impression among interested investors who deemed them “greenhorns” since neither Urzúa nor Romero – an agricultural engineer – seemed to have a full grasp of the oil industry. It was obvious that AMLO’s men had never tarred their heels.

But they did propose cost-cutting moves for exploration and production projects and an estimated 11 billion peso investment a year, as well as a design for a special fiscal regime for secondary and tertiary recovery.

Most Mexican observers claim their move in New York flopped like a bad show on Broadway, even if AMLO claimed, upon their return that “they did very well.”

In fact, Barclays newsletter described the Mexican presentation as a “Crude Awakening,” for AMLO, Urzúa and, mostly, Romero, who had been forewarned by Barclays of the possible Fitch credit downgrade.

AMLO is definitely very serious about eradicating corruption in Pemex, which he always rightly saw as the root of all evils at the company. His main staple move is still underway, which consists in cutting the Gordian knot that is composed of the thousands of petty thieves tapping the Pemex ducts. Easier said than done.

In fact, on Thursday, Jan. 31, the first sign of the involvement of organized criminal gangs, who have made a mint stealing from the nation in the Salamanca refinery in the state of Guanajuato – currently shut down – came in a hand-painted message for AMLO, “ordering” him to withdraw military personnel now guarding the facility or “we’ll start killing innocent people.” Signed by “El Marro” (The Sledge Hammer), the sign was taken seriously and security was increased on the double.

But AMLO’s program to go after thieves is paying off, and will definitely help to pump up Pemex’s deteriorated finances and push the company’s international credit ratings up.

AMLO has one thing in his favor, and that is an enormous increase in popularity for fighting fuel theft, which former President Peña Nieto unabashedly allowed in what is being popularly interpreted as an attempt to destroy Pemex. Upon seeing the bottomless pit of corruption at Pemex, polls show that even though they are being hurt by fuel shortages at filling stations and  believe that “he could have planned it better,” the general Mexican population opinion agrees that Peña Nieto and his team of public administrators “left a pigsty behind.”

 

 

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Categories: Energy, Finance, Mexico, OpinionTags: , , , , , , , , , , , , , , , , , , , , , , , , , , ,

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