(Bloomberg) -- The decision by a top adviser to the Mexican president to resign while denouncing conflicts of interest in the government stunned the nation and its financial markets.
Finance Minister Carlos Urzua’s abrupt decision to quit on Tuesday was the first major cabinet loss since Andres Manuel Lopez Obrador took office in December. The scorching tone of his resignation letter, from a public official known for extreme politeness and addressed to a president who made fighting corruption his central campaign issue, made the departure all the more surprising.
“I’m convinced economic policy should be based on evidence, considering the various effects it may have and free from all extremism, whether from the right or left,” Urzua wrote in the letter posted on his Twitter account, adding that decisions by Lopez Obrador’s government on matters of public administration have lacked foundation. “However, during my term, these convictions weren’t shared.”
Within an hour, AMLO, as the leftist leader is known, nominated Arturo Herrera, Urzua’s deputy, to replace him. That helped to limit a tumble in the peso, which fell 1.2% at 3:23 pm local time, paring losses of as much as 2.3% that had followed the publication Urzua’s letter. The nation’s main stock index fell as much as 2%.
“He is not happy with the decisions we are taking,” Lopez Obrador said of Urzua in a video posted on Facebook, standing alongside Herrera after the minister’s resignation. “As this is a change, a transformation, sometimes people don’t understand we can’t continue with the same strategy. We can’t put new wine in old bottles.”
Urzua has been a long-standing ally of Lopez Obrador, having been his finance secretary when AMLO was mayor of Mexico City at the start of the last decade. Herrera is also a former finance minister of AMLO’s in the nation’s capital.
In his letter, Urzua also argues that members of AMLO’s administration had forced the finance ministry to employ people without the necessary knowledge for their jobs.
“This was motivated by influential personalities from the current government in a blatant conflict of interest,” Urzua wrote, without providing details.
Herrera has been the friendly face of AMLO with international investors in the first months of government, often traveling to New York and London to meet them and promote the plans of the administration. He has also been at times overruled by the president: in March, he told the Financial Times that Mexico had put a controversial $8 billion refinery project on hold, only for AMLO to say hours later that was a “misunderstanding” and that the work would continue.
Read More: Mexico Peso Falls as Investors Fret Over Finance Minister’s Exit
Urzua’s departure is negative because it suggests significant frictions within the AMLO administration and also the possibility that economic decisions may be done by policy makers without the required credentials, according to Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc. in New York.
“In light of the unusual content and suggestions made in Urzua’s resignation letter, there will likely remain the question of who in the AMLO administration will ultimately be in charge of defining economic policy," he wrote in a research note.
Calling the Shots
The nomination of Herrera won’t change economic policy in a significant way, according to Barclays Plc.
“AMLO was calling the shots and will continue to do so,” said Marco Oviedo, chief Latin America economist for Barclays. “The letter is showing that the administration is not as clean as it is intended to be.”
--With assistance from Cyntia Barrera Diaz and Michael O'Boyle.
To contact the reporters on this story: Eric Martin in Mexico City at email@example.com;Nacha Cattan in Mexico City at firstname.lastname@example.org
To contact the editors responsible for this story: Juan Pablo Spinetto at email@example.com, Walter Brandimarte
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