Instant View: Mexican finance minister quits, deputy named successor

MEXICO CITY (Reuters) - Mexican Finance Minister Carlos Urzua resigned on Tuesday, citing deep differences over economic issues, in a blow to the government of President Andres Manuel Lopez Obrador, who named a well-regarded deputy minister to replace him.

Urzua, a moderate, said in his resignation letter that the administration made policy decisions without “sufficient foundation” and that his belief was not shared that economic policies should be based on evidence and free of political motivation.

MARKET REACTION:

*Mexico's peso declined 2.25% to 19.34 per dollar, its weakest level since May 31. It rebounded in part after Deputy Finance Minister Arturo Herrera was named as Urzua's replacement.

*The country's main stock index fell as much as 1.77%, to its lowest level since June 3. It also regained some ground.

COMMENTS:

ALBERTO RAMOS, HEAD OF LATIN AMERICAN RESEARCH, GOLDMAN SACHS:

“This is an unexpected and negative development for it suggests significant policy and inter-personal frictions within the AMLO administration.”

The move suggests “economic policy decisions may be guided and informed by non-economic/financial criteria and led by policymakers without the required and relevant credentials to define policy and manage the fiscal accounts.”

“He was seen as a moderate policymaker, and a pretty disciplined manager of the public finances.”

Urzua's letter “does not leave the administration in good light.”

GABRIELA SILLER, ANALYSIS DIRECTOR, BANCO BASE:

“The market reaction is responding not only to his resignation, but also to the letter.”

“His rationale is very strong, and we believe this will alarm the ratings agencies even more and increase the probability of a credit ratings cut, not immediately, but probably toward the end of the year.”

JAMES BARRINEAU, HEAD OF EMERGING MARKETS DEBT RELATIVE, SCHRODERS:

“We think this is a negative development. While Secretary Urzua's second in command will take over, this will increase questions about the AMLO administration among both investors and credit rating agencies.”

AARON GIFFORD, EMERGING MARKETS SOVEREIGN ANALYST, FIXED INCOME DIVISION, T. ROWE PRICE ASSOCIATES:

“Urzua's departure is evidence of the disarray the government is experiencing.”

“With a market-friendly figure out the door, risk premium will need to rise, especially as this is probably just one of the perhaps several departures to come from AMLOs relatively pragmatic economic and finance team.”

“The question is whether even fewer capable people can successfully steer the ship during these turbulent times.”

EDWARD GLOSSOP, LATIN AMERICA ECONOMIST, CAPITAL ECONOMICS:

Urzuas resignation “hints that loose fiscal policy may be on the way. While that might boost growth, it would cause bond spreads to widen and could generate a lasting risk premium on Mexican assets.”

The peso's drop is “likely to spook most members of the central bank, with the exception of Gerardo Esquivel, who is voting for interest rate cuts, and prevent monetary easing in the near term.”

“While AMLO has so far kept investors onside, cracks might now start to be appearing.”

RICARDO ADROGUE, HEAD OF BARINGS' GLOBAL SOVEREIGN DEBT AND CURRENCIES GROUP:

“The one calling the shots is Andres Manuel Lopez Obrador. Having a good finance minister is a positive, but not a necessary condition for investors to like Mexico.”