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Business News » World News

Mexico will not pay for Trump wall, but seeks cooperation

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Mexico will not pay for Trump wall, but seeks cooperation
A picture illustration shows Mexican pesos and US dollars banknotes in Mexico City. Image Source:Reuters

Mexico said on Wednesday it would work with Donald Trump for the benefit of both nations after his surprise US election win, but reiterated it would not pay for his planned border wall, which stirred up deep resentment during a fraught presidential campaign.

As Trump strode toward victory, the peso plunged 13% in its biggest fall since the Tequila Crisis devaluation 22 years ago, before paring losses to trade down 8.7% at 19.91 per dollar. Still, officials held back from taking action to support the peso despite it hitting lifetime lows overnight.

Trump`s threats to dump the North American Free Trade Agreement (NAFTA) agreement with Mexico and Canada, and to tax money sent home by migrants to pay for the controversial wall on the southern border, have made the peso particularly vulnerable to events in the US presidential race.

"Very hard times are coming to Mexico," said analyst Gabriela Siller of Mexican bank BASE.

ALSO READ: USA elects Donald Trump as President; what it means for India

Still, President Enrique Pena Nieto said he called to congratulate Trump, and had agreed to meet the New Yorker during the transition phase to discuss joint cooperation, which he hopes would strengthen the competitiveness of North America.

Welcoming Trump`s victory speech pledge to seek "common ground" and partnership with other countries, Pena Nieto said in a televised statement that Mexico shared the same vision.

"Dialogue to make agreements is still the best route for Mexico, and my government will seek opportunities that benefit both nations in this new phase of bilateral relations," he said.

Nevertheless, Foreign Minister Claudia Ruiz Massieu reiterated that Mexico would not pay for Trump`s proposed wall. The vow to make Mexico pay for the barrier was a key feature of his stump speeches.

Ratings agency Fitch said Trump`s victory may add downside risks to Mexico`s economic growth, while Moody`s warned the government may not meet its goals of cutting its budget deficit if flows of trade or foreign investment wilt under Trump.

Growth Worry

Both Moody`s and Standard & Poor`s rating agencies put Mexico`s credit rating on a negative view earlier this year.

Gabriel Casillas, an economist at Banorte, predicted Trump`s victory will have 0.3% point from 2016 economic growth, and said the peso could suffer for months as the market tries to figure out what Trump could do in office. 

"Because of the uncertainty of what Trump could do, consumers will postpone purchases, companies will postpone investments," Casillas said, but added that he thought Trump`s actual policies will fall short of his rhetoric, not least because unwinding trade with Mexico is easier said than done."I don`t think Trump will do a lot of the things he said he will do," he said.

Others were more pessimistic.

Morgan Stanley analysts said in a note that the fallout from a Trump presidency would have "deep ramifications" for the equity market and that foreign investment could stall.

"Risks of a hard landing in Mexico have clearly risen," the bank`s analysts said.

But for now the market pulled back from its initial panic. The peso recovered from its low after Trump took a measured tone in his victory speech and did not invoke any of his threats against Mexico, analysts said. 

ALSO READ: Asia shares rebound as Donald Trump turnaround 'astonishes'

Mexico`s benchmark IPC stock index fell more than 3.0% initially, but pared losses and closed down 2.23%.

"The market has calmed down a bit and given the benefit of doubt to a more conciliatory Trump," said Marco Oviedo, an economist at Barclays in Mexico City.

Mexican-based economists had expected a snap interest rate rise, but central bank Governor Agustin Carstens told a news conference on Wednesday morning the bank would take any necessary measures pending market conditions.

He said it would hold a monetary policy meeting as scheduled on November 17, but did not announce any immediate steps to support the currency. Mexico has already raised its benchmark interest rate three times this year to support the peso.

Finance Minister Jose Antonio Meade said authorities were monitoring the situation and would act if needed.

The central bank hiked its key interest rate in September by 50 basis points to 4.75% to anchor inflation expectations following the peso`s creeping depreciation.

Mexico has more than $175 billion in foreign reserves, and Carstens said last month he would consider using a $90 billion International Monetary Fund flexible credit line "in the event of an external shock.

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TAGS:
MexicoEconomyDonald TrumpUS ElectionAgustin CarstensAntonio MeadeClaudia Ruiz Massieuinterest rate hike
Written By: Reuters
Updated: Thu, Nov 10, 2016
09:37 am
Mexico City , Reuters
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