CS Credit Suisse Group

MEXICO CITY—Donald Trump's recent visit to Mexico, widely seen in the country as a humiliation, claimed a high-profile political victim on Wednesday with the resignation of Finance Minister Luis Videgaray, President Enrique Peñ a Nieto's closest adviser.

Mr. Videgaray, who played a key role in helping orchestrate the Trump trip, was succeeded by José Antonio Meade, the country's social development minister and former finance chief, Mr. Peñ a Nieto told a news conference.

Mr. Videgaray's departure is a blow to the president. The former investment banker was widely seen as the brains behind the Mexican president and the driving force behind a series of high-profile overhauls in the past few years, including opening Mexico's closed oil industry to private investment for the first time since 1938.

Former Foreign Minister Jorge Castaneda described Mr. Videgaray on Twitter as Mexico's de facto prime minister, asking "who will play that role now?"

Neither the president nor Mr. Videgaray gave a reason for the resignation. But it comes amid a public uproar over last week's visit by Mr. Trump, who is widely disliked in Mexico for his campaign rhetoric about the country and its people as well as his proposal to build a border wall and have Mexico pay for it. Mr. Videgaray had met with Mr. Trump's son-in-law before the visit, a person close to the Mexican government said.

The visit was seen as a disaster for Mr. Peñ a Nieto, who was seen as failing to stand up to Mr. Trump and treating him like a visiting head of state. The Mexican leader is already struggling with the lowest approval ratings of any Mexican leader in the past two decades, and analysts expect those ratings to fall further. Polls showed 85% of Mexicans thought the Trump visit was a bad idea.

In the days that followed the visit, obvious splits emerged in Mexico's cabinet. The Foreign Ministry and the powerful Interior Ministry both made it clear they hadn't supported the idea, and media reports soon placed the blame for the invitation on Mr. Videgaray.

"People are so fed up and bloodthirsty that a big head had to roll, so Luis fell on his sword," said a person close to Mr. Videgaray. "He is not only paying for his mistakes but for the mistakes of the government in its totality."

The cabinet reshuffle is the first step by the president in trying to limit the damage from the Trump visit, said Guillermo Valdé s, a former head of Mexico's intelligence agency. "It's the least he could do to try to recover some credibility given that he has 27 months left in power," he said.

Mr. Videgaray was the intellectual force behind several key overhauls to Mexico's economy, including opening up the oil industry, boosting competition in the telecommunications industry, and changes to the education system that force the powerful teacher union to end decades-old practices like inheritable teacher positions.

"He's leaving with a superb track record on reforms, and will be remembered as one of the main architects of the reform efforts going back to 2013," said Alonso Cervera, Credit Suisse's chief Latin America economist.

Mr. Videgaray won't take a public post for now, Finance Ministry spokeswoman Claudia Algorri said.

In the past two years, Mr. Videgaray has come under fire for tepid growth in the Mexican economy, as the government ran slightly bigger deficits and added to public debt. He also rankled Mexico's business class by raising taxes. Widely admired outside Mexico, at home he was often criticized for being arrogant.

While he became an increasingly unpopular figure along with the president, his final undoing was clearly Mr. Trump's visit, said Jonathan Heath, a Mexico City-based economist.

Several weeks ago, a mutual friend on Wall Street brought Mr. Videgaray together in New York with Jared Kushner, Mr. Trump's son-in-law and a key adviser, according to a person close to Mexico's government.

That initial meeting went well, the person said, and Mr. Videgaray was eager to build a relationship with Mr. Trump's camp to ease jitters in financial markets over the effects on Mexico of a possible Trump presidency. Mexico's peso has weakened every time Mr. Trump has risen in the polls, due to his negative comments about trade with Mexico and claims that Mexicans are stealing U.S. jobs.

Mr. Peñ a Nieto has publicly said it was his idea to invite Mr. Trump to Mexico; the person close to the government said Mr. Videgaray encouraged the initiative. It was Mr. Videgaray who received Mr. Trump in Mexico's presidential hangar and took him to the Los Pinos presidential residence, where Mr. Trump met with the president.

Other ministries felt blindsided by the visit. Mexico´ s Foreign Minister Claudia Ruiz Massieu was inaugurating a new Mexican consulate in Milwaukee on Aug. 30, just hours before the surprise meeting was disclosed. The visit fit into a public-relations blitz she was leading in the U.S. aimed at countering the negative perceptions of Mexico generated by Mr. Trump´ s campaign.

Mr. Videgaray tendered his resignation once before, in late 2014, when The Wall Street Journal reported he had bought a weekend house at preferential terms from a controversial government contractor who had also sold a home to first lady Angelica Rivera. At the time, Mr. Peñ a Nieto didn't accept the resignation.

Despite that scandal, Mr. Videgaray was seen by most economists as a check on the political demands of the president's PRI party. Mr. Videgaray was strongly supportive of recent anticorruption legislation and stood up to the president on matters of public spending, they said.

Economic growth in the first three years of the Peñ a Nieto administration averaged 2% a year. Public-sector debt rose from 38% of gross domestic product in 2012 to 48% in 2015, and is expected to exceed 50% by the end of this year. Rising public debt recently prompted Moody's Investors Service and Standard & Poor's to change Mexico's outlook to negative.

Mr. Vidagaray's successor, José Antonio Meade, is a 47-year-old with a doctorate in economics from Yale University and a long history of working in government. He was finance minister from 2011 to 2012 under President Felipe Calderó n, after serving as Mr. Calderon's energy minister. Under Mr. Peñ a Nieto he has been foreign minister and minister for social development.

"His previous tenure was solid, without being extraordinary. He's seen as very orthodox, which is a good thing given rising debt and the need for a budget adjustment," said Oscar Vera, a Mexican economist.

Anthony Harrup and Santiago Pé rez contributed to this article.

Write to David Luhnow at david.luhnow@wsj.com

(END) Dow Jones Newswires

September 08, 2016 01:55 ET (05:55 GMT)

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