By Juan Montes and Anthony Harrup
MEXICO CITY -- Mexico's lower house of congress on Tuesday
postponed debate on a controversial bill that bankers and critics
said would jeopardize the central bank's autonomy by requiring it
to buy foreign currency in cash that banks are unable to put into
the financial system.
Proponents argued the bill aimed to benefit Mexicans who receive
remittances or tourist dollars in cash but can't exchange them or
are forced to exchange them on the black market at unfavorable
The central bank said the bill, as passed last week by the
Senate, would put the country's $195 billion in reserves at risk
because the bank could end up buying dollars from illicit
Following sharp criticism of the proposal from the central bank,
private banks and major credit-rating firms, lawmakers in Mexico's
lower house, the Chamber of Deputies, abandoned plans to debate and
vote on the bill Tuesday, the last day of the current legislative
session. Both houses of congress plan to hold joint hearings with
all interested parties to agree on a bill that could be voted on in
the session starting in February.
"We're not giving up. We still want to go ahead, but at the same
time we want to open a broad debate and want the Bank of Mexico to
tell us how we can do this without hurting them," said Ignacio
Mier, the majority leader in the lower house and a member of
President Andrés Manuel López Obrador's Morena party.
The Mexican peso strengthened more than 1% against the U.S.
dollar following the decision to postpone the vote.
Mr. Mier said lawmakers have asked the Bank of Mexico to make a
proposal that would tackle the problem and at the same time respect
the bank's autonomy and its reserves.
The proposed legal changes were widely seen by economists as one
of the most anti-market actions under Mr. López Obrador's
two-year-old administration. Relations with investors already have
soured after the cancellation of a $13 billion Mexico City airport
under construction, and the renegotiation of several gas pipeline
contracts with private firms.
"Compromising the central bank's autonomy would undermine the
cornerstone of Mexico's macroeconomic stability and a key strength
of its sovereign credit profile," Moody's Investors Service said in
a statement on Monday.
Other market participants warned of larger consequences on the
international financial stage.
"One of the risks of the proposed law that would require the
Bank of Mexico to buy up foreign cash is that it could lose access
to Fed swap lines," said Carlos Cantú, an economist with the Bank
for International Settlements, in a post on Twitter.
Bank of Mexico Gov. Alejandro Díaz de León told legislators on
Friday that despite anti-money-laundering controls that limit the
use of foreign cash in Mexico, there is a residual risk the bill
would transfer to the central bank.
Only around $200 million of the $30 billion in remittances
received in the first nine months of this year was in cash, or less
than 1%. In that period, commercial banks captured around $4.7
billion in cash, of which all but $102 million were either placed
with Mexican clients or repatriated to their country of origin
though correspondent banks, Mr. Díaz de León said.
"We don't consider this to be a generalized problem of Mexican
banks," he said.
He said only one institution had more than $10 million that it
was unable to repatriate. The official was seen widely to be
referring to Banco Azteca, owned by billionaire Ricardo Salinas
Pliego, who is close to President López Obrador.
In a recent blog post, Mr. Salinas Pliego defended the bill
passed by the Senate and rejected assertions it jeopardizes the
central bank's autonomy or puts the bank at risk of buying drug
Several opposition lawmakers said Mr. Salinas Pliego lobbied for
the bill in congress and pressured its sponsor, Senate Majority
Leader Ricardo Monreal, and others to support it. Mr. Monreal
flatly denied this.
A spokesman for Grupo Salinas, a conglomerate that includes
Banco Azteca as well as Mexico's second-largest TV broadcaster and
a popular retailer, had no comment.
The Bank of Mexico, one of the most orthodox in the region, has
been a key pillar of Mexico's financial stability since it was
granted autonomy in 1994 after a series of fiscal crises and peso
devaluations that devastated the economy.
Since taking office in 2018, Mr. López Obrador has repeatedly
said he respects central bank autonomy. But analysts warned that
the Bank of Mexico bill could badly hurt Mexico's reputation on the
international financial stage, increase peso volatility and damage
his government credentials' before foreign investors.
The Association of Mexican Banks said the bill would damage the
international trust won over many years by the Bank of Mexico and
the banking system.
Write to Juan Montes at email@example.com and Anthony Harrup
(END) Dow Jones Newswires
December 15, 2020 16:59 ET (21:59 GMT)
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