What would happen if Mexico stops exporting oil as proposed by AMLO

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Without having a plan to compensate for the entry of foreign currency generated by its sale, the economy is put at greater risk, analysts said.

Although the national economy has been decreasing its dependence on oil, it is still an important source of income for the country.

As of November 2021, crude exports represent 4.88 percent of net sales abroad, equivalent to 21.8 billion dollars.  

If these exports did not exist, the accumulated trade deficit in the year would be 33,892 billion dollars and not 12,881 billion registered so far, said the chief economist of Banco Base, Gabriela Siller.

“With this, less foreign currency would enter the country and the peso would depreciate,” said the specialist.

In addition, he said, the current account deficit would have to be compensated with inflows into another account, such as the financial one, where capital inflows should be made in an amount similar to the one that is no longer exported.

President Andrés Manuel López Obrador (AMLO), in his message for the Third Year of Government, reiterated that Mexico will stop exporting and importing crude in 2023. His strategy is that refineries, including Dos Bocas and Deer Park, can cover the demand for fuels.  

According to the analyst, there is currently an outflow of capital in the accumulated of the year around 265 billion pesos, so the interest rate should rise more (and relatively quickly) in order to attract the necessary capital to offset the lower exports.

But, he said, the higher interest rate discourages consumption and investment, which would lead to lower economic growth.

Another alternative would be to encourage exports of other products or services, such as tourism, to compensate for the drop in oil exports. However, this would require time-consuming public spending programs.

“In summary, saying that Mexico will stop exporting oil without having a plan to compensate for these foreign currency inflows puts the economy at greater risk,” he said.

Source: marcomares.com.mx

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