Background on the Current Situation
During the pandemic, legislators loyal to President López Obrador proposed an initiative in Congress to eliminate the Administrators of Retirement Funds (Afores) and nationalize workers’ savings. This attempt, however, faced widespread rejection as they lacked the qualified majority required to alter laws at that time.
Subsequent Developments
In April 2024, the official majority in Congress approved the creation of the Pension Fund for Well-being, which merely claimed unclaimed resources from Afores.
The Afores manage approximately 7,528,340.30 million pesos, as reported by the National Commission for the Retirement System. This sum is tempting for populist agendas, especially given the extravagant public spending and exponential growth of their assistentialist programs.
Implications for Pemex
Amidst numerous spending commitments, one has become a priority due to the financial threat it poses. Petróleos Mexicanos (Pemex), the world’s most indebted oil company, requested authorization to list debt bonds on the Mexican Stock Exchange, which are already traded in international markets.
Pemex owes 3,777 million dollars, a mere drop compared to its 120,000 million pesos debt in financial markets and with suppliers. This move seems to pave the way for accessing abundant retirement funds.
Potential Consequences
Local investors are aware that Pemex’s obligations are considered governmental responsibilities. However, using such high-interest resources from retirement savings is financially burdensome for the public treasury, especially with an economy still holding an investment-grade status.
Should even a portion of Pemex’s debt be transferred, it would almost automatically result in losing the investment-grade status.
Authoritarian and creative measures could force the use of retirement savings resources, blending Pemex’s junk-bond costs with sovereign Mexican debt costs.
Key Questions and Answers
- What would prevent the regime from making any necessary law changes to force such investments? The regime’s history of poor management, particularly in recent years, has led to a financial failure that could drag public finances along.
- How would nationalizing Afores resources impact Pemex’s debt situation? Accessing these funds could provide temporary relief for Pemex’s debt burden, but it would come at the expense of workers’ retirement savings and could further deteriorate Mexico’s credit rating.
