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AMLO gets reprieve from Trump - but still at a cost for Mexico

Alejandro Cegarra/Bloomberg

Andres Manuel Lopez Obrador.

- About 100,000 migrants seeking asylum could return to Mexico
- Mexico economy already slowing, ratings agencies taking action

By Nacha Cattan / Bloomberg

Petroleumworld 06 10 2019

Mexican leader Andres Manuel Lopez Obrador gained a temporary reprieve from U.S. President Donald Trump's tariff threat, but in exchange Mexico will need to accept an untold number of migrants seeking asylum in the U.S.

In an eleventh-hour tweet, Trump said he clinched a deal with Mexico to stop a 5% tariff from taking effect on Monday in exchange for a surge in immigration enforcement by the U.S's southern neighbor. That includes Mexico sending national guard troops to its border with Guatemala.

AMLO, as the Mexican president is known, said the agreement will be celebrated in Tijuana on Saturday, where he is holding a rally previously scheduled as an “act of unity."

“Thanks to the support of all Mexicans, we avoided the imposition of tariffs to Mexican products exported to the U.S.," AMLO posted in his Twitter account.

What may appear as a victory for Mexico will likely come at a cost to a country already smarting from a weak economy and overflowing immigration stations. Even before the recent influx of Central American migrants, there were close to 100,000 asylum seekers in the U.S. in 2018, and Mexico will have to house, feed and employ as many of them as Trump wants to send.

“The cost will be astronomical,” said Duncan Wood, director of the Mexico Institute at the Woodrow Wilson International Center for Scholars in Washington. “For Mexico it means they're going to have to set up facilities in the north of the country, and provide health care and education.”

GLOBAL INSIGHT: What's the Cost If U.S.-Mexico Trade Talks Fail?

The alternative may still have been worse. Before recovering Friday on hints a deal might be reached, Mexico's peso had depreciated to the weakest since the beginning of the year. And economists had predicted U.S. tariffs could tip Mexico into a recession, on top of forcing the central bank to boost interest rates to rein in inflation.

This week the country suffered the double whammy of having Fitch Ratings downgrade its sovereign credit rating and state oil company Pemex losing its investment grade status with the credit agency. Moody's Investor Service also put the sovereign on negative watch.

Analysts have been consistently cutting their growth forecast for Latin America's second-largest economy and the central bank is already considering the possibility of Mexico growing as little as 0.8% in 2019, which would be its worst performance in a decade.

Still, Mexican negotiators appeared relieved in Washington after the announcement. Foreign Minister Marcelo Ebrard told reporters Mexico was “satisfied” with the agreement, which included a pledge by the U.S. to help Central America address the causes of its immigration crisis.

“If we are successful, there's no reason to suppose that the numbers will continue to be what they are right now,” he told reporters, referring to the skyrocketing numbers of apprehensions of migrants crossing into the U.S. in recent months.

The high tension lived in the past week since Trump's ultimatum may have lasting effects in the U.S.-Mexico relationship. Trump could always revive his tariff threat if he decides the plan is not successful, says Andres Rozental, a former deputy foreign minister under President Carlos Salinas, who negotiated the Nafta trade agreement with the U.S. and Canada.

New tariffs or other measures are a possibility if migrant crossings continue at the same levels, Rozental added.

Story by Nacha Cattan from Bloomberg. 06 08 2019


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