Mexico’s federal government will this year seek to place a green bond, market conditions permitting, the nation’s secretary of finance and public credit told LatinFinance in an exclusive interview, acknowledging a significant shift of investor sentiment toward environmentally conscious investing.
Speaking late on Wednesday, Arturo Herrera, said that even with the one-year old government taking a more defensive financial posture in the last year, including the sale of roughly $3.7 billion in debt this month in an effort to pre-finance its 2020 spending needs at favorable rates, investors are advocating for bond governed by environmentally and socially conscious-based criteria.
“Investors not only want to lend the money, they want to know what are you going to use it for and particularly they want to see in which sense it is going to be used with… respect to the environment or with… respect to social impact and social inclusion,” Herrera said.
Last year, Chile became the first sovereign issuer from Latin America to sell a sovereign green bond.
Issuing a green bond is “pretty much on our list” he said, adding that they will hopefully place one in 2020, a year in which he is also aiming to launch initiatives to spur a “reanimation” of the economy.
In 2019, according to preliminary estimates published on Thursday by the national statistics office, INEGI, Mexico’s gross domestic product contracted 0.1%, the first shrinking of the economy in a decade. The finance ministry also released estimates that the government will run a deficit of 2.1% of GDP. It also said the federal government’s financing needs would be 7.5% of GDP while overall public sector financing needs of 11.8% of GDP in 2020 are 0.7 percentage points less than in 2019.
Citing the long-term concerns of a lackluster economic growth rate that, on average, has been 2.4 percent since 1983, Herrera is eager to find out why recent changes in policy for things like taxes and pension funds have barely made an impact.
With his deputy Gabriel Yorio sitting nearby, Herrera said he would not recommend major legislative changes before attempting to better understand the problem of why small to medium-sized firms seem to have a limited ability to obtain the necessary financing to grow their businesses or list shares on the national stock exchange.
“You basically have the same number of firms listed in the market now as was in 1997-1998,” Herrera said, adding that he expects an action plan to be developed by the end of February.
Describing it as a chicken and egg problem, Herrera said Yorio initiated a listening tour of companies, both large and small, individuals and focus groups as well, on what they want and need from the financial sector in order to grow their business.
“I asked the under secretary to lead this. What I expect him to do, to deliver, is a very disciplined way on our side as the chair. But (talk with) the people who work on the credit side, on the development of the financial sector, but also the people who work on regulations, for example, of the pension funds. The pension funds are probably one of the most important, if not the most important source of funding long-term infrastructure and investment projects,” Herrera said.
Yorio smiled when he was reminded it is a leap year, offering an extra day in February. No matter, he said he’s already working nights and weekends on the initiative.
“Yes, there is a cyclical component (to the economy). Yes there is more local and global uncertainty, but that doesn’t mean we have to fold our hands,” Herrera said.
PHOTO: Mexican Secretary of Finance & Public Debt, Arturo Herrera, speaking at the LatinFinance 5th Latin America Capital Markets Summit in New York, 29 January 2020. Photo by Leandro Justen
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