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Mexico faces challenging budget cuts after finance minister resigns

Mexico is set for major budget cuts that may drag on growth, despite the resignation of Finance Minister Luis Videgaray, who was the driving force behind the 2017 fiscal plan.

His resignation was confirmed on Wednesday and came after the unpopular visit of Republican presidential candidate Donald Trump to Mexico, for which Videgaray was seen as to blame.

"Donald's Trump meeting with the Mexican president last week, which has widely been seen as a PR disaster, was reportedly Mr. Videgaray's idea," Adam Collins, Latin America economist at Capital Economics, said in a report on Wednesday.

Videgaray was well respected and had served as finance minister since the installment of President Enrique Peña Nieto in December 2012. His departure came at an inopportune time, with the 2017 budget due to be introduced to Mexico's congress later on Thursday. He had pushed for fiscal consolidation in the wake of a hit to public finances from lower oil prices.



Luis Videgaray
Yuri Cortez | AFP | Getty Images
Luis Videgaray

"There will be concerns the decision could signal that the government is about to change tack on fiscal policy," Collins said.

However, Pena Nieto has emphasized that the government will stick to its austerity budget.

"The risk is that cuts will impact public investment and act as a drag on growth, which is already lackluster," Nicholas Watson, senior vice president at Teneo Intelligence, said in a report on Wednesday.

The International Monetary Fund sees Mexico's economy growing by 2.5 percent this year and 2.6 percent in 2017.

"It is not encouraging that cuts made to the 2016 budget fell heavily on energy regulators, which play a crucial role in the continuing roll-out of energy reforms," Watson added.

Jose Antonio Meade, an experienced political operator who has previously served as finance minister, is expected to replace Videgaray.

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