The Mexican “Super Peso”: Thanks to AMLO or Despite Him?

The health crisis came like a bomb on the world economy, different projected catastrophic scenarios became a reality. The economic crisis brought with it unemployment, inflation, recession, and other problems for the world economy. Latin America was no exception, its relationship with the US economy seemed to condemn the region to one of the worst crises, however, the Mexican peso has managed to maintain its value against the dollar. The big question is how has the AMLO government achieved it?

The Mexican "Super Peso"

During the government of Enrique Peña Nieto (2012-2018), the Mexican peso depreciated by 56%, going from 12.92 to 20.26 pesos per dollar. More than 7 pesos, the currency was devalued during the six years of government. In 2018 the expectation towards the government of López Obrador, the first leftist in the country's history, was catastrophic. Everything indicated that the fall would continue and could soon reach 25 pesos per dollar, according to economic analysts at the time. The apparent clash that was projected between AMLO and Trump, the renegotiation of the Free Trade Agreement (NAFTA) and the economic proposals of the Mexican president scared investors.

However, AMLO managed to carry out the renegotiation of NAFTA (now T-MEC) and created, despite the differences, a functional relationship with Trump. And this was the first step towards the "super peso", as the Mexican press has called the positive performance of the currency, which reached its lowest level against the dollar in February 2020 with 18.5 pesos, precisely a few days before the declaration of the pandemic. The crisis stopped the appreciation of the currency that reached 25.1 pesos in March 2020, its highest point, since then the recovery has been gradual.

López Obrador announced that his government would not seek funds from international financial organizations, nor would it give tax concessions or monetary support to large companies to deal with the crisis brought about by the pandemic. With this, many businessmen considered that the government left them to their fate. Despite this, the peso did not stop appreciating, Mexico began 2021 with an exchange rate of 19.8 pesos per dollar. During 2022, its highest point was 21.3 in March and as of November 8, the Mexican currency was trading at 19.47 pesos per dollar, one of its lowest levels.

It has been surprising how a self-proclaimed leftist government has managed to maintain the stability of the peso, in an environment in which similar governments have had catastrophic performances, just mention Venezuela and Argentina. Thus, the Mexican peso is consolidated along with the Brazilian real as the strongest and most stable currencies in the region, although Brazil faces whether Lula da Silva will be able to maintain that performance.

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A Combination of Factors

To understand the performance of the “super peso”, factors such as investment, the price of oil (crucial for the Mexican economy), trade with the United States, remittances, etc. must be considered. In these fields, López Obrador has been qualified in different ways. The World Economic Forum in its report on Global Competitiveness placed Mexico in 48th place in 2019, two positions below that obtained in 2018. However, the pandemic prevented a correct evaluation of competitiveness, instead the performance of the economies in the face of the health crisis. In Mexico, unemployment reached, according to official data, up to 4.7% in February 2021, while in September 2022 it stood at 3.3%, although it must be clarified that the number of people in the informal sector increased.

As for Foreign Direct Investment, AMLO's first year achieved 34 billion dollars, equaling Peña Nieto's penultimate year, but 2020 and 2021 fell to 27 and 24 billion dollars, respectively. However, 2022 has been different, in the first semester the investment was 27 billion dollars, thus equaling 2020, with the second semester still to be added.

It is a recovery that is still far from an ideal goal for Mexico, but it does send a good message abroad and strengthens the peso. And this has possibly been one of his successes, sending a message about the type of left he represents, far from Cuba, Venezuela, or Nicaragua. That is, less radical, although the concentration of power continues to cause uncertainty among some sectors. Entrepreneurs like Carlos Slim, the country's richest, have worked closely with the president. Investments are recovering and the correct management of interest rates by the Bank of Mexico in the face of changes in the FED rates have sustained the appreciation of the peso.

The performance of two of its infrastructure works is yet to be known: the Mayan Train, which seeks to improve trade in the south and the Yucatán Peninsula; and the Tehuantepec Isthmus Interoceanic Corridor, which seeks to be an alternative to the Panama Canal and hopes to improve trade between the two oceans, southern Mexico, and connect it with the rail network of the United States and Canada.

Despite the fact that AMLO's message is one of energy and food sovereignty, which for him implies self-sufficiency and clashes with large transnational companies, he has managed to sustain trade with the United States, his main trading partner. The war between Russia and Ukraine, the economic threat from China and the return of the left to Latin America force the United States to have a good relationship with its neighbor to the south. Although Mexico has the flag of the left, it is aware of the strategic importance of the northern power for trade, remittances, currency stability and investment, especially when unofficial campaigns have begun to elect AMLO's successor in 2024.