Mexico’s Oil Windfall is Enough to Subsidize Fuel Prices, AMLO Says

Yahoo News

(Bloomberg) — Mexico President Andres Manuel Lopez Obrador defended his government’s decision to subsidize gasoline and diesel prices, saying it’s necessary to tame inflation and that it can be financed with a windfall from crude oil exports.

The subsidies have cost Mexico about $4.4 billion for the first four months of the year, less than half of the $8.9 billion that the country has received in oil revenue, Elizabeth Garcia Vilchis, a press official for Lopez Obrador, said during the president’s morning press conference on Wednesday.

“Instead of considering that we lose with this subsidy, we think that we win, because it strengthens the popular economy,” AMLO, as the president is known, said at the same event in Mexico City. “The excess being obtained because of the high oil prices helps compensate the subsidy.”

AMLO was responding to an article by Bloomberg News on Monday that said fuel subsidies are now costing more than the extra profit Mexico gets from higher crude prices. Mexico is a major crude exporter, shipping about one million barrels of oil a day, and is getting additional income from its sales above the $55 a barrel expected in the 2022 budget.

Bloomberg Economics estimated in the story that the oil windfall in the Latin American nation would total $1.04 billion in May, while total gasoline and diesel subsidies were expected to reach $2.39 billion in the same month. The calculation considers both direct subsidies applied to fuel since March 5 this year and the monthly stimulus to the so-called IEPS excise tax on goods and services. It used March domestic fuel sales as a proxy for April and May.

In a statement late Monday, the Finance Ministry rebuffed the Bloomberg Economics estimate, saying March is a seasonally high month for fuel sales, which led to an overestimation for the cost of the stimulus in April and May in the article. It also said that the oil revenue calculation didn’t include income from the sale of all hydrocarbons.

Yet the statements by the ministry and AMLO’s press official assumed Bloomberg Economics was referring to Mexico’s total oil revenue figures, whereas the calculation focused on the windfall from higher prices, which is what AMLO pledged to use to subsidize fuel.

The move to subsidize soaring international gasoline and diesel prices is in-line with AMLO’s campaign pledge that gasoline prices won’t increase beyond average inflation during the six years of his presidency. Mexico’s annual inflation slowed slightly in early May, with consumer prices rising 7.58% in the first two weeks of the month compared to a year earlier.

Start the Conversation

Your email address will not be published.