Amlo’s pay cuts spark ‘flood’ of IB applicants

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By:
Rob Dwyer
Published on:

President-elect cuts pay, uses new level as public-sector ceiling; BNP Paribas expanding in Mexico.

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Andrés Manuel López Obrador


Investment bankers in Mexico say they have been flooded with CVs since the victory of Andrés Manuel López Obrador (Amlo) in the country’s presidential election in July.

One of Amlo’s campaign promises was to reduce the salary paid to Mexico’s president and prohibit any other public official from earning more than that level: just Ps108,000 ($5,650) net of tax per month, equivalent to a 60% reduction to the salary of outgoing president Enrique Pena Nieto.

The implications for senior public-sector workers are significant – with total gross savings to the country’s public-sector wage bill estimated to be around $4 billion by the incoming administration.

“All the investment banks are being flooded by resumes from people working in the government and the central bank – people can’t live on these salaries,” says one investment banker in Mexico City.

It is not just the reduction in salaries that has seen a rush to join the investment banks.

“They are also going to get rid of drivers, work cell phones, first-class travel and medical benefits, he says, adding incredulously: “Senior public-sector workers are going to need to start using the public health system.”

Another investment banker confirmed the high level of interest in joining his bank, saying: “I’ve calculated that the minister of finance is going to be taking home less than Ps100,000 ($5,200) a month. It’s no wonder there is a rush for the door.”

Ministry distribution

Another controversial proposal to distribute the federal government’s ministries around the country – currently all are based in Mexico City – is compounding the remuneration issue.

“The government intends to scatter the ministries around the country, but what about those who don’t want to go?” says the head of marketing at one investment bank in Mexico City.

“There will be many who have partners who work in Mexico City or that have kids settled in school. This won’t be a popular policy if it goes ahead.”

As well as being an issue for those individuals concerned, there are broader critiques of the policy.

“On the one hand the new administration has set the reduction of corruption as one of its main aims and on the other you are drastically cutting the pay and benefits of senior decision-makers in the state system,” says one banker.

Another banker fears it will lead to a “brain drain” that will increase the new government’s implementation risk, saying: “Implementation is always a risk in Mexico and this is a government that will have to learn quickly if it is to turn its policy agenda into effective legislation.”


Previously there was little openness from people at the hacienda [finance ministry] to talk, but now several are willing to have conversations 
 - Javier Artigas, BTG Pactual Mexico

Some economists already feared a slowdown to Mexican GDP in the first half of 2019 as the government reviews existing recent contracts and procurement policies with a review to reduce corruption – and draw parallels with Argentina in the first half of 2016 under Mauricio Macri’s new administration.

These pay and relocation policies are set to limit further the implementation of the federal government as it transfers to the Amlo administration.

There are also fears that pay cuts and the migration of the ministries will have material negative impacts on Mexico’s credit and real-estate markets.

However, detailed analysis of the micro-economic impact of these changes will require clarification about exactly how far down the public-sector pay pyramid the new policy will go, as well as the practical details of the ministry relocation programme.

“Everyone is waiting to see the exact details of Amlo’s plans during his transition to governing on December 1,” says one political risk analyst.

“He is quite unpredictable, so he could change his mind on these policies, but the problem is he has been very vocal on both of these and how would he justify a reversal to his political base? I think he would see that as sacrificing unnecessary political capital.”

The reputation of those working in the senior levels of the finance ministry and the central bank is good and many would suit private business, according to bankers.

'Change in willingness'

Javier Artigas, CEO of BTG Pactual Mexico, is recruiting for a senior economist for the country and says he has noticed a change in the willingness of senior public-sector professionals to engage with the private sector.

“Previously there was little openness from people at the hacienda [finance ministry] to talk, but now several are willing to have conversations,” says Artigas.

Artigas also says that the recent merger of Banorte and Interacciones has led to hundreds of individuals, at all levels, seeking employment in the financial industries – which is adding to the rash of applicants to the investment banks.

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Francisco Hernandez
Lozano, BNP Paribas

The favourable job market should be good news for Francisco Hernandez Lozano, country head for Mexico at BNP Paribas. Hernandez joined the French bank from Deutsche Bank in January after the German institution’s retreat from Latin America.

He says that BNP is investing in the country, following its increased investment in Brazil and Colombia, and has already secured the office space needed for a “substantial growth” in the headcount of its Mexico City office.

Hernandez declined to provide specific numbers for either recruitment or its planned increase in the local balance sheet, but says he is in negotiations with the regulator to get a local banking licence and will establish local banking and trading operations for a growing list of corporate and institutional clients.