COVID-19 sparks massive Mexico capital flight

The Mexican economy saw the largest capital flight last month since August 2016 due to the coronavirus crisis.

An analysis from Intercam Banco, based on central bank data, shows that foreign investors withdrew 167bn pesos (US$7.03bn) in March as they moved funds to safer havens amid the pandemic and uncertainty regarding the performance of the Mexican economy, which is facing a major contraction this year.

The sell-off represents a 7.62% drop in the total government securities held by foreign investors, following an increase of 0.2% in February, according to the analysis, which was reported by local daily La Jornada.

Capital flight was seen throughout emerging markets in March; however, the oil price shock compounded the exodus with its implications for the already worrisome debt situation at Mexican oil giant Pemex, and the commitment by the government to restart production at the NOC.

Afores hit by unemployment

Mexico’s pension system regulator (Consar) said unemployment-linked withdrawals from retirement accounts at the country’s pension fund managers (Afores) had surged in March. 

Allowed by law when Afore members are unemployed, these withdrawals rose by 11.8% year-on-year to 1.02bn pesos (US$43.3mn).

It represented the highest amount that has been reported since 2005, the first year the regulator recorded withdrawals, even though Consar did not specify how many requests had been made in March.

Coppel, with 11.6mn pension accounts, was the Afore that registered most unemployment withdrawals at 227mn pesos, up 41.8% from March last year. 

XXI Banorte came in second with 204mn pesos in withdrawals, representing an increase of 44.6%. It has 8.5mn pension accounts. 

More to come 

José Luis de la Cruz, director of Mexican industrial and economic think tank IDIC, believes these withdrawals are likely to grow over the course of the pandemic emergency, in comments reported by local daily El Economista.

"Most likely, unemployment withdrawals will continue to increase, especially between April and July of this year, we may see record numbers given what we saw in the last weeks of March and the first of April in formal unemployment,” he was quoted as saying. 

According to data from Mexico’s public sector social security service (IMSS), 130,593 formal sector jobs were lost in March, the worst number for any March on record.