Bloomberg Businessweek - USA (2019-06-17)

◼ ECONOMICS Bloomberg Businessweek June 17, 2019

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ILLUSTRATION BY PETE GAMLEN FOR BLOOMBERG BUSINESSWEEK. DATA: COMPILED BY BLOOMBERG

● China’sonce-cloisteredcentralbankis

becomingmorecommunicative

TheLongMarch

ToOpenness

It wastheonlylenderinMaoZedong’sera,taking

ordersfromthetoptocontroltheflowofmoney

throughthecommandeconomy.Now,evenafter

decadesoffinancialliberalization,thePeople’s

BankofChinahasitshandsonfarmoreleversthan

otherglobalcentralbanksasit workstokeepthe

nation’s40-yeargrowthstreakhummingalong.

FromitsimposingheadquartersinBeijing’s

Xicheng District, thePBOC relies ona num-

beroftoolstodirecttheflowofliquidityinthe

$40trillion-plus financialsystem. The seven-

decade-oldinstitutionchannelscashtodevelop-

mentbanksthatfinancethegovernment’spet

projectsandleansoncommercialbankswhenit

needstomakeit easierorharderforcompanies

andpeopletoborrow.ThePBOChasalsoamassed

oneofthelargesttrovesofreservesintheworld,a

$3trillionhordethat’schock-fullofU.S.Treasuries.

Now,asChinais poisedtogreatlyexpandfor-

eigncompanies’accesstoitscapitalmarkets,the

once-cloisteredcentralbankis openingup,too.

Aspartofthemarchtowardgreatertranspar-

ency,PBOCGovernorYiGanggrantedBloomberg

Newsa rareinterviewonJune7. The61-year-old

economistsaidoneofhistopgoals“istomake

mymonetarypolicymoretransparent,sothat

thewholesocietyandtheworldcanhavethe

rightexpectations.”

Agoodportionofthe35-minutediscussion

touchedona topicthat’salsocommandingthe

attentionofYi’speersattheFederalReserveand

theEuropeanCentralBank:theroleofcentral

THEBOTTOMLINE Sixmonthsintohistenure,Pemex’sCEOis

strugglingtoshoreupthecompany’sfinances,whilehisquestto

stampoutcorruptionhasn’tproducedverifiableresults.

Intheinterview,RomeroechoedAMLO’s

promisenottotargetsuspectedcrooksfrompre-

viousadministrations—“we’renotreviewingthe

pocketbooksoftheonesbeforeus”—butthatstance

maybechanging.Latelastmonth,thegovernment

issueda warrantforthearrestofLozoya,theex-

Pemexchief,aspartofaninvestigationintothe

purchaseofa fertilizerplant.A courtsuspended

thewarrant,andLozoyahasdeniedallwrongdoing

in a statement he posted on Twitter.

Adrián Lajous, who led Pemex from 1994

through 1999, doubts Romero’s approach will make

a dent in corruption. “The belief that it can be eas-

ily and promptly eliminated from the top down is

a gross oversimplification,” he said in an email. “Its

eradication will require time, a detailed strategy,

and a sustained managerial discipline.”

Investors are less interested in seeing Romero

root out bad apples at Pemex than they are in his

containing the spreading rot on its balance sheet.

At more than $100 billion, its debt is the biggest of

any oil company. Romero admitted that Pemex’s

financial situation was worse than he’d anticipated:

“One thing is what you have read, listened to,” he

said. “Another is when you arrive and are suddenly

faced with the reality of the situation.”

On his watch, the company has secured lines

of credit from international banks, allowing it to

renegotiate $8 billion worth of debt, and declared

a two-year moratorium on new bond issuance.

AMLO has injected fresh capital and taken steps to

lighten the company’s fiscal burden. His govern-

ment is drafting legislation to revamp the oil royalty

regime, which could yield a $7.2 billion reduction

in Pemex’s tax contributions by 2021.

Romero is also on a drive to cut costs, rene-

gotiating drilling contracts to extract more favor-

able terms and eliminating hundreds of jobs. He’s

called a halt on deepwater exploration and pro-

duction, saying onshore and shallow-water areas

are less costly to develop. Investors question the

logic of reducing spending in core drilling opera-

tions while lavishing funds on an expensive refin-

ery. “All they’re doing is diverting from one pocket

to the other,” says John Padilla, managing director

of IPD Latin America, an energy consultant.

Padilla and other Pemex watchers will tell you

that Job One for Romero should be replenish-

ing Mexico’s dwindling proved reserves of crude,

which have fallen almost 77% in two decades, and

boosting oil output. At 1.7 million barrels a day,

production is now less than half of what it was at

its peak in 2004. Romero pointed to a handful of

recent onshore and shallow-water discoveries.

Although he conceded they don’t hold a candle to

Cantarell—thegiantdepositintheBayofCampeche

propelledMexicanproduction for decades but is

now almost tapped out—he’s not deterred. His eyes

lit up as he sketched a map of exploration areas on

a scrap of paper. “They’re not necessarily extraor-

dinary fields, but we’ve found some very important

deposits,” he said. �Amy Stillman

6.2

6.6

7.0

● Offshore yuan

exchange rate,

yuan per dollar

1/5/18 6/7/19