Presentation: Mexico: Good Macro News, Difficult External ... · 3 Mexico: a decade of sound macro...
Transcript of Presentation: Mexico: Good Macro News, Difficult External ... · 3 Mexico: a decade of sound macro...
1
Mexico: Good Macro News;
Difficult External Conditions; Bad Micro News
The Trillion Dollar Club Gary C. Hufbauer and Barbara R. Kotschwar
March 10, 2009
2
Mexico in the Trillion Dollar Club: PPP GDP (in billions of international dollars)
0
200
400
600
800
1000
1200
1400
1600
bill
ion
s of
inte
rnat
ion
al $
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Source: IMF
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Mexico: a decade of sound macro policy
20.6
6.5
-2.2
0.0
20081998 2000 2005
Non-financial public sector balance (% GDP)
-1.2 -1.1 -0.1
Current account balance(% GDP)
-3.8 -3.1 -0.7
Inflation (% change y/y) 18.6 9.9 3.3
External debt (% GDP) 38.2 28.3 20.4
Source: IMF
4
Mexico has accumulated foreign exchange reserves
0
10
20
30
40
50
60
70
80
90
100
billi
ons
US$
Ene2000
Jul-00
Ene2001
Jul-01
Ene2002
Jul-02
Ene2003
Jul-03
Ene2004
Jul-04
Ene2005
Jul-05
Ene2006
Jul-06
Ene2007
Jul-07
Ene2008
Jul-08
Ene2009
Source: Banco de México
5
Mexico’s potentially rosy economic picture is clouded by the external environment….
Source: OECD
Index of Industrial Production 1995-2008 (2000=100)
65
70
75
80
85
90
95
100
105
110
1995
1998
2001
2004
2007
MEX USA
Mexico is still closely tied to the US economy
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Mexico’s potentially rosy economic picture is clouded by the external environment (cont.)
GDP growth (percent) : Mexico and United States 2000-2009
-3-2-1012345678
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
United States MexicoSource: IMF
We are being conservative with our growth projections: EIU estimates a contraction of 2.6%; Banxico of -0.8 to -1.8 percent growth
7
In late 2008 US imports of Mexican goods started
falling, as did Mexico’s purchases of US goods
US exports to and imports from Mexico 2000-2008 (monthly, in billions of $US)
0
5
10
15
20
25
J-200
0 M SJ-2
001 M S
J-200
2 M SJ-2
003 M S
J-200
4 M SJ-2
005 M S
J-200
6 M SJ-2
007 M S
J-200
8 M S$U
S b
illio
ns
exports imports
Oct 2008
Source: USITC
8
Mexico’s stock market plunged 42 percent in 2008
Bolsa Mexicana Closing price Index (base=1978): July 2008-Feb 2009
15000
17000
19000
21000
23000
25000
27000
29000
1/7/
2008
9/7/
2008
17/0
7/20
08
25/0
7/20
08
4/8/
2008
12/8
/200
8
20/0
8/20
08
28/0
8/20
08
5/9/
2008
15/0
9/20
08
24/0
9/20
08
2/10
/200
8
10/1
0/20
08
20/1
0/20
08
28/1
0/20
08
5/11
/200
8
13/1
1/20
08
24/1
1/20
08
2/12
/200
8
10/1
2/20
08
19/1
2/20
08
30/1
2/20
08
8/1/
2009
16/0
1/20
09
26/0
1/20
09
4/2/
2009
12/2
/200
9
20/0
2/20
09
2/3/
2009
inde
x
Source: Banco de México
Change = 42%
9
Foreign investment has not dried up, but slowed in 2008
Source: Banco de México
0
5
10
15
20
25
30
billi
ons
of $
US
2001 2002 2003 2004 2005 2006 2007 2008
FDI flows 2001-2008
10
Remittances have begun to decline…
Remittances (in billions of $US) 2003-2008
0
1
2
3
4
5
6
7
8
Ene-M
ar 20
03Abr
-Jun 2
003Ju
l-Sep
2003
Oct-Dic
2003
Ene-Mar
2004
Abr-Ju
n 2004
Jul-S
ep 20
04Oct-
Dic 200
4Ene-M
ar 20
05Abr
-Jun 2
005
Jul-S
ep 20
05Oct-
Dic 20
05Ene
-Mar
2006
Abr-Jun 2
006
Jul-S
ep 20
06Oct-D
ic 20
06Ene
-Mar 2
007
Abr-Ju
n 200
7Ju
l-Sep
2007
Oct-Dic
2007
Ene-M
ar 20
08Abr
-Jun 2
008
Jul-Sep 2
008
Oct-Dic
2008
Source: Banco de México
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Remittances are most important to agricultural states. Border states have traditionally been economically strong enough to not send many migrants. This could be affected by the US economic slowdown in states like California, Texas, New York.
Source: Quirk, Matthew. 2007. “The Mexican Connection. The Atlantic. April.
Remittances depend on the economic health of a few key US states
12
Like nearly all emerging markets, the spread on Mexican debt has risen sharply; good fundamentals were no salvation
Source: Dallas Fed
13
Mexico is absorbing the external shock by allowing the peso to drop
Source: Banco de México
Peso/dollar exchange rate: October 2008-March 2009
10
11
12
13
14
15
16
1/10/2008 19/10/2008 6/11/2008 24/11/2008 12/12/2008 30/12/2008 17/01/2009 4/2/2009 22/02/2009
peso
/$U
S
40 percent devaluation of peso since October 2008; nearly 50 percent since January 2008
14
Mexico has fallen in its ranking on Transparency International’s Corruption Perceptions index from 51st place in 2001 to 72nd place in 2008In the World Economic Forum Global Competitiveness Report Mexico ranked 102 in Public Institutions, behind PakistanMexico fell from 42nd in the 2008 Doing Business ranking to 56th in 2009Mexico fell from 16th in 2005 to 19th place in 2007-8 in AT Kearney’s FDI confidence index
Meanwhile, the microeconomic challenges are getting more severe
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Chihuahua1725
Baja California741
Sinaloa989
Michoacan454
Guerrero509
Mexico461
Durango391
Nuevo Leon182 Tamaulipas
198
Sonora262
Drug War Related Deaths: January 2007 – December 2008
Source: LA Times, based on data from the University of San Diego Trans-border Institute
Between January 1, 2007 and December 19 2008 there were 7,337 drug war deaths in Mexico. The circles portray areas where more than 100
deaths were reported.
… drug violence plagues Mexican cities, especially in the north
16
Whither US policy towards Mexico?Plan Colombia Merida Initiative
Timing 2000-2006; succeeded by follow-on policies
Fiscal year 2008 through fiscal year 2010
Policy targets Insurgency (FARC; ELN); self-defense organizations; drug crop eradication; criminal justice system; economic development
Counter-drug; counter-terror; border security; public security & law enforcement; institution-building & rule of law
US financial commitment
US$4.5B; $1.6B for follow-on through 2008
US$1.5 B announced; about 10% of total program costs allocated in2008.
US domestic commitment
Reduce drug demand Reduce drug demand; halt: weapons trafficking, precursor chemicals, money laundering
Source: CRS (2008); Bailey (2009)
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Retail price of a gram of Cocaine in the United States: 1990-2007 (in 2006 $US)
0
50
100
150
200
250
300
infl
atio
n a
dju
sted
200
6 $U
S
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: ONDCP
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Mexico: resilient so farDespite violence, tourism picked up in 2008
While overall tourism was up, certain regions, such as Guerrero, show a falling off in travel both from domestic and international travelers
FDI has continued to flow in, even to regions associated with violenceRemittances have dropped off but not dried upThese are statistics to watch in 2009
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Mexico: international tourists 2004-2007 (monthly totals)
0
500
1000
1500
2000
2500
2004
2005
2006
2007
2008
visi
tors
Border otherSource: Secretaría de Turismo
20
Mexico: US FDI flows into northern border states 2004-2008 (flows by trimester)
-100
100
300
500
700
900
1100
1300
1500
mill
ions
$U
S
01 -2004
02 -2004
03 -2004
04 -2004
01 -2005
02 -2005
03 -2005
04 -2005
01 -2006
02 -2006
03 -2006
04 -2006
01 -2007
02 -2007
03 -2007
04 -2007
01 -2008
02 -2008
03 -2008
04 -2008
Source: Secretaría de Economía
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Mexico’s response to the crisisMonetary response: Banco de México has intervened to mitigate peso volatilityFiscal stimulus:
Oct 2008: Growth and Employment Stimulus Program (PICE) of $6.9B, about 1% of GDP – largely for use on infrastructure spending
In 2008 Mexico hedged oil price at $70/barrelFiscal reform measures of 2007 should see increased tax collection
Jan 2009: National Agreement on Family Economy and Employment: $150m to freeze gas prices, lower electricity prices, boost unemployment benefits and increase spending on infrastructure
12
Like nearly all emerging markets, the spread on Mexican debt has risen sharply; good fundamentals were no salvation
Source: Dallas Fed
13
Mexico is absorbing the external shock by allowing the peso to drop
Source: Banco de México
Peso/dollar exchange rate: October 2008-March 2009
10
11
12
13
14
15
16
1/10/2008 19/10/2008 6/11/2008 24/11/2008 12/12/2008 30/12/2008 17/01/2009 4/2/2009 22/02/2009
peso
/$U
S
40 percent devaluation of peso since October 2008; nearly 50 percent since January 2008
14
Mexico has fallen in its ranking on Transparency International’s Corruption Perceptions index from 51st place in 2001 to 72nd place in 2008In the World Economic Forum Global Competitiveness Report Mexico ranked 102 in Public Institutions, behind PakistanMexico fell from 42nd in the 2008 Doing Business ranking to 56th in 2009Mexico fell from 16th in 2005 to 19th place in 2007-8 in AT Kearney’s FDI confidence index
Meanwhile, the microeconomic challenges are getting more severe
15
Chihuahua1725
Baja California741
Sinaloa989
Michoacan454
Guerrero509
Mexico461
Durango391
Nuevo Leon182 Tamaulipas
198
Sonora262
Drug War Related Deaths: January 2007 – December 2008
Source: LA Times, based on data from the University of San Diego Trans-border Institute
Between January 1, 2007 and December 19, 2008, there were 7,337 drug war deaths in Mexico. The circles portray areas where more than 100
deaths were reported.
… drug violence plagues Mexican cities, especially in the north
16
Whither US policy towards Mexico?Plan Colombia Merida Initiative
Timing 2000-2006; succeeded by follow-on policies
Fiscal year 2008 through fiscal year 2010
Policy targets Insurgency (FARC; ELN); self-defense organizations; drug crop eradication; criminal justice system; economic development
Counter-drug; counter-terror; border security; public security & law enforcement; institution-building & rule of law
US financial commitment
US$4.5B; $1.6B for follow-on through 2008
US$1.5 B announced; about 10% of total (?) program costs voted in 2008; negotiations in Congress for 2009.
US domestic commitment
Reduce drug demand Reduce drug demand; halt: weapons trafficking, precursor chemicals, money laundering
Source: CRS (2008); Bailey (2009)
17
Retail price of a gram of Cocaine in the United States: 1990-2007 (in 2006 $US)
0
50
100
150
200
250
300
infl
atio
n a
dju
sted
200
6 $U
S
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: ONDCP
18
Mexico: resilient so farDespite violence, tourism picked up in 2008
While overall tourism was up, certain regions, such as Guerrero, show a falling off in travel both from domestic and international travelers
FDI has continued to flow in, even to regions associated with violenceRemittances have dropped off but not dried upThese are statistics to watch in 2009
19
Mexico: international tourists 2004-2007 (monthly totals)
0
500
1000
1500
2000
2500
2004
2005
2006
2007
2008
visi
tors
Border otherSource: Secretaría de Turismo
20
Mexico: US FDI flows into northern border states 2004-2008 (flows by trimester)
-100
100
300
500
700
900
1100
1300
1500
mill
ions
$U
S
01 -2004
02 -2004
03 -2004
04 -2004
01 -2005
02 -2005
03 -2005
04 -2005
01 -2006
02 -2006
03 -2006
04 -2006
01 -2007
02 -2007
03 -2007
04 -2007
01 -2008
02 -2008
03 -2008
04 -2008
Source: Secretaría de Economía
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Mexico’s response to the crisisMonetary response: Banco de México has intervened to mitigate peso volatilityFiscal stimulus:
Oct 2008: Growth and Employment Stimulus Program (PICE) of $6.9B, about 1% of GDP – largely for use on infrastructure spending
In 2008 Mexico hedged oil price at $70/barrelFiscal reform measures of 2007 should see increased tax collection
Jan 2009: National Agreement on Family Economy and Employment: $150m to freeze gas prices, lower electricity prices, boost unemployment benefits and increase spending on infrastructure
22
Canada’s response to the crisisCanada has revised its GDP growth projection down to a contraction of 2.7 percent. Canada’s fiscal stimulus (Economic Action Plan) represents 1.9 percent of GDP for the next fiscal year; 1.4 percent for the following year. Projected budget deficit of $34 billion this year (2.0 percent GDP); $30 next (1.7 percent of GDP)
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What has the US done to help Mexico cope with the financial crisis?
Federal Reserve: US$30 billion line of credit with the Banco de México, authorized through April 30, 2009, to support confidenceMérida Initiative NAFTA lives (but trucking still frozen; NADBank still small potatoes)Stimulus package: modest expenditure on border infrastructure