Viewpoint | José Arnulfo Rodríguez San Martín
or taxes, and a highly liquid market with many international participants. As a consequence the Mexican peso has become a good hedge currency against international volatility episodes, such as the US financial system crisis in 2008 and the Greek financial struggles in 2011. On the other hand, in the last twelve years Mexico’s manageable current account deficit – less than 2% of GDP – has been surpassed by a capital account surplus leading to an international reserve accumulation of approximately US$160 billion; a historical record for the country.
Fig 3. Local Currency Performance
10.2 10.9 11.6 12.3 13.0 13.7 14.4 15.1 15.8
9.5 USA Financial Crisis Europe Insolvency Crisis 19.4 18.5 17.6 16.7 15.8 14.9 14.0
José Arnulfo Rodríguez San Martín, is deputy director of investment analysis at brokerage house Acciones y Valores Banamex (Accival)
introduction of universal consumption taxes linked to a universal social security system.
● A labour law reform that will provide flexibility to the labour market by reducing the fixed costs of hiring and the approval of flexible hiring procedures.
USD / MXN Source: Accival with Reuters Data Structural reforms
In the last decade Mexico has developed an outstanding record of economic stability and adequate fiscal and monetary policies. However, rating agencies have been reluctant to improve Mexico’s sovereign debt grade for the following two arguments: first, Mexico’s slow rate of economic growth – a questionable argument this year – and second, its dependency on oil exports that represent about 35% of total Government income. In order to solve these structural problems and provide Mexico with a renewed economic framework capable of improving productivity, boosting economic growth and isolating public finances from oil price fluctuations, three structural reforms have been proposed: ● Fiscal reform aimed at increasing the taxable base, rationalising public expenditure and the
Best Execution | Autumn 2012 EUR / MXN
● An energy reform that will allow private investment in the energy sector. At the outset it will only allow investment in electric energy generation, and eventually oil extraction, which remains a delicate issue that will require a constitutional amendment. In the last fifteen years these reforms have been proposed by different Presidential administrations but haven’t been approved due to a lack of consensus amongst the different political parties in Congress. The general election for President, Senate and House of Representatives held last July, resulted in a change of the ruling party in the Presidency, although it failed to obtain a majority in the Congress. Nevertheless, the main political parties have declared their intention to discuss these reforms in order to provide the structural changes required by the country. The achievement of a general consensus amongst the main political parties would make it feasible to see some of these reforms approved before mid-2013, in which case Mexico will definitely be the smart investment alternative. ■ *With special recognition to the Debt Analysis and Research Team in Mexico.
57
Dec-06 Feb-07 Apr-07
Jun-07 Aug-07
Oct-07 Dec-07 Feb-08 Apr-08 Jun-08
Jul-08 Sep-08 Nov-08
Jan-09 Mar-09 May-09
Jul-09 Sep-09
Nov-09
Jan-10 Mar-10
Apr-10
Jun-10 Aug-10
Oct-10 Dec-10 Feb-11 Apr-11
Jun-11 Aug-11 Oct-11 Dec-11
Jan-12 Mar-12 May-12
Jul-12
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84