This was recently sent in by Dean, one of our regular readers, giving us some positive news for a change, and news that has substance as well. It was first featured in the Financial Times.
Put aside the bloody news headlines about Mexico’s drugs war for a moment. Look instead at how investors view the country. They are, in a word, bullish.
Why? As an FT survey published today argues, the Mexican macroeconomy is well-nigh bulletproof.
That provides a sound platform for business activity, which is just as well, although it shouldn’t be that surprising. It’s not even that unusual – at least among “sensible” countries. Just look at Colombia’s experience. Between 1980 and 2010, when Colombian drugs and guerrilla-related violence peaked and then fell, the economy grew an average of 3.5 per cent a year. Remarkably, there was also only one year of recession. The lesson here is that countries cannot even begin to deal with a drugs war if they don’t have a stable macroeconomy in place. Colombia did it. Mexico has it.
Will Mexico, though, build on this stability to enact the many reforms the country still needs to do? Not until the 2012 Presidential election has taken place. But beyond that, John Authers, head of the FT’s Lex column, gives a tentative yes. So does Luis Rubio, a guest columnist. In one encouraging sign, regulators are already starting to curtail the oligopolies that stifle competition in the domestic economy.
Dealing with some of the most violent criminals on the planet; pushing through economic reforms that defy large vested interests; re-building the country’s institutionality. None of this is child’s play. Still, in the meantime, several sectors of the Mexican economy are booming. As an article in today’s newspaper also shows, one Mexican company has even turned child’s play into big business. Latin America is more than just about commodities.
Also found in the special feature on Mexico:
The reasons for such bullishness – at odds with many news headlines – are plain. The macroeconomy is virtually bulletproof. Inflation is about 3 per cent. There are no fiscal or current account deficits to speak of, and, unlike many Latin peers, exchange rate strength is not an issue. When adjusted for inflation, Mexico’s trade-weighted peso is 4 per cent more competitive than its 10-year average; the Brazilian currency is 50 per cent less.
Meanwhile, the huge cost-advantage that Chinese manufacturers enjoyed in 2001, when China acceded to the World Trade Organisation, has shrunk “to about 14 per cent”, says Ernesto Cordero, finance minister. As transport costs have risen with energy prices, manufacturers have increased their share of the US market and found new markets abroad.