The Mexican authorities’ response to the financial crisis – including a $5.3 billion stimulus package and a $9 billion intervention on the foreign exchange markets – has been praised by the IMF.
Officials in Washington have praised the programme as “very sensible” – but the Mexican banking system, which is dominated by international banks, has remained an underlying concern.
The $5.3 billion stimulus package sent to Congress aims to boost public spending to support economic activity. The government has admitted that economic growth will be cut to as low as 1.8% this year, against 3% according to its previous forecast.
A revised budget proposal was sent by finance minister Agustin Carstens, with calculations based on an oil price of $75/barrel.
“It is a timely stimulus in the current circumstances,” said David Robinson, IMF’s deputy director of the western hemisphere department.
“Clearly Mexico’s growth is going to be hit hard by the slowdown in the US, and the deterioration in the global situation more generally, so I think the revisions that the authorities have made are very sensible.”
Meanwhile, the central bank injected nearly $9 billion on the foreign exchange markets at the end of last week, to stem the rout of the Mexican peso.
Frederick Jaspersen, a director at the Institute of International Finance (IIF), said: “One has to admire the speed with which the central bank has reacted. It reinforces the strong policy record that Mexico enjoys.
“However, it will be important that [the government] does not place too much of a fiscal cost on the budget, especially at a time when oil prices are declining.”
Mexico’s oil production has declined constantly over the past couple of years, and Jaspersen added: “It is also exceedingly important that a strong energy reform bill be approved as soon as possible, because otherwise Mexico may lose its self sufficiency in oil.”
Robinson said: “Oil prices are falling now, and oil production is falling, so it adds some urgency to achieving a good consensus solution on how to strengthen the oil sector and oil revenues and production moving forward.”
Anoop Singh, the IMF’s director for the western hemisphere department, said: “I see countries like Mexico and Brazil and others improving facilities, increasing facilities of liquidity, intervening in some cases, and they are doing this to smoothen the exceptional and temporary overshooting of markets. We continue to believe that countries in Latin America have financial systems that are less exposed, but in the end it is very difficult to know what I mean by less exposed.”