Mexican finance minister Francisco Gil Diaz, whose country received a slight boost in its quota in the IMF resolution voted this week, refuses to join in the cry of other Latin nations that questioned the reform.
In an interview with Emerging markets, Gil Diaz said the realignment of voting shares of four countries was insufficient and that legitimacy of the Fund would remain in doubt unless developing countries get greater voice.
“It’s important the Fund have greater representation,” he said. He endorsed the change, even though in the first phase Mexico only benefits with one-third of the increase in the quota that it will ultimately receive.
“The attitude (of the Fund) is so legitimate that it’s seeking a change,” said Gil Diaz.
Mexico signaled that it could adopt a position that diverges from that of other Latin countries when the second-stage debate opens to hash out the formula for reformulating how quotas will be assigned.
Gil Diaz raised questions about using the purchasing power parity (PPP) method for measuring the weight of a national economy, a criterion that is being pressed by Argentina and Brazil.
“There are a number of problems when you use PPP (including) the base period, the basket of (consumer prices),” he said. Brazil’s interest in using PPP “is circumstantial,” he said, owing to the revaluation of its currency which, when converted to the dollar, makes the economy seem to have a smaller value than it might if measured with other methods of calculation.
Argentina and Brazil this week have put a set of criteria on the table for the second stage of the IMF reform and emphasize the amount of international reserves held by a country which their delegations consider to be a form of “self-insurance” which indicates the vulnerability of a country to external shocks and, therefore, potential need for tapping Fund resources.
The Mexican finance minister raised issues with that focus. “If you have a lot of reserves and a lot of debt you will have a lot of volatility no matter what,” he said. “This shows how much controversy there will be,” he said.
The finance minister is confident about the future of Mexico’s economy and believes the market view that political risk is negligible.
President-elect Felipe Calderon won the July election with a narrow margin of 52% and where his rival, Andres Manuel Lopez Obrador has been declared “legitimate president” and threatens to challenge Calderon in congress and with street protests.
“Any indicator shows the markets are looking at it (the political situation) without taking it into account and recognize the (election) outcome as the legitimate result of a well done process,” Gil Diaz said. He cited current market indicators which show the country risk has dropped, the stock market is up, foreign exchange rates and interest rates are stable.