Dilemma for economy in thrall to Uncle Sam

Financial Times: Economic theory would suggest that you do not hike interest rates when inflation is at a record low. But that is precisely what Mexico is poised to do this week.

The Bank of Mexico, known as Banxico, faces the prospect of having to raise its historically low 3 per cent benchmark rate at a time when inflation has been setting record lows for each of the past seven months and when GDP growth, while the envy of many at 2.6 per cent, remains far below expectations.

Mexico will protect peso, Fed not only factor for rates: Carstens

Reuters: Mexico must be ready to "take care" of the battered peso as a U.S. rate hike looms, but U.S. Federal Reserve policy will not be the only factor driving Mexico's rate decisions, Central Bank Governor Agustin Carstens said on Monday.

Carstens leads the Bank of Mexico's five-man board, which is expected to raise its benchmark interest rate from 3 percent next week, when the Federal Reserve is seen tightening borrowing costs for the first time in nearly a decade. Read more.

Q&A: Economist Gerardo Esquivel says full benefits of NAFTA elude Mexico

World News Report: Next week, the George W. Bush Institute, the public policy arm of the former president’s library in Dallas, will launch a North America Scorecard with an assessment that the North American Free Trade Agreement has been a boon to the United States, Canada and Mexico.

Gerardo Esquivel offers up a slightly different point of view, specifically that Mexico has not done as well as the other nations.

Mexico To Use SEZs To Boost Economy Of South

Tax News: Mexican President Enrique Peña Nieto has introduced draft legislation for the creation of special economic zones (SEZs) in the southern states of the country.

The proposed SEZs would be set up in the Isthmus of Tehuantepec and the ports of Chiapas and Lázaro Cárdenas. These three areas are located in the states of Oaxaca, Chiapas, and Michoacán, respectively. Read more.

Mexican Government Cuts 2016 Budget by $13 Billion amid Slumping Oil Prices

Latin American Herald Tribune: The government is cutting the 2016 budget by 221 billion pesos ($13.12 billion) to maintain economic stability amid a challenging global situation, Mexican Finance and Public Credit Secretary Luis Videgaray said.

“The spending planned in the budget for the year 2016 reflects a reduction of 221 billion pesos ($13.12 billion), that is 1.15 percent of the gross domestic product (GDP) less than in the planned spending for last year,” Videgaray told Congress.

Consortium Signs Contracts Awarded in Historic Mexico Oil Auction

Latin American Herald Tribune: The consortium that won two shallow-water exploration blocks in July’s first phase of Mexico’s historic Round One oil auction has signed the corresponding contracts with the government, officials said.

John Ashland Shepherd and Bill Moss, representatives of Houston-based oil company Talos Energy; Timothy Lloyd of Britain’s Premier Oil; and Salvador Beltran del Rio and Ivan Sandrea of Mexico’s Sierra Oil & Gas inked the contracts Friday on behalf of the consortium.

Mexico’s economy was supposed to soar. It’s starting to flop.

The Washington Post: Largely lost amid the frantic scramble after drug lord Joaquín “El Chapo” Guzmán’s dramatic prison escape, one of the biggest leaps of faith for the Mexican economy landed with a flop.

At the first auction last month to sell the rights to drill for oil in Mexico — as the country opens its oil industry to foreign investment for the first time in eight decades — the government sold just two of its 14 blocks. The disappointing showing for President Enrique Peña Nieto’s signature economic reform prompted the government last week to modify the terms of the contracts for next month’s auction and added to what has been a noticeable string of bad news for Latin America’s second-largest economy. Read more. 

The peso hits new record low

Vallarta Daily: Mexico’s currency hit its weakest level on record on Wednesday, part of a broader slump in regional currencies depressed by concern that Greece may leave the euro zone and that U.S. interest rates are headed higher.

Mexico is seen as particularly vulnerable to the effects of higher borrowing costs in the Unites States, its main trading partner. The country’s manufacturing sector slipped in June to its lowest in 11 months, a survey showed, even before the potential U.S. rate hike. Read more.

Mexico Inflation Above Target as Increases Exceed Forecasts

Bloomberg: Mexican consumer prices rose more than expected in the first half of September, keeping the annual inflation rate above the upper limit of the central bank’s target range.

Prices increased 0.32 percent from two weeks earlier, the national statistics institute said on its website today, compared with the 0.25 percent median forecast of 24 economists surveyed by Bloomberg. The annual inflation rate was 4.21 percent, above the 2 percent to 4 percent target range.  Read more. 

Mexico opens debate over low minimum wage

AP: National attention in Mexico has focused on the country's shockingly low minimum wage after the Mexico City government suggested it could act to increase the local minimum.

The debate has highlighted widespread dissatisfaction with the minimum wage of 67.29 pesos per day, or about $5. But suggestions that it be raised have drawn howls of protest from business chambers, who say raising it would only spur inflation.  Read more. 

For Mexico, good economic times are always just out of reach

McClatchyDC

BY Tim Johnson

The central bank chief calls it a “temporary pothole.”

Whatever the term, Mexico’s economy has hit some turbulence - despite the most ambitious overhaul to its business structure in decades.

Tax hikes have dampened consumer confidence, retail sales remain stagnant, and low U.S. demand for Mexican-made cars and televisions slowed the economy earlier this year to its lowest point in four years. Mexico grew at a sluggish 1.8 percent rate in the first quarter of 2014, forcing the government to ratchet down its forecast to 2.7 percent growth for the year.

Bankers and economists still voice hope that Mexico is on the threshold of faster growth because of the opening of the energy, banking and telecommunications sectors. “We know that the reforms don’t have an immediate effect and that it is necessary to have patience and persevere,” a Spanish banker, Francisco Gonzalez Rodriguez, chief executive of Banco Bilbao Vizcaya Argentaria, or BBVA, told a forum this week. Read more

Mexico economic reality doesn't fit 'Aztec Tiger' narrative

Aljazeera
by Adam Goodman

For the last decade Victoria Alvarez Flores worked 10 hours a day, six days a week, 51 weeks a year at a Mexico City laundromat. Her round-trip commute from a town just outside the city added another four and a half hours to an already long day. The pay was modest, the benefits nonexistent, but at least she had a job. That is, until the owner sold the business.

On Oct. 27 the laundromat closed, marking Alvarez's first day of unemployment. It was her 54th birthday.

Alvarez’s situation is not uncommon. In the past year Mexican President Enrique Peña Nieto — along with much of the international media — has emphasized the growth of the Mexican middle class and portrayed the country as an economic success story, an Aztec Tiger. The reality, however, is quite different.

“The Mexican economy is going through a recession right now,” said Gerardo Esquivel, a professor at the Center for Economic Studies at the Colegio de Mexico in Mexico City. “The numbers that have been mentioned in terms of the growth of the middle class have been grossly exaggerated. There is not a clear definition of what middle class is.”  Read more.   

Mexico, where off-the-books work is the rule, not the exception

Global Post 
July 30, 2013

Mexico City - Meet Luis Troncoso, enemy of the dynamic modern economy envisioned by Mexico's leaders.

Troncoso, 70, and many of the 150 other street vendors who work with him rise before dawn five days a week, heading first to buy provisions at Mexico City's huge produce distribution center and then to one of the neighborhood streets where they hawk their goods.

"This is the opportunity that we have,” said Troncoso, whose own stall selling an array of candy is flanked by others displaying used clothes, fresh meats, fruits and flowers. “There aren't any other jobs. This work is passed down from generation to generation.”  Read more. 

Mexico aims to bring shadow economy into the light

Reuters
By Krista Hughes
Jun 26, 2013

Seeking to dismantle a black economy dragging on economic growth, Mexico wants to lure informal workers into the social security net - and the reach of the tax man.

Six in 10 Mexican workers, or 30 million people, live in the informal economy, eroding Mexico's already-low tax base and hindering plans to set up a universal social security system.

"The country loses 3 or 4 percentage points of GDP every year because 60 percent of its workers don't generate any taxes and also don't have social security benefits," Labor Minister Alfonso Navarrete said on Tuesday.  Read more. 

Enrique Pena Nieto Reforms: Mexico's President Pushes Sweeping Changes To Telecom, Oil Industry

The Huffington Post 

By Michael Wissenstein
March 19 2013

Mexico City -- New President Enrique Pena Nieto has been fast out of the blocks in attacking some of Mexico's toughest issues in a country often stymied by monopolies and corruption.

He arrested the most powerful woman in Mexico, leader of the largest union in Latin America, on allegations of corruption that previous presidents saw but were too compromised to tackle. He is taking on the richest man in the world, Carlos Slim, and pledges to bring diversity to a television industry dominated by the head of the largest network in Latin America, a scion of one of Mexico's leading families.

At one time all three were key allies of Pena Nieto's Institutional Revolutionary Party, or PRI, which ruled for 71 years with a combination of coercion and corruption before being voted out of office in 2000. Now, Pena Nieto is declaring that there are no more sacred cows.

The moves have built momentum behind what could be his most dramatic and difficult reform – modernizing and drawing foreign and private capital to the behemoth state oil company, a long sacrosanct but increasingly inefficient pillar of the Mexican economy. On Sunday, at a celebration of the 75th anniversary of the nationalization of the Mexican oil business, Pena Nieto said again that he will transform Petroleos Mexicanos. The longtime head of the Pemex union, who had been expected by many to fight any changes but has been the subject of questions about unexplained family wealth, pledged his support.

Pena Nieto says his plan will make Mexico more democratic and competitive in the world economy, and his drive for reform is fueling international confidence about Mexico. Rating company Standard and Poor's raised the country's long-term sovereign credit rating from "stable" to "positive" last week, citing optimism about the government's ability to carry out structural changes. The Mexican peso is stronger against the dollar than it's been in a year and a half.

But some analysts warn against mistaking style for substance and making early declarations of victory against entrenched powers built up by the very party that now says it's trying to bring them to heel. It will take many months, in some cases years, before Pena Nieto's reform agenda becomes law and produces its first results, plenty of time for big promises to be derailed by special interests, institutional inertia and the PRI's old guard.  Read more. 

Analysis: Mexico's reforms hook U.S. investors

Reuters
By Daniel Bases
New York, Mar 18, 2013

(Reuters) - Don't be fooled by the Mexican stock market's slow start to the year. The country's push for economic reforms and the revival of the economy of its largest trading partner, the United States, are stirring investor interest in Latin America's No. 2 market.

International fund managers say recent announcements of reforms to Mexico's education system and telecommunications sector provide a positive backdrop for U.S. investors to keep putting roughly 30 percent of their allocations for Latin America into Mexican stocks and bonds.

"You saw a lot of optimism around elections and the potential reforms," said Darren Capeloto, portfolio strategist focused on Latin America at Payden & Rygel in Los Angeles.

Mexican President Enrique Pena Nieto, in office since December, has managed to reach agreement with opposition lawmakers to push through reforms, the most important of which will be in the state-dominated energy sector this summer.  Read more. 

Mexico wants U.S. ties to focus on economy, education, not drugs

Reuters
By Dave Graham
Mar 4, 2013

Mexico must give greater priority to economic cooperation and education in relations with the United States rather than allowing the fight against organized crime to take center stage, a senior Mexican official said on Monday.

Mexico has spent the past six years locked in a bloody fight with powerful drug cartels whose killings, kidnappings and extortion have marred the country's image, particularly in the United States, where it ships nearly 80 percent of its exports.

President Enrique Pena Nieto is keen to rewrite the script, focusing his efforts on the economy, which has grown at a faster pace than the United States' in the last three years.

Pena Nieto's conservative predecessor, Felipe Calderon, staked his name on crushing the gangs, but by the time he left office at the end of November nearly 70,000 people had died in the violence, and his efforts were widely condemned as a failure.  Read more. 

Mexico Reverses Foreign Investment Flows

The New York Times 
February 25, 2013

MEXICO CITY (AP) — After decades of depending on inflows of foreign capital to develop its economy, Mexico turned a corner and become a net exporter of direct investment capital in 2012, according to a report released Monday.

Mexico's central bank said that Mexican corporations invested about $25.6 billion last year in buying up foreign plants and companies, more than twice the $12.6 foreigners invested directly in Mexican firms. An official confirmed that was the first time in recent memory that outflows exceeded inflows.

For a country that still has one foot planted firmly in the developing world, that news worried some analysts and delighted others.  Read more.

Navarrette: Mexico's own immigration debate

By Ruben Navarrette Posted November 17
Ventura Country Star 

MEXICO CITY — If you think the debate over immigration from Mexico into the United States is complicated, just take a trip south of the border and look at it from that side.

Complicated isn't the half of it. The immigration debate is also dishonest and hypocritical and filled with people who would rather pursue their own interests than solve the problem. And it all revolves around a broken system that stays broken because important and powerful interests want it that way.

This is true in both countries. Mexico is just as reluctant as the United States to confront the larger issue of migration — both of its own people north to the United States and along its own southern border, where Central and South Americans want to get into a country that many natives are desperate to flee.

Nor does the Mexican elite want to swallow its pride and admit that the real engine behind the Mexican economy isn't people like them but Mexicans who don't even live in Mexico anymore — immigrant workers in the United States.

In Mexico City, politicians, journalists and intellectuals are eager to avoid the issue altogether. They point out that migration to the United States from Mexico has slowed to a trickle. With a U.S. economy that is sluggish and a Mexican one that is bouncing back, many would-be migrants find that going north isn't worth the trouble. Read more. 

Mexico is now a top producer of engineers, but where are jobs?

The Washington Post By William Booth, Published: October 28

MEXICO CITY — In an aggressive bid to move beyond low-wage factory jobs and toward an entrepreneurial economy, Mexico is producing graduates in engineering and technology at rates that challenge its international rivals, including its No. 1 trade partner, the United States.

President Felipe Calderon last month boasted that Mexico graduates 130,000 engineers and technicians a year from universities and specialized high schools, more than Canada, Germany or even Brazil, which has nearly twice the population of Mexico.

But it remains an open question whether the soaring number of skilled graduates will transform Mexico into the “country of engineers” that Calderon envisions, or they go to work in low-level managerial jobs at assembly plants owned by foreigners — jobs that have come to define their profession here.

“This idea that Mexico is a country of engineers is a mirage,” said Manuel Gil Anton, an expert in education policy at the College of Mexico.  Read more.