Bloomberg News

Mexico Needs No Stimulus to Withstand U.S. Slowdown, Meade Says

September 21, 2011

Sept. 21 (Bloomberg) -- Mexican Finance Minister Jose Antonio Meade ruled out boosting spending to fight off a U.S. slowdown that the International Monetary Fund says will hurt Latin America’s second-biggest economy more than its neighbors.

Meade, in an interview, said he’s sticking by a 4 percent growth forecast for this year even after the IMF yesterday slashed estimates for Mexico’s economic performance this year and in 2012. Mexico is committed to spending restraint, a policy that served it well during the global financial crisis when other countries saw inflation accelerate and debt loads rise as a result of excessive fiscal stimulus, he said.

“Some countries that were very active fiscally and very active monetarily are now paying the consequences,” Meade said in an interview yesterday in Mexico City. “Mexico has reaped the rewards for proving to be responsible.”

Mexico’s economy in 2009 shrunk the most since the Great Depression after the collapse of Lehman Brothers Holdings Inc. and is among the most vulnerable nations should the U.S. fall back into recession. A slowdown in the U.S. economy would dry up trade, tourism and remittances to Mexico, the IMF said in a report yesterday when it slashed its 2011 growth forecast for the country to 3.8 percent from 4.7 percent in June. Only Venezuela is expected to grow less among the region’s major economies.

Prudence, Campaign

President Felipe Calderon presented a 2012 budget that calls for a deficit equivalent to 0.2 percent of gross domestic product, excluding investments in state-owned oil company Petroleos Mexicanos, down from 0.5 percent this year, as growth is slowing from 5.4 percent last year.

The goal is to gain consensus budget approval “in similar terms to what we proposed” from Congress for a sixth consecutive year to create certainty for investors, Meade said.

A lower deficit and international reserves of $136 billion provide stability that underpins economic growth, Meade said. Fiscal and monetary prudence has “worked well for Mexico,” he said. Mexico’s central bank has held its target rate at 4.5 percent for 21 straight policy meetings, while Brazil and Turkey have cut rates.

Mexico is lagging other emerging markets and the economy should grow at a 6 percent clip, said Luis Tellez, chief executive officer of the Mexican stock exchange in an interview yesterday. The nation needs to discuss policies to boost growth during the campaign leading up to the July presidential election, he said.

Meade said Mexico can only speed growth with legislation aimed at making the nation more efficient. Since Calderon took office in December 2006, Congress has approved laws to save a public-sector pension system from insolvency and passed two tax reforms that increased the ratio of revenue to GDP to a historic level, Meade said.

‘Better Drivers’

Mexico has become more competitive, helping economic growth outpace the U.S. in the last decade after lagging its largest trading partner in the 1990s and 1980s, Meade said.

“The export sector, consumption and investment are all better drivers of growth” than stimulus spending, Meade said. “The thrust of our economic policy for this year and next will be fiscal responsibility and monetary responsibility.”

The ministry will not change its dollar auctions, he said. The peso’s 11 percent decline against the dollar since June is part of normal trading activity and doesn’t warrant intervention, he said.

The flexibility of Mexico’s floating exchange rate has been positive by giving a boost to exports when it’s needed, he said.

“We don’t see any behavior in the market that seems driven by a structural problem as compared to, for example, 2008 when you did see a very illiquid market for the Mexican peso,” he said. “The movements of the market have been orderly.”

Meade said he favors seeking renewal of a $72 billion IMF flexible credit line when it expires in 2013. The credit provides confidence in Mexico’s financial markets, he said.

“We have been served well by it and I think that we should probably pursue renewing it in the future,” he said.

--With assistance by Adriana Lopez Caraveo and Jonathan Roeder in Mexico City. Editors: Joshua Goodman, Robert Jameson

To contact the reporter on this story: Jose Enrique Arrioja in Mexico City at jarrioja@bloomberg.net; Thomas Black in Monterrey at tblack@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net


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