Mexico Looks to Broker Europe Deal

| Dec. 16, 2011 |

Published by Minyanville

As the crisis continues in Europe, Mexico may be the unlikely contender to broker a deal, as it this week hosted its first meetings between G20 officials. Mexico currently holds the rotating leadership of the group of wealthy nations and is expecting to help organize a deal to boost International Monetary Fund (IMF) resources, according to Deputy Finance Minister Gerardo Rodríguez.

Rodríguez said that he believes an agreement for an increase in IMF funds is “very feasible” by the end of March 2012. “We are having a dialogue with all countries to try to construct a supportive exit, a cooperative exit ... in aid of Europe and other crisis bystanders,” he told Reuters.

There are no details on the specific mechanism Mexican officials are thinking about, if any. Europe needs more than $1 trillion, according to European Central Bank Governing Council member Klaas Knot. Many major emerging economies, such as Brazil, have offered to increase their own contributions as they find their own economies suffering thanks to the world’s crises.

IMF Managing Director Christine Lagarde has warned that no country will be exempt from the problems. The Mexican Senate is currently considering a request from the government to more than double the country’s contributions to the IMF to $14 billion.

President Felipe Calderón is in a position to offer money to the Fund thanks to relatively good news at home. Third quarter figures show much faster than expected growth, 1.3% up from the previous three-month period, bringing annual growth in the 12 months to September up to 4.5%.

Despite the strong headline figure, many investors are worried about Mexico’s manufacturing industry which registered just 0.54% growth, a figure masked by strong 1.6% growth in the services sector.

This drop in manufacturing is thought to be down to generally weak growth worldwide. “The problem is going to be next year,” Gabriel Casillas, an economist at JPMorgan in Mexico City, told Reuters. “With the global deceleration, Mexico will grow only a little.”

Inflation is hovering around 3%, on track with Central Bank targets. However, the European crisis is hitting the peso which may push up consumer prices as import costs rise.

The strong growth figure will most likely encourage the Central Bank to maintain interest rates as they are, especially coupled with uncertainty from Europe.

The auto sector does not appear to have suffered, though, as it reports an 18.3% increase in exports in November, compared to the previous month with production of 2.3 million vehicles, according to the Mexican Auto Industry Association.

Latin American Market Unity

The Mexican Stock Exchange, the Bolsa de Valores, or BMV has signed a letter of intent to join the Mercado Integrado Latino Americano (Mila), a bourse launched in May 2010 comprised of the Chilean, Peruvian and Colombian markets.

Its market capitalization of $450 billion puts it behind only Brazil as Latin America’s second largest Exchange and the addition of Mexico is likely to more than double that figure.          

Presidential Campaigning

Opposition Institutional Revolutionary party (or PRI) candidate Enrique Peña Nieto is the frontrunner for next year’s presidential election in Mexico, as the incumbent Calderón’s National Action Party, or PAN, is likely to suffer a heavy defeat after his tough and unsuccessful war on drugs.

Peña Nieto formalized his bid for the presidency at a rally in Mexico City late last month. “Unless the Virgin of Guadalupe intervenes, he will win the election in a landslide,” George Grayson, a professor at the College of William & Mary in Virginia, told Reuters.

However, the Virgin of Guadalupe may have decided to have just a little fun last weekend as Peña Nieto struggled to name three books he had read, leading critics to lambast him for his lack of substance.

“Well, I've read several, including novels, which I liked a lot,” the politician said when asked to name three books that influenced him. “I'd struggle to remember the names.”

Peña Nieto remembered the Bible, though hadn’t read it all, a novel whose author he couldn’t remember and a Mexican history book which he couldn’t remember the name of.

The presidential candidate was at the time promoting his own book, Mexico: The Great Hope. “[He may be the only man] to have written more books than he has read,” joked lawmaker Mauricio Toledano.