mexico and the super peso a tale of two surprises jorge g. gonzalez trinity university international...
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Mexico and the Super PesoA Tale of Two Surprises
Jorge G. Gonzalez
Trinity University
International Business Forum
Recent Economic and Political EventsRecent Economic and Political Events World economic weaknessWorld economic weakness Mexican government gridlockMexican government gridlock Mexico – U.S. relationshipMexico – U.S. relationship Iraq war and aftermathIraq war and aftermath
Mexico’s ReactionMexico’s Reaction
Peso’s debacle?Peso’s debacle?
Exchange RateExchange RatePesos per U.S. DollarPesos per U.S. Dollar
Source: Banco de México www.banxico.org.mx
4
6
8
10
12
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Exchange RateExchange RatePesos per U.S. DollarPesos per U.S. Dollar
Source: Banco de México www.banxico.org.mx
4
6
8
10
12
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Mexico’s ReactionMexico’s Reaction
Peso’s debacle?Peso’s debacle? Capital flight?Capital flight?
Foreign Direct InvestmentForeign Direct InvestmentBillions of DollarsBillions of Dollars
Source: Banco de México www.banxico.org.mx
2.64.8 4.4 4.4
11.09.5 9.2
12.812.0
12.815.3
25.2
13.6
0.0
5.0
10.0
15.0
20.0
25.0
1990 1992 1994 1996 1998 2000 2002
Mexico’s ReactionMexico’s Reaction
Peso’s debacle?Peso’s debacle? Capital flight?Capital flight? Economic crisis?Economic crisis?
Real GDPReal GDP% Change% Change
Source: Banco de México www.banxico.org.mx
4.5
-6.2
5.1 6.84.9 3.7
6.6
-0.3
0.9
-10.0
-5.0
0.0
5.0
10.0
1994 1995 1996 1997 1998 1999 2000 2001 2002
Mexico’s ReactionMexico’s Reaction
Peso’s debacle?Peso’s debacle? Capital flight?Capital flight? Economic crisis?Economic crisis? Fiscal crisis?Fiscal crisis?
0.2 0.0 0.0
-0.7-1.2 -1.1 -1.1
-0.7-1.2
-2.0
-1.0
0.0
1.0
1994 1995 1996 1997 1998 1999 2000 2001 2002
Government BalanceGovernment BalanceBalance / GDPBalance / GDP
Source: SHCP www.shcp.gob.mx
Mexico’s ReactionMexico’s Reaction
Peso’s debacle?Peso’s debacle? Capital flight?Capital flight? Economic crisis?Economic crisis? Fiscal crisis?Fiscal crisis? Inflationary spiral?Inflationary spiral?
InflationInflation
Source: Banco de México www.banxico.org.mx
7.05
51.97
27.70
15.7218.61
12.328.96
4.40 5.70
0
10
20
30
40
50
60
1994 1996 1998 2000 2002
TermRisks
ShortStructural
Challenges
Risks and ChallengesRisks and Challenges
Risks and ChallengesRisks and Challenges Super PesoSuper Peso
19951997
19992001
2003
Inflation Differential vs. Inflation Differential vs. Exchange RateExchange Rate
Inflation
Exchange Rate
305
214
Source: Banco de México www.banxico.org.mx
94 -
I95
- I
96 -
I97
- I
98 -
I99
- I
00 -
I01
- I
02 -
I03
- I
10
20
30
40
50
Merchandise TradeMerchandise TradeBillions of DollarsBillions of Dollars
Source: Banco de México www.banxico.org.mx
Imports
Exports
Why Super Peso?Why Super Peso? Foreign investmentForeign investment Family remittancesFamily remittances
Family RemittancesFamily RemittancesBillions of DollarsBillions of Dollars
4.2 4.9 5.6 5.96.6
8.99.8
0.0
5.0
10.0
1996 1997 1998 1999 2000 2001 2002
Source: Banco de México www.banxico.org.mx
Super HeroesSuper Heroes
Super PesoSuper Peso U.S. economyU.S. economy Mexican politics Mexican politics
TermRisks
Short
ChinaChina Rule of lawRule of law Human capitalHuman capital InfrastructureInfrastructure Fiscal reformFiscal reform PovertyPoverty
Structural Challenges
A Tale of Two Surprises?A Tale of Two Surprises? Economic stability is not a surpriseEconomic stability is not a surprise Super PesoSuper Peso June 17June 17thth, 2002, 2002
Source: Proceso, June 23, 2002 Pg. 41
Mexico and the Super PesoA Tale of Two Surprises
Jorge G. Gonzalez
Trinity University
International Business Forum
Mexico and the Super PesoA Tale of Two Surprises
International Business Forum
www.trinity.edu/jgonzal1