The Mexican EconomyInvestment Grade or Peso Bubble?

San Antonio BusinessSan Antonio Business

and Economics Societyand Economics Society

Jorge G. Gonzalez

Trinity University

The events of 2001

• Economic slowdown in U.S.

• Mexican government gridlock

• Great relations with U.S.

• Decline in the price of oil

• September 11th

• Crisis in Argentina

• Yes to the World Cup!

Mexico’s Reaction

• ¿Peso’s debacle?

Exchange RatePesos per U.S. Dollar

456789

1011

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Source: Banco de México www.banxico.org.mx

Exchange RatePesos per U.S. Dollar

456789

1011

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Source: Banco de México www.banxico.org.mx

Mexico’s Reaction

• Peso’s debacle?

• Capital flight?

Foreign Direct InvestmentBillions of Dollars

2.64.8 4.4 4.4

11.0 9.5 9.2

12.811.9

12.514.2

24.7

0.0

5.0

10.0

15.0

20.0

25.019

90

1992

1994

1996

1998

2000

Source: Banco de México www.banxico.org.mx

Mexico’s Reaction

• Peso’s debacle?

• Capital flight?

• Economic crisis?

Real GDP% Change

4.4

-6.2

5.26.8

5.03.6

6.6

-0.3

-8.0-6.0-4.0-2.00.02.04.06.08.0

1994 1995 1996 1997 1998 1999 2000 2001

Source: Banco de México www.banxico.org.mx

Mexico’s Reaction

• Peso’s debacle?

• Capital flight?

• Economic crisis?

• Fiscal crisis?

Government BalanceBalance / GDP

0.2 0.0 0.0

-0.7

-1.2 -1.1 -1.1-0.7

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1994 1995 1996 1997 1998 1999 2000 2001

Source: SHCP www.shcp.gob.mx

Mexico’s Reaction

• Peso’s debacle?

• Capital flight?

• Economic crisis?

• Fiscal crisis?

• Inflationary spiral?

Inflation

7.05

51.97

27.70

15.7218.6112.32

8.964.40

0.00

10.00

20.00

30.00

40.00

50.00

60.00

1994 1995 1996 1997 1998 1999 2000 2001

Source: Banco de México www.banxico.org.mx

Bumps in the road?

• Super Peso

Inflation Differential vs. Exchange Rate

1995 1997 1999 2001

0

100

200

300

400

Inflation

Exchange Rate

295

188

Source: Banco de México www.banxico.org.mx

International TradeBillions of Dollars

94 -

I95

- I

96 -

I97

- I

98 -

I

99 -

I

00 -

I

01 -

I

10

20

30

40

50

Exports

Imports

Source: Banco de México www.banxico.org.mx

¿Piedras en el camino?

• Super Peso

• U.S. economy

• Political gridlock

• Income Inequality and Poverty

The Mexican EconomyInvestment Grade or Peso Bubble?

San Antonio BusinessSan Antonio Business

and Economics Societyand Economics Society

Jorge G. Gonzalez

Trinity University

The Mexican EconomyInvestment Grade or Peso Bubble?

San Antonio BusinessSan Antonio Business

and Economics Societyand Economics Society

Jorge G. Gonzalez

Trinity University

www.trinity.edu/jgonzal1