Mexican economy

A little snapshot of the Mexican economy may help with the following comments. The Mexican economy has had a nice upturn in 2014 and 2015. The table gives the GDP per person in pesos, and in dollars using an average exchange rate for the year and an end of year (eoy). The table is not corrected for purchasing power.



Note that the average exchange rate for 2015 was 15.85 pesos/dollar. Right now it is at about 20.6 pesos /dollar having took a major plunge especially after Donald Trump's election. This drop is the worse since the peso crash of 1994.

In 1994 the value of the Mexican peso depreciated roughly 50% from 3.4 MXN/USD to 7.2, recovering only to 5.8 MXN/USD four months later. Prices in Mexico rose by 24% over the same four months, and by the end of 1995 Mexico's hyperinflation had reached 52%.Mutual funds, which had invested in over $45 billion worth of Mexican assets in the several years leading up to the crisis, began liquidating their positions in Mexico and other developing countries. Foreign investors not only fled Mexico but emerging markets in general, and the crisis led to financial contagion throughout other financial markets in Asia and Latin America. The impact of Mexico's crisis on the Southern Cone and Brazil became known as the "Tequila effect" (Spanish: efecto tequila).

Motivated to deter a potential surge in illegal immigration and to mitigate the spread of investors' lack of confidence in Mexico to other developing countries, the United States coordinated a $50 billion bailout package in January 1995, to be administered by the International Monetary Fund (IMF) with support from the G7 and the Bank for International Settlements (BIS). The package established loan guarantees for Mexican public debt aimed at alleviating its growing risk premia and boosting investor confidence in its economy. The Mexican economy experienced a severe recession and the peso's value deteriorated substantially despite the bailout's success in preventing a worse collapse.

While this crisis is nowhere near as severe as the 1994 crisis, the role of Donald Trump will undoubtedly be seen as the cause of the crisis this time. In 1995 President Clinton's effort were seen as a politically risky move on the part of the President that helped the situation in Mexico.

Quote: Pacomartin

While this crisis is nowhere near as severe as the 1994 crisis, the role of Donald Trump will undoubtedly be seen as the cause of the crisis this time. In 1995 President Clinton's effort were seen as a politically risky move on the part of the President that helped the situation in Mexico.

Mexico has always used the USA as a straw man, Trump is just the latest. The country probably prefers a weak Peso, and it should mostly help the Mexican auto industry, which has been booming as an export hub. Tourists should love it.

Meanwhile, the deeper issue of why Mexico cannot get it together long term remains. Corrupt one-party rule is one problem. Another is probably so much of the population clustered in a few parts of the country with other parts uninhabitable. Maybe when population growth levels to near zero next decade they will make progress.

>>>>Mexico has always used the USA as a straw man, Trump is just the latest.
Undoubtedly.

>>>>> Corrupt one-party rule is one problem.
I have a feeling that the only thing worse than corrupt one-party rule in Mexico will be corrupt two-party rule in Mexico.
Corruption is endemic and rooted in the sould, not just the forty families or four hundred families or whatever it is.


>>>>>>> Another is probably so much of the population clustered in a few parts of the country with other parts uninhabitable.
Uninhabitable or uninhabited.

Quote: Pacomartin

Note that the average exchange rate for 2015 was 15.85 pesos/dollar. Right now it is at about 20.6 pesos /dollar having took a major plunge especially after Donald Trump's election. This drop is the worse since the peso crash of 1994.

The drop began due to lower oil prices. That's temporary, or rather cyclical. Demand for oil will keep growing, ergo the prices of crude will rise eventually. The companies investing in joint ventures with PEMEX know this.

The Orange Man factor is less certain. While I'm sure corrupt Donald won't be able to deliver, even if he wanted to, on many of his promises, most particularly including the Berlin Wall replica, he does seem to have a grudge against Mexico and can make things hard. A lot will depend on whether he will govern or reign. If he governs, the law will limit what he can do, including pulling the plug on NAFTA (he can't). If he reigns, that is if he disregards the law and issues diktats like a tin pot third world wannabe dictator, well, he can hurt America a lot that way.

Quote: AZDuffman

Mexico has always used the USA as a straw man, Trump is just the latest. The country probably prefers a weak Peso, and it should mostly help the Mexican auto industry, which has been booming as an export hub. Tourists should love it.

Certainly many people benefit from a weaker currency. You need look no further than the Plaza Accord in 1985 designed to massively take the steam out of a super strong US dollar as US exports were suffering.



The drop in GDP per person in Mexico in 2015 certainly had nothing to do with the election. Mexico suffers with all oil producing economies whether it be Texas or Norway. The news is full of stories of how Mexican cement manufacturers will benefit from building this wall.



But you have to distinguish between a weakening currency and one that is in free fall. Also public opinion is not often based on hard analysis. A very small percentage of people benefit from a free falling currency, and you highlight the divide between people who can afford bank accounts in the USA and those people who have little or no savings or have all investments in pesos.

Quote: Fleastiff

>>>>>>> Another is probably so much of the population clustered in a few parts of the country with other parts uninhabitable.
Uninhabitable or uninhabited.

Call it both. It happens from Brazil to California. Same thing. Just not enough land for people to live on. Drives up prices, making living impossible. Then it all crashes.

Quote: Pacomartin

The drop in GDP per person in Mexico in 2015 certainly had nothing to do with the election. Mexico suffers with all oil producing economies whether it be Texas or Norway.

Yes, but the Mexican economy is far more diversified than it used to be. In particular exports are more diverse. So the drop in oil prices didn't lead to massive devaluation like those of 1994, 1982-86, etc.

And keep in mind trade deals are two-way, not one-way. So a weak currency also makes things tough for imports. In today's globalized economy, a weak currency isn't the panacea people think it used to be (it wasn't even then). not to mention the higher interest rates and higher inflation that go with it.

Devaluing your currency on purpose is like setting your house on fire to reduce it's price so it will sell faster. It may work, but you won't like the results.

Quote: AZDuffman

Call it both. It happens from Brazil to California. Same thing. Just not enough land for people to live on. Drives up prices, making living impossible. Then it all crashes.

Oh, no... it can't be both. Uninhabitable would require severe hazards such as Yellow Fever, Crocodiles, Mosquitoes, etc. whereas Uninhabited would merely be descriptive of the infrastructure being non existent. Brazil tried to open up its interior by building its new Capital in teh middle of nowhere, it was doomed from the start.

Mexico could probably get away with real land reform and peasant translocation, if roads and railroads were coordinated.

Quote: Fleastiff

Oh, no... it can't be both. Uninhabitable would require severe hazards such as Yellow Fever, Crocodiles, Mosquitoes, etc. whereas Uninhabited would merely be descriptive of the infrastructure being non existent. Brazil tried to open up its interior by building its new Capital in teh middle of nowhere, it was doomed from the start.

Mexico could probably get away with real land reform and peasant translocation, if roads and railroads were coordinated.

Sure it can be both. Death Valley is uninhabitable and basically uninhabited. It is not possible to live there in all but the smallest of numbers.

Death Valley with all its jeep tours an abandoned mines, shacks, tunnels, hermits, etc. sure supports a wide area advertizing itself as Gateway to Death Valley.