Mexico’s Spurned Wal-Mart Special
Mexican shares, after mirroring the MSCI’s advance, nosedived as heavyweight Wal-Mart was reportedly ensnared in large government payoffs to secure store locations that were not pursued after the results of an internal investigation. To labor activists, many close to the long-dominant PRI commandingly ahead in presidential opinion polls, the episode smacked of previous alleged cover-ups to hide questionable business practices including wage and working hour non-compliance. The revelation dented the domestic demand story that along with US-driven exports were to bring GDP growth close to 4 percent, above rival Brazil which has imposed 3-year limits on auto entry to protect domestic plants. It came as the central bank has tilted toward easing after a long stretch on hold in the pre-election period, with the peso also softening on a trajectory back to 13. The outgoing administration has trumpeted new success with the aerospace industry while postponing further steps on Pemex private opening, although President Calderon harshly criticized Argentina’s expropriation move against Spain’s Repsol. As the former colonial power reels from its own debt crisis regulators have looked for signs of strain at the big Spanish-owned networks mainly funded by local deposits. They are also key buyers of Treasury bills and bonds with the foreign-controlled share of the instruments at 30 percent. The monetary authority has rejected peso intervention while continuing the regular foreign exchange auction, but a sudden bout of weakness on capital outflow could bring a course shift. In probing Latin America’s vulnerabilities the IMF and World Bank during the spring meetings cited commodity price and European bank reversals. Front-runner for the July contest Perez Nieto has promised to sustain macro-economic discipline and increase formal employment through competitiveness and structural changes. His lead stands at double-digits despite commentator jabs at his intellect and questions of favorable deals during his tenure as state governor. Unlike the historical tendency all three candidates vow to tighten relations with Washington to further trade and anti-drug agendas, while they allow for future bilateral Nafta modifications and narcotics decriminalization.
Their stance may be tamer than Brazilian President Dilma Rousseff’s during her April visit to the US, where she lambasted the “monetary tsunami” triggered by the Fed’s near-zero interest policy and insisted the WTO investigate possible exchange rate manipulation. She also pressed for answers on a defense contract won by aircraft maker Embraer that was later suspended and solicited support for a permanent UN Security Council seat. With the benchmark Selic due to revert to its post-crisis low under 9 percent the central bank is now demanding that domestic lenders reduce record spreads after erecting a complex of anti-appreciation measures against foreign investors. The development giant BNDES will receive a fresh infusion for infrastructure and strategic sectors that find strict definitions discounted in a sudden shopping frenzy.
