Mexico’s Fair Maiden Fixes
Mexican shares continued their honeymoon with the new Pena Nieto administration as tycoon Carlos Slim moved to list the Sanborns cafeteria chain for close to $1 billion despite anti-trust actions against his empire seeking more media and telecoms competition. The central bank at its latest gathering also turned dovish after holding rates for an extended period, as foreign investors slightly trimmed 35 percent local bond ownership. Both growth and inflation should be around 3.5 percent this year, and after registering the first trade surplus since 2000 on record car exports FDI is expected to pick up above 3 percent of GDP. Wage and productivity equality with China and middle-class demand will attract manufacturing and services interest and greater private opening for Pemex could bring traditional and alternative energy providers. Peso strength should maintain a near-term 12 to the dollar range on a minimal intervention stance compared with neighbors. The PRI President has tapped ministers from other parties after leaders signed a 95-principle reform pact upon inauguration. It builds on more flexible labor rules initiated by his predecessor and envisions further fiscal and structural changes to solidify the revenue and human resource base. The anti-drug effort has returned to the Interior Ministry fold and emphasizes social development along with security approaches. A clean government pledge has translation into formal asset disclosures although specific personal item and property values are not assigned. One of the first groups targeted for modernization is the teachers’ union with historic sway over the ruling party, which will test the efficiency orientation contained in the basic campaign platform drawing from the incumbent’s record as Mexico state governor.
The new team circulated at the World Economic Forum in Davos where participants were quick to contrast policies with former darling Brazil’s. Growth and inflation continue to miss targets, and currency direction is unclear although the Finance Minister insists on “avoiding meltdown” through operations at the 2 real/dollar boundary. The current account deficit at $8.5 billion was the highest ever in December, as both foreign direct and portfolio inflows ebb. The President again ordered lower electricity costs as state banks account for almost half of loans to maintain a double-digit pace supporting the consumer and strategic enterprises. The development institution BNDES’ book rose 12 percent last year to $75 billion, an “historic precedent” according to the annual report. It offers funds at 5 percent, below the benchmark rate, as the system default ratio stands at 6 percent of the total. Private sector banks, whose shares have been pummeled on the exchange, have cut personal and corporate lines and tried to squeeze profitability from reduced overhead. As the government vows to deliver 4 percent GDP growth before next year’s presidential election harsher measures could be in store than the verbal exhortations to help borrowers to date including fixed formulas.
