Mexico’s Nagging NAFTA Nostrums
Mexican shares while down for the year continued to lead the region and foreign investors kept their 35 percent long-term bond position despite sluggish 1.5 percent GDP growth and the leftist PRD party’s break from the post-election “pact” on Pemex private energy opening differences. North American capitals also focused on the 20th anniversary of their free-trade agreement as officials try to boost manufacturing and technology exports with increased skill and wage competitiveness, especially against China. The US, Canada and Mexico are now in the final stages of the larger Trans-Pacific partnership with a dozen countries, and a political reform bill should soon pass to pave the way for the landmark oil monopoly debate, with the ruling PRI considering output as well as profit-sharing to satisfy center-right PAN demands. With the benchmark 3.5 percent likely to stay into next year the peso has been relatively solid versus the dollar and could settle around 12.5, despite the fall in President Pena Nieto’s popular approval to 50 percent. His fiscal policy was criticized for targeting unhealthy food and drink for tax rises instead of closing VAT and income loopholes, and the deficit will rise in 2014 on infrastructure spending. Drug violence was again in the headlines as security forces were ordered into a port city, as the administration has yet to broach possible partial legalization as a solution. Bilateral ties with Washington are also caught in the Obama administration’s immigration change agenda, which is stuck in the Republican-led House of Representatives as remittance flows ease in any case on diminished employment prospects. Among the major hemisphere economies growth still compares favorably with Brazil, where the Q3 result was negative, while FDI outreach is at the opposite extreme of Argentina, which just compensated Spain’s Repsol $5 billion for YPF’s nationalization.
With the NAFTA events Central America’s later CAFTA likewise drew reflection amid a busy election calendar beginning with Honduras, where the socialists did not return to power months after an inaugural sovereign bond as the ex-President’s wife finished second. Costa Rica and El Salvador go to the polls in February, with the ruling party standard-bearer far ahead in the former despite the likely loss of investment-grade status on the public debt jump to 55 percent of GDP on heavy borrowing and spending. The wide current account deficit will keep the currency below 500/dollar on growth and inflation both around 5 percent. El Salvador’s close race is set to advance to a second round with the rightist ARENA looking to come back on flat growth and remittance numbers and lagging exports due to the dollarized system. Panama’s contest comes in May with green back use popular on 7 percent economic expansion from its banking and tourism services boom combined with Canal and construction revenues. Cargo tonnage through the passage is down pending enlargement scheduled for completion in 2015, as Nicaragua touts a rival grandiose Chinese-built vision.
