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Mexico and the Super Peso
A Tale of Two Surprises
Jorge G. Gonzalez
Trinity University
The events of 2001 and 2002
Economic weakness in U.S.
Mexican government gridlock
Mexico – U.S. relationship
Crisis in Argentina
Winds of war
Mexico’s Reaction
¿Peso’s debacle?
Exchange Rate
Pesos per U.S. Dollar
12
10
8
6
4
Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan95
96
97
98
99
00
01
02
03
Source: Banco de México
www.banxico.org.mx
Exchange Rate
Pesos per U.S. Dollar
12
10
8
6
4
Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan95
96
97
98
99
00
01
02
03
Source: Banco de México
www.banxico.org.mx
Mexico’s Reaction
Peso’s debacle?
Capital flight?
Foreign Direct
Investment
Billions of Dollars
25.2
25.0
11.0
9.5 9.2
15.3
12.8 12.8
12.0
13.6
2002
2000
1998
1996
1994
1992
4.8 4.4 4.4
2.6
1990
20.0
15.0
10.0
5.0
0.0
Source: Banco de México
www.banxico.org.mx
Mexico’s Reaction
Peso’s debacle?
Capital flight?
Economic crisis?
Real GDP
% Change
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
-8.0
5.1
4.5
6.6
6.8
4.9
3.7
0.9
-0.3
-6.2
1994 1995 1996 1997 1998 1999 2000 2001 2002
Source: Banco de México
www.banxico.org.mx
Mexico’s Reaction
Peso’s debacle?
Capital flight?
Economic crisis?
Fiscal crisis?
Government Balance
Balance / GDP
1.0
0.5
0.2
0.0
0.0
0.0
-0.5
-1.0
-1.5
-0.7
-0.7
-1.2
-1.1
-1.1
-1.2
-2.0
1994 1995 1996 1997 1998 1999 2000 2001 2002
Source: SHCP
www.shcp.gob.mx
Mexico’s Reaction
Peso’s debacle?
Capital flight?
Economic crisis?
Fiscal crisis?
Inflationary spiral?
Inflation
60
50
40
30
20
10
0
51.97
27.70
18.61
15.72
12.32
7.05
1994
1996
1998
8.96
2000
4.40 5.70
2002
Source: Banco de México
www.banxico.org.mx
Risks and Challenges
Short
Term
Risks
Structural
Challenges
Risks and Challenges
Super Peso
Inflation Differential vs.
Exchange Rate
305
Inflation
214
Exchange Rate
1995
Source: Banco de México
www.banxico.org.mx
1997
1999
2001
2003
Merchandise Trade
Billions of Dollars
50
45
40
35
30
25
20
15
10
02 - I
01 - I
00 - I
Source: Banco de México
www.banxico.org.mx
99 - I
94 - I
95 - I
96 - I
97 - I
98 - I
Imports
Exports
Why Super Peso?
Foreign Investment
Family Remittances
Family Remittances
Billions of Dollars
8 .9
10.0
5.0
4 .2
4 .9
5.6
5.9
9 .8
6 .6
0.0
1996 1997 1998 1999 2000 2001 2002
Source: Banco de México
www.banxico.org.mx
Super Heroes
Short
Term
Risks
Super Peso
U.S. economy
War in Iraq
Mexican Politics
Structural
Challenges
China
Rule of Law
Human Capital
Infrastructure
Fiscal Reform
Poverty
A Tale of Two Surprises?
Economic stability is not a surprise
Super Peso
June 17th, 2002
Source: Proceso, June 23, 2002
Pg. 41
Mexico and the Super Peso
A Tale of Two Surprises
Jorge G. Gonzalez
Trinity University
Mexico and the Super Peso
A Tale of Two Surprises
www.trinity.edu/jgonzal1
[email protected]