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 Business News | February 2006 
Election Won't Hurt Peso, Fed's Dallas Chief Says
 Louie Gilot - El Paso Times
Those who worry about Mexico's economic health this election year should relax.
Richard W. Fisher, the president and CEO of the Federal Reserve Bank of Dallas, says Mexico has already set the foundations of economic stability.
"None of the three candidates are likely to reconsider the 10-year-old commitment to fiscal discipline," said Fisher, speaking at the University of Texas at El Paso for a lecture series called "Mexico Today." The next speaker will be Alejandro Junco, publisher of Grupo Reforma, March 22.
Mexican voters will go to the polls July 2. The candidates from the three main parties are head-to-head in the polls.
Fisher, who was raised in Mexico, praised not only the support the past two Mexican presidents have lent to Banco de Mexico, Mexico's central bank, but also the "superb leadership" of Mexico minister of finance Francisco Gil D’az and Guillermo Ortiz, the governor of Banco de Mexico, whom Fisher called "Batman and Robin."
"Establishing a central bank that sets countering inflation as its main goal -- these are magic words in this global economy," Fisher said.
A Mexican election year without economic drama is still a somewhat new phenomenon for observers like El Paso retailers who cater to Juárez shoppers. Economists predicted this will be the second election year without the spector of a peso devaluation, because the peso is now allowed to fluctuate freely.
"In the past they (Downtown El Paso merchants) experienced devaluations. Up until the last time," said Mike Breitinger, director of the Central Business Association. "I've heard it doesn't appear it will happen. It's good not to have to worry about a peso devaluation."
For maquilas, however, the future is not so rosy. A strong peso and a rise in the minimum wage this year are bound to increase labor costs.
Fisher also said Tuesday that business growth in Mexico is "limited by Mexican law and convention," and that Mexico is in dire need of reform.
For instance, after three months in a new job, a Mexican worker is tenured and it is extremely costly to fire him, Fisher said, while at the same time, workers in the informal sector have no labor protection at all. Labor productivity is not good, and education levels are dismal.
In addition, 15 percent of the Mexican labor force is working in the United States.
Tom Fullerton, an economics professor at UTEP, agreed that the Fox administration has fostered the fiscal discipline and monetary flexibility that will allow for a smooth transition to the next government.
But, he said, "there are several problem areas ... that are likely to cause Mexico to continue to operate at less than its full economic capacity. They include the lack of reform in the labor code and the energy sectors and the business licensing procedures. As long as the problems in these areas persist, there will continue to be international migration out of Mexico, underinvestment in the various energy sectors of the economy and a serious problem with informal commercial activity."
As to trade, both Mexico and the United States have failed to make changes to take full advantage of NAFTA, Fisher said.
Fisher oversaw the implementation of NAFTA and other trade agreements as a deputy U.S. trade representative.
But more than 10 years after NAFTA, Mexican trucks still can't roam the United States -- and U.S. trucks are prohibited to travel in Mexico -- and Mexican and U.S. customs processes are cumbersome.
"Barriers to trade persist," Fisher said. "Cargo headed to the interior of Mexico spends three to five days in border warehouses. ... It requires change on both sides."
This does not take away from Mexico's recent accomplishments, Fisher said.
Mexico has the lowest levels of inflation ever -- a "gigantic accomplishment," he said -- and has tackled the problems that led to the 1995 crisis, namely a large debt, in foreign hands, short-term and in U.S. dollars. These days, Mexico's debt is mostly domestic, and it has a longer maturity. In 1995, the longest debt was one year. In 2003, Mexico introduced the first 20-year bond.
"It would not be a surprise if Mexico followed Russia's example," Fisher said. Russia recently introduced a 30-year bond.
After his talk at UTEP, Fisher was asked about rumors that the El Paso branch of the Fed would close.
"No way," he said. "We play a very important role (in El Paso). It used to be that we were, quote, isolated," he said. Now the border economy is improving, and the research conducted by economists in El Paso is ever more important, he said.
The Fed recently organized its first conference on cross-border retail, an understudied phenomenon, in San Antonio.
Louie Gilot may be reached at lgilot@elpasotimes.com. |
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