| | |  Business News | October 2008 
Mexico Companies Will Face More Expensive Credit Due to Crisis
 Jens Erik Gould & Kathleen Hays - Bloomberg
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Mexican credit markets will probably tighten as local companies that can't borrow in the U.S. seek funding closer to home, Deputy Central Bank Governor Guillermo Guemez Garcia said.
The global credit crisis will hurt Mexico as lower oil prices, falling exports and declining remittances from workers abroad slow the economy, Guemez said in an interview with Bloomberg Television in New York. Still, the Mexican banking system is healthy, he said.
"Large Mexican companies funding themselves outside are probably having straining in their funding," Guemez said. "They will have to go to the Mexican market, and that will cause some sort of credit crunch."
More expensive loans may deepen the impact that the global credit crunch will have on the economy. Mexican President Felipe Calderon proposed on Oct. 8 a stimulus package worth 1 percent of gross domestic product that includes spending on infrastructure, energy and education to help the economy weather the crisis.
Calderon sent a revised 2009 budget proposal to Congress on Oct. 8 that lowered forecasts for economic growth to 1.8 percent from 3 percent and reduced the assumed price of oil exports to $75 a barrel from $80.30.
"The federal government has adopted measures that not only will help us avoid a recession, which no one wants, but will also help us maintain economic growth," Calderon said yesterday, adding the economy will withstand the downtown better than it has in past global recessions.
Expensive Lending
Mexican banks are unlikely to restrict lending because they don't have the same balance-sheet problems as U.S. institutions, said Alberto Bernal, an economist with Bulltick Securities Corp. To be sure, credit will become more expensive.
"I would call it `credit crowding' rather than a credit crunch," said Bernal, who is based in Miami. "If more people are looking for credit, then it will become more expensive."
Guemez also said the lack of demand for the dollars the central bank offered at three $400 million auctions yesterday was a sign the bank's plan to help prop up the peso is working.
"The idea isn't necessarily to try to sell dollars," Guemez said. "The fact that we didn't have to place it was very successful because that means the peso was at a lower rate than we were offering. It means the peso is not really devaluing that much."
$400 Million
Banco de Mexico sold $2.5 billion in the market this week to stem a rout in the peso and said it would offer an additional $400 million when the peso weakens more than 2 percent in a day. The bank sells the dollars at a price at least 2 percent higher than the previous day's rate. By the time officials offered the dollars, the peso was down less than 2 percent, leading traders to shun the sales.
Mexico may remove the mechanism to offer $400 million a day if the "emergency" currency situation provoked by the credit crisis abates, Guemez said.
Guemez said the peso has weakened because investors sold it to seek shelter in safer funds, the same reason other emerging-market currencies fell. The peso has slumped 17 percent this month and 25 percent from a six-year high reached on Aug. 4.
The country aims to spend the lowest amount of foreign reserves possible in its effort to maintain stability in the market, he said. The currency has already begun to stabilize, and has shown more calm than the majority of currencies, Guemez added.
Interest rates
Mexico was forced to abandon a currency peg in December 1994, leading to a 45 percent plunge in the peso over six weeks, after running low on reserves it spent trying to defend the peg. Reserves have since rebounded, almost tripling this decade amid a six-year rally in oil, the country's biggest export.
Efforts by central banks around the world to cut interest rates aren't enough to control the credit crisis, Guemez said.
"This crisis exceeds the concept of reducing interest rates," he said. "The reductions haven't been effective to control the crisis."
Guemez also said the bank needs to take into account the October and November inflation rates in order to determine whether consumer prices are "under control." Mexico's annual inflation slowed in September for the first time in eight months because of lower prices for agricultural products.
To contact the reporter on this story: Jens Erik Gould in Mexico City at jgould9(at)bloomberg.net; Kathleen Hays in New York at khays4(at)bloomberg.net |
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