Finance Minister Carstens Discusses 2010 Outlook for Mexico at EMTA Meeting
Less than 24 hours before being nominated as the next President of the Mexican Central Bank, Mexican Finance Minister Agustin Carstens delivered a presentation on the Economic Outlook for Mexico at a special EMTA meeting on Tuesday, December 8, 2009. The luncheon event, which was attended by a capacity crowd of 125 EM professionals, was sponsored by BNP Paribas and held at the Marriott Marquis Hotel in New York City.
Carstens used his presentation to discuss the “significant progress” made by Mexico to promote macroeconomic stability and growth via both fiscal consolidation and an acceleration of the structural reform agenda. He acknowledged the past year was difficult for the world and for Mexico, but that “we have been able to overcome the challenges.”
The Minister forecast GDP growth of 3% in 2010 following improved growth in the second half of 2009, according to the data currently available and which indicated expanded domestic and foreign demand. Growth was being promoted by the global economic recovery, improved Mexican consumer confidence, a depreciated real exchange rate, as well as the effects of countercyclical policies adopted by the government. Carstens noted that over 200,000 jobs have been created in recent months. “Six months ago we felt more vulnerable than we do now,” he stated in affirming recent progress.
Growth next year will be driven both externally from a growth in global industrial production and domestically from improved consumption and investment. The Minister highlighted structural reforms such as the October closing of the money-losing state power company Luz y Fuerza del Centro as well as more competition in the telecom sector. Carstens warned, however that the risks of a weaker-than-expected US recovery remain.
The Minister emphasized that during his tenure, important structural reforms had been achieved such as the increase in non-oil tax revenues, which represented 9% of GDP in 2006 but are forecast to reach 12% in 2012. In addition, reforms to the public sector workers’ pension system—plus the recent closing of Luz y Fuerza— have resulted in savings of at least 34.9% of GDP on an NPV basis.
In the future, competitiveness will also be boosted in a number of additional ways: (1) Reform in the energy sector should lead to efficiency gains in the state oil company PEMEX as well as a gradual recovery in oil production; (2) Afores pensions will be allowed to invest in infrastructure and other projects; (3) Legal uncertainty in public-private partnerships will be revised to remove uncertainty and increase flexibility; (4) There will be new auctions in the telecom sectors; (5) Reforms to increase out of court settlements and giving more power to the Federal Competition Commission; (6) Greater fiscal consolidation, and (7) An updating of the supervisory and regulatory framework of the Mexican financial system. Following formal remarks, the Minister also entertained questions from EMTA members. In response to questions regarding the country’s recent downgrading by the Fitch credit rating agency and its negative out look at Standard & Poor’s, the Minister noted “we are not waiting for a ratings agency review to tell us what to do next…we have a clear idea of what needs to be done and we are implementing it.”