1. Montufar-Helu & Griotti Consulting
07 December 2010
Report to the Commissions on Industrial Development and Economic Development Senate of the Mexican Republic
On behalf of the Ass. of Mexican Manufacturers

2. Agenda Background: the Mexican economy
The two threats: China and the crisis
Recommendation: lower interest rates
Responding to alternatives and criticisms

3. Background: the Mexican economy
Mexican economy is highly reliant on exports
Our major export market is the US

4. The two threats: China and the crisis
China displaced Mexico as the US’ second largest trading partner
As a result of the crisis, Mexican GDP fell by 7% in 2009
Mainly driven by fall in exports
2008
293
Mexican exports ($ BN)
-18%
2009
240

5. A fragile recovery In 2010 exports bounced back…
GDP estimate: + 3 or 4 %
…thanks to a 25% fall in the value of the peso against the dollar

6. Recommendation for avoiding a double dip
Recommendation: the Commissions on Industrial Development and Economic Development should pressure Mexico’s Central Bank into lowering the interest rate from 4.5% to 4%.
Further devaluation of the peso leading to an increase in exports to the the US
Objective is to gain back second place from China
Reduce unemployment which has reached a high point of 6%
Improves the governments’ chances of obtaining reelection in 2012

7. Responding to alternatives and criticism
Alternative: pegging the peso to the dollar
Implies restricting capital flow and therefore reduces FDI
Criticism: low interest rate will increase inflation
Inflation is low at 3.6% (down from 5% in 2009)
Criticism: pressures on the Central Bank damage its independence
This is a price worth paying to ensure economic recovery
All governments influence their Central Bank

8. THANK YOU