Introduction to the Institutional Context
In Washington, D.C., Martín Castellano, the Chief Economist for Latin America at the Institute of International Finance (IIF), emphasized that México’s primary focus amidst global uncertainty should be maintaining its fiscal consolidation program and adhering to the targets it has set.
Mexico’s Position Among Investors
Castellano highlighted that México, being an open economy without capital controls and having a highly liquid currency, is constantly under investor scrutiny. He stressed the importance of consistent signals of responsibility and fiscal discipline, qualities that have long characterized México.
Fitch’s Rating Reaffirmation
Castellano mentioned that Fitch’s reaffirmation of México’s sovereign rating serves as a strong signal and a commitment for the authorities to maintain their fiscal consolidation plans, regardless of external conditions.
Utilizing Economic Cushions
When asked about the economic slowdown and its implications for using available policy tools like the stabilization fund, Castellano noted that while there are resources (approximately 0.5% of GDP) in this fund, the costs of using them must be evaluated.
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Castellano suggested evaluating the costs of using these cushions, as doing so might signal greater vulnerability in available liquidity tools. However, it also demonstrates that México has instruments to sustain economic activity.
He also pointed out that the Banco de México has more room to ease monetary policy.
Institutional Strength of Banco de México
Castellano discussed the resilience of the Mexican peso amid global uncertainty, attributing it to the credibility of the central bank, the government’s fiscal consolidation plans, and the current economic cycle with no demand-side pressures.
He emphasized that the institutional strength of the central bank aids its decision-making power in the face of external or domestic shocks, making the profile of Junta de Governadores’ members and their interactions crucial.
Negotiating with the U.S. Government
Castellano reduced México’s GDP growth forecast from 0.8% to 0.3% due to the economic slowdown caused by tariffs.
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Despite tariffs on the automotive sector, aluminum, and steel still being in effect, Castellano believes there is a significant opportunity to negotiate with the U.S. government and find solutions to address changes in U.S. economic policy affecting México.
He concluded that the incentives for maintaining integrated economies are substantial and will persist over time, even if there might be adjustments to production chains and fewer investment opportunities.
