Those who favor stimulus packages as a tool to boost the American economy might want to take a trip south of the border. Brendan Case and Jessica Brice of Bloomberg Businessweek explain why.
Blame it on an aversion to government stimulus shaped by more than two decades of currency devaluations triggered by excessive government borrowing and overspending. One academic dubbed the phenomenon the Sexenio Curse, because the crises coincided with either the beginning or the end of one of Mexico’s six-year presidential terms; the first devaluation crisis took place in 1976 and the last in 1994, when 48-year-old Peña Nieto and key members of his economic team were beginning their careers.
Argentina and Brazil are not opposed to stepping up spending—especially around election time. But Mexico nowadays prefers to be “prudent and responsible,” says Peña Nieto. Although his government could be exploiting low borrowing costs, it’s implementing spending cuts with an eye to balancing the budget by 2017, excluding investments in state-run oil giant Pemex.
This parsimony has made Latin America’s second-largest economy a favorite among bond investors, says Credit Suisse Group chief Latin America economist Alonso Cervera. Bumping up spending now could be “dangerous,” he says, because once the U.S. Federal Reserve nudges up interest rates, Mexico may have to do the same to keep capital from flowing north.
