In Mexican financial media the hunch persists that Bank of Mexico (Banxico) governor Agustín Carstens resigned not because he got a better job at the Bank of International Settlements, but because the shape of things to come for the economy made him chicken out.
In the short term, Mexico has to face pressure over public finances, contain inflation through economic moves, such as preventing gross domestic product growth, and struggle with phantom-like forces in order to impede recession.
All of the above is threatening the delicate macroeconomic balance the last four presidential administrations have been able to hone, including the threat that the hardly earned international reserve may dwindle even further.
Let’s keep in mind that under Carstens’ aegis in the past four years of Enrique Peña Nieto, the reserve has lost circa $22 billion to allegedly preserve the peso-dollar stability, even with the constant pumping of dollars to attenuate the purchasing power of the amply belittled pesito mexicano.
After all, having led a nearly 55 percent devaluation does not look at all good on Carstens’ CV.
What’s more, no matter how much President Enrique Peña Nieto keeps pleading with people to shove aside negativism and “look at the good things” what prevails over the president’s good mood is the fact that all readings on GDP show that growth for this year will be at best 1.72 percent, down a few points from recent years when growth has been registered at an average above 2 percent.
Of course, in defense of Cartstens resignation due July 1, he can claim what President Peña Nieto has in the past: “at least we’re growing, not as hoped for nor expected, but growing.” But that doesn’t seem to warm up Mexicans even in this mildly cold winter that will officially start tomorrow.
To boot Carstens’ formula of continuously increasing interest rate — the latest hike last week from 5.25 to 5.75 percent — is not working as it should mainly because international dollar traders keep coming back for more money which will have to be shelled out not just by consumers, but Banxico as well.
But that is not all. The nation, come January, just 12 days from now, will be facing further taxes of fuels which will make Carstens’ inflation control policies go tumbling, as there is uncertainty as to how prices will behave in the short term. On top of that, gasoline shortages have popped up in different regions of Mexico; that’s not a good sign of a sound economy.
Worse still, predictions are that come January prices on most goods will have to be risen, as in the past, producers have been cushioning the government’s anti-inflation efforts by keeping profits down.
This, however, has been deemed an untenable business situation, as you can only pump so much hot air into a bubble before it bursts.
Banxico’s Carsten bubble seems to have popped, and one can’t blame him if he does not want to be held responsible for it. But then, if not him, who?
Surely at first Carstens’ resignation seemed to have other motives, but now it seems more plausible that in the end chickening out was not merely a necessary move to preserve his prestige, but the only one left for Agustín Carstens.
Adding adrenaline to fear of the future, President Peña Nieto has not come up with the prince valiant who will save that endangered damsel that is the Mexican economy.
What’s for sure now is that Carstens is no longer our man.
