LatinFinance - Special Edition - August 2013 - 65

portray that emerging markets have more to suffer.
But there are some emerging markets that are stronger than
others, there are some markets that are more liquid, that have more
depth than others so there will be a distinction between advanced
and emerging markets, but i certainly would not agree to characterize that all emerging markets in general are less well prepared to
withstand a correction in policy.
Do you discount the possibility that Us treasury yields could
shoot up much faster than the market expects today?
You can always build catastrophe scenarios. But i think the probability of such a scenario is very low. Why? traders can generate
short-term turbulence and some inadequate dynamics in the short
term but at some point, fundamentals kick in.
if you have strong fundamentals, you have strong anchors in the
nominal variables in your economy and that eventually should bring
order to the behavior of the main macro-variables.
if you have a strong anchor and there is a strong storm, the boat
might move a lot, it will move around the ratio designed by the
length of the anchor, but if you have weak anchor then it will just
bash against the rocks. So if you have a strong anchor, the boat might
still be rocked but that doesn’t mean that it will lead you to a catastrophic scenario.
Yes, we might have some volatility but at the end of the day, if you
have strong fundamentals it is less of an issue. take mexico, we have
a very low debt to GDP ratio, we don’t have any pressing funding
needs neither in the private sector nor the public sector. We don’t
have any structural imbalances. and we have embarked on a series
of reforms.
There is concern also about a broader slowdown in the emerging
markets. What is your take on this?
my take is that emerging markets have slowed down. there is a
close correlation between world trade and industrial production.
What we have seen is a sharp decrease in world trade. So what we
are seeing is that emerging markets are being affected by the world
business cycle.
We are not immune to it – probably we didn’t feel this as much
before because expansionary fiscal and monetary policies of some
economies, advanced economies, provided short-term relief for the
world economy.
now what we see is that most of the policy instruments that
advanced economies had have run their course and we don’t have
much space left. So the business cycle around the world has become
more severe and that has affected emerging markets.
emerging markets are still growing much faster than advanced
economies but i would also take this as a call for emerging markets
that they also have to mind the structure of their own economies
and try to engineer additional structural reforms so that they can
enhance their capacity to grow and counterbalance the effects of
external weakness.
in mexico, we are going through a reform process so we don’t
have to depend so much on the performance of the world economy.
How much of a risk does currency volatility pose in Latin america, given that the headwinds are likely to increase?
in general, if you have strong fundamentals you shouldn’t worry
too much about it. You should concentrate first in setting your fundamentals and at the same time, doing more to promote growth.
for mexico, if you look at a chart of volatility, there has been a
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very slight dent recently. it’s still at very low levels. the mexican
peso is the most liquid market in latin america, the 13th deepest
market in the whole world. it’s a very complete market and we have
good pricing. Yes, it has shown some turbulence, but it has not been
extraordinary. our expectation is that it will continue like that in the
future.
Do you see any risks in the renewed market enthusiasm for
Mexico?
i don’t see a bubble being created in the mexican markets. all the
parties in this reform effort are very serious about moving forward.
there are already some important reforms that have materialized
and are in the process of being implemented. Both the government
and the legislature have been very open in discussing what they
think. So in general, the expectations are realistic and they are being
reflected in the market. i don’t see a bubble in any way.

AGUSTÍN CARSTENS

“ObviOusly we cOuld have
sOme turbulence in the
markets but wOuld that
create majOr damage tO the
ecOnOmic strength Of the
regiOn? i dOn’t think sO”

You’ve cut your growth forecast for the Mexican economy by a
full percentage point. Why?
one factor was precisely a slowdown in world growth, particularly in the US this year. that slowdown affected importantly our
exports. now we are seeing more solid performance in the US
economy, especially starting in the second quarter, the second half
should be better. the US economy was affected by the fiscal drag:
measures that were implemented, but will no longer be present, so
the expectations for next year are much better. Given its close ties to
the US economy that should benefit mexico in particular.
the other aspect was that during the change in administration we
had some form of fiscal contraction as the outgoing administration
wound down and the incoming administration took charge. this
change always slows down the impulse of government spending in
the economy. that was an important factor and has been addressed
by the government. i don’t think it should be an issue in the second
half. the second half of this year should be much better than the first
half, but the poor performance in the first half is sufficient to anticipate lower growth for the year as a whole. But also for next year we
expect growth should continue at a reasonable rate.
so these factors speak against the need for a rate cut in the second half of the year?
We feel that the monetary policy stance is adequate. We don’t
have any additional factors to tell the market. LF
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