Mexico has become a very marked dichotomy. On the one hand, it is a country full of life, culture, and good people, and on the other hand, it is governed by an autocracy democratically elected but far removed from the will of the people. The legislative and judicial powers have practically disappeared, leaving only the executive and eliminating the constitutional attempt to balance and protect the population.
On the one hand, we saw an enormous number of Mexicans who took to the streets to demonstrate against the attempt to weaken the INE, marches in more than 100 cities in the country and even abroad, and on the other hand, a President who insists that his plan is the right one and that the protests are a provocation by the “fifis“(well off). Meanwhile, he threatens (although in the end, he folded his hands) Tesla that he will not permit them to install a mega plant in Nuevo Leon but that they have to go to the state he tells them to go to. Does entrepreneurial freedom not exist in Mexico? Is AMLO the owner of the country?
Mexico is facing a unique opportunity in history to have an industrial explosion due to the Sino-American conflict that is bringing back manufacturing companies. These companies want to take advantage of the cheap labor force, the ability to import without paying tariffs due to the CUSMA/USMCA/T-MEC and the proximity, to improve efficiency, but to achieve this, the country has to offer constitutional guarantees to investors and invest in the deficient infrastructure it has, especially in terms of electricity, water, and communications, not to mention education.
The closing of the Ministry of Economy offices in Washington and Geneva is inexplicable to me when the promotion of “invest in Mexico”, which was done by the now defunct Pro-Mexico, should be increased.
Articles published in renowned media such as the Wall Street Journal, where it is said that there is no rule of law, should be countered by an attitude of support and transparency where facts speak louder than words.
Events such as the cancellation of a Constellation plant in Mexicali or Vulcan in Quintana Roo cannot be repeated, and the attitude must be one of support for a new “commercial society” where procedures are facilitated, job creation is encouraged, and all the wonderful things the country has to offer are promoted.
One of my most significant concerns is the militarization of the country, where the army has been given the ports, customs, the main magna-works, the police, and many other functions they never had before. I believe this process is irreversible and future administrations will not be able to turn back without running the enormous risk of alienating the military. Since 1910 the military was the retaining wall that gave strength to the presidency through its silent and total support and prevented Mexico from having any movement similar to that experienced by the rest of Latin America.
I liken the situation to toothpaste that cannot be reintroduced into the tube once it comes out of it.
We cannot ignore the Garcia Luna case that exposed to the world the corruption of Mexican authorities and alleged complicity at the highest levels of the Calderon and Peña Nieto administrations. The close relationship between drug traffickers and the government is an unspoken understanding, but this case seems to uncover a bit of what many people assume exists.
The United States also has polarization problems, although always within a legal framework and where the rule of law prevails.
The dispute between the two parties is increasing due to next year’s presidential elections. It is expected that in the following days, President Biden will announce his illogical decision to seek a second term since his cognitive capacity increasingly deteriorates, and his forgetfulness and mistakes are already present almost every time he speaks.
Republicans are trying to create an image of a young and dynamic party, but the shadow of Trump, who already announced that he would run for president, creates divisions within the party. The main fear is that if the former president does not receive the party’s nomination, he could run as an independent, taking enough votes to ensure the victory of the Democrats.
The rest of the world is also having problems with the war between Russia and Ukraine, creating terrible destruction in lives and property. Ukraine’s GDP was down 30% in 2022, Russia’s was down 2.7%, and the overall impact was estimated to be 1% of the world’s GDP.
The Russian exit from the Global Nuclear Disarmament Treaty revives memories of the Cold War. The fact that 22,000 pregnant Russian women have gone to Argentina to give birth, as the baby automatically receives citizenship and the parents, legal residency, is a manifestation of the internal discontent that exists because of a war that seems to have neither motive nor end.
In my opinion, we will soon see an attempt by the Chinese to create a ceasefire in Ukraine or even a withdrawal of the Russians. The alliance they made with Russia does not allow them to be defeated, and appearing as the mediators of peace would make their international image improve considerably.
The demonstrations in France over the government’s attempt to increase the retirement age from 62 to 64, in Israel over the government’s attempt to modify and weaken the Supreme Court, and in Peru protesting the change of government of President Castillo, continue despite the time that has elapsed and are a demonstration of the political instability that prevails throughout the world.
Entering the field of the economy, Banxico raised interest rates by ½ point again, which brought rates to 11% and the TIE to 11.27%. This strengthens the peso but creates firm pressure on the Mexican businessman paying 14-15% for borrowed money if he is a large company and about 20% if it is a smaller company.
The strong peso is not good for Mexico as it affects the four economic pillars (oil, tourism, remittances, and exports) and only allows it to boast, but at a considerable cost. The only cheap thing you can buy in Mexico today is the dollar.
Consumer confidence is at its highest point in recent months despite an inflation forecast of 5.2% for 2023 and 4% for 2024, with expected growth of 1.1% for this year and 1.9% for next year.
Foreign investment reached $36B in 2022. Still, if we remove the impact of the Univision-Televisa merger, the amount is $28.4B, equal to 2019 and still not reflect the famous nearshoring.
The average home price is at 1.535 million pesos, an increase of 10.9% over the previous year, but the expected rise in mortgage rates will affect home construction and sales.
Pemex reported a considerable loss from miscellaneous charges despite achieving record exports. The main concerns continue to be the enormous debt of 107.9 billion dollars and the increase in the cost of extraction from $31 to 35 dollars per barrel.
The Deer Park refinery, the little-understood purchase made in the United States, processed 261,000 barrels per day, close to 275,000 barrels per day of installed capacity, and reached its break-even point. Still, it is not clear how it will generate a reasonable return considering the acquisition price.
One positive point was that the government deficit was only 0.9% of GDP, a good figure compared to other countries. Debt to GDP is 51.7%, which is expected to drop to 50% by the end of this year.
I find it difficult to understand the government’s sending of 6 million dollars for the earthquake victims in Syria, especially when the country is having serious liquidity problems to face its economic commitments and maintain the 33,000,000 monthly checks sent as social support.
There is still talk of a moderate recession in the United States for the second part of the year, as inflation remains at 6.1% and the labor-related part of the economy is still very strong, with unemployment at only 3.4%.
The cost of shipping a container from China to the U.S. is $1,444, down 85% from the price during the pandemic. The queue of ships waiting to unload in Long Beach, California is down from 135 to 17, indicating that the supply chain problem has almost been solved. However, you still see advertisements everywhere asking for personnel.
What is evident is that the job cuts announced are in higher paying positions (15,000 at Facebook, 2,000 at McKinsey, etc.), and the hires are in the lower paying levels, such as waiters, bricklayers, and field workers, etc.
Interesting to note that the Fed discount rate increases are having much less impact on consumption than expected, as today, 91% of mortgage loans were at a fixed rate vs. 64% three years ago, and 94% of auto loans are at a fixed rate, which makes a rate increase not affect much what people can spend.
Interestingly, the average price of new cars sold in the U.S. came in at $49,200, 30% above the 2019 price.
The markets had a complicated February with the DOW Jones down 4.2%, giving back part of January’s profit, bonds down 2.58% as the 10-year bond rate reached close to 4%, gold at $1,850, bitcoin with a slight recovery to $23,280 and the dollar recovering ground due to the increase in interest rates.
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