The Economic Slowdown

As a refreshing change of pace from the normal stream of doom and gloom regarding drug policy in Mexico, we are now treated to reports that the economy is suffering ramifications of the international recession. It contracted during the last quarter of 2009 by 1.2 percent, as the Central Bank suffered massive losses and the Peso is being devalued internationally. As international demand for products and industrial work dries up, so does a substantial form of income and jobs. A substantial portion of the economy is based on remittances, cash sent home from foreign nationals, which fall with the world economy. The Central Bank's efforts to adress this decline were ineffective, resulting in a loss of investor confidence and stock falling. Efforts to preserve the Pesos value by selling dollars directly also failed, further rocking faith in government ability to forestall disaster and negatively affecting civil participation. A poor economy leads to cycles of poverty and therefore less political involvement, worse educational standards as production for the family becomes the norm, and increased risk of state failure. However, whether this occurs remains to be seen-the rate at which the economy is slowing remains at about half of analysts predictions, suggesting possibility of averting disaster. 

http://www.forbes.com/feeds/reuters/2009/02/20/2009-02-20T223043Z_01_N20296423_RTRIDST_0_MEXICO-ECONOMY-WRAPUP-1.html

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Peso Rebounds

Mexico Peso gains value for the first time in months as the Banco de Mexico has gone from total transparency to the exact opposite. By keeping traders guessing as to how many peso’s Banco de Mexico is buying from banks a day, it is moving away from the predictable set-auction system using the uncertainty to lower the speculation against the peso. The intervention by the government into the market system is in response to the global recession. Mexico itself has been deeply affected by the recession in the US as exports are cut. Right now it is 13.8 peso’s to one dollar. Economists are estimating that it can rise to 13.2 peso’s to one dollar by the end of the year. “We decided to intervene when it became clear there were elements in the market trying to destabilize the peso to make a profit,” Carstens said at a Mexican homebuilding conference in New York. “We reserve the right to intervene when the market situation demands intervention.” This entire market situation, in Mexico and abroad, reflect that entirety of globalization and the free market identity that the world has adopted. It also deals with each individual nation trying to stay afloat in such a dire world economy.

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