Mexican economy stable, banker says

Manuel Sánchez (M.A. ’83, Ph.D. ’85), deputy governor of the Central Bank of Mexico, advocated for economic stability in the country at the Booth School Tueday.

By Janet De La Torre

Manuel Sánchez (M.A. ’83, Ph.D. ’85), deputy governor of the Central Bank of Mexico, advocated for economic stability in the country, which has historically experienced severe economic instability, at a lecture at the Booth School Tuesday.

Mexico’s economy plummeted in the 1994 economic crisis, Sánchez said, when the peso rapidly lost value due to debt and banking problems.

“We had been suffering from instability caused from inflation,” said Sánchez, who was nominated by President Felipe Calderón to help lead the Bank of Mexico until 2016. “In a country like Mexico,” which had a peak inflation rate of 160 percent in 1987, “low-income people are hit hard by inflation,” he said.

But Sánchez remarked that Mexico’s “Great Moderation,” from 1996–2007, provided some stability for the country despite its previous and current economic hardships.

Though the recent global economic crisis hit Mexico particularly hard, sapping its GDP by six percent, Sánchez said that the country appears to have emerged with more stability and a much improved inflation rate.

“Real economic stability tends to be associated with an environment of low and stable inflation,” Sánchez said.

Sánchez showed graphs demonstrating how programs like NAFTA have benefited the Mexican economy by keeping the GDP gap between Mexico and the United States low. According to Sánchez, the U.S. has helped stabilize the Mexican economy thanks to its demand for manufactured goods. Eighty percent of Mexico’s manufactured goods end up in America, he said.

But the Bank of Mexico has plans to reduce the country’s revenue dependence on oil, improve tax effectiveness, and increase spending efficiency. These reforms will make Mexico more competitive and flexible while fostering private investment, Sánchez said.

“Central banks are primarily concerned with price stability and controlling inflation,” Sánchez said. But “in general, economic stability and price stability do not have to go together.”

Sánchez said restrictions on trade would only make economic stability more difficult to achieve. "Competition, competition, competition," Sánchez said, adding that Mexico's non-manufacturing sectors need to be bolstered to ensure future stabilization.