It is not a question of if it will happen, but when. It won’t be a crash like the one experienced in 1982 or 1994-95, but it will be brutal. Andrés Manuel López Obrador is right in considering that the exchange rate is a sign of the strength of an economy, but he makes the mistake of thinking that this is the case at all times, when it comes to a long-term issue.
Many currencies have fallen against the US currency, including several from economic powerhouses. A year ago it took 110 yen to buy a dollar, and today it is 145; in the same period a pound sterling went from being worth 1.36 dollars to 1.11, and that has recovered a little in recent days. The euro went from 1.16 dollars to 98 cents.
Instead, a year ago 20.50 pesos were required to buy a green ticket, and currently it is 20.17. The national currency shows a stability that actually implies strength; It’s vacation time in Paris, Tokyo or London. It is not cheap, but it is much cheaper than a few months ago. The tenant of the National Palace does not take long to show off, swollen like a peacock, the “strong weight”.
The Tabascan does not understand that two short-term factors explain this solidity, and that neither is related to his government or actions. The first is the monetary policy of the Bank of Mexico, which yesterday increased the target interest rate (short-term reference) by 75 base points, to 9.25 percent, a level never reached since the central bank instituted said rate as its main instrument of action in the monetary field, at the beginning of 2008.
Why doesn’t it have anything to do with the government? Because Banxico is autonomous. In fact, AMLO dislikes increases in interest rates that seek to cool (slow down, even leading to a recession) economic growth and that are aimed at lowering inflation.
Nobody likes them, not even central bankers, but they are a necessary evil. But the one from Macuspana feels like a genius in everything, including the economy. He says that it is like turning off an overheating car, without understanding that it is a short-term measure that allows it to accelerate again later. He criticizes that they are “orthodox” measures (yes, they are) and that there are other alternatives (no, there aren’t). If López discovers them, they can award him the Nobel Prize in Economics.
What else supports the weight? The high price of oil. Another factor that has nothing to do with presidential public policy. Instead, what AMLO is doing is destroying present and future economic growth, with an irresponsible fiscal policy (Macario Schettino has repeatedly predicted a fiscal crisis), the destruction of the health and education sectors, pampering organized crime and the irrational investment in oil, which includes Pemex and refineries, apart from blowing up the efficient and competitive electricity market that Mexico had.
In the last 18 months of government, all these actions are the ones that will reach López Obrador… and the peso. They will be combined with political and electoral uncertainty, with a President willing to destroy the democratic apparatus so that his cap can win. A campaign that will probably dominate (more) organized crime, with murders included. The very strong depreciation will be one more element of a disastrous six-year closing. The fragile peso today underpinned by extremely high rates and a high price of crude oil will collapse like a house of cards.
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The future collapse of the weight