Expert Comment

Trolling for information about Mexico's economic situation, I came across this column from the always reasonable Rogelio Ramírez de la O:

The Mexican banks don't confront a problem with insolvency of Mexicans, but in credit cards and to a lesser degree housing loans, there is a clear deterioration of bad debt, which will worsen when the economy generates unemployment. Still worse, they will be obligated to reduce loans, because their overseas branches will need all the possible resources to increase their capital.

In the longer term, the negative impact will be in the investment and business climate. The Americans, beaten up by the crisis, will favor excessive credit regulation and protectionism and will turn even more hostile toward Mexican workers.

The [Mexican] government should be working, adapting its agenda to a new situation... It will first have to understand the reality and transmit it with clarity to the Congress, to the business class and to the public opinion. And, absolutely, [it will have] to reduce its enormous spending, which has increased by almost $40 billion in just two years.

A start could be to revise the goal for economic growth for the economy from 3 percent to 1 percent, because this is realistic and it would allow the government to realign its spending projections. Otherwise, spending will be excessive and in the long term they will have to be savagely cut. It should also communicate to the governors of the states that they won't be able to keep spending as they are today, and that they must avoid the high level of waste in their spending that is today evident in in various states.