First: securing credit to maintain the exchange rate is absurd. That is precisely what did José López Portillo in 1982, when he refused to accept reality and said that "he would defend the peso like a dog defends his bone", a phrase that only served to immortalize him with that nickname. The foreign debt grew by $20 billion to defend an indefensible currency.[Break]
The two lines of credit that the Treasury now tells us serves as "armor" cannot be utilized precisely for that reason. If we use them, we would be assuming debt to defend the peso, something that is not only useless, but costly. In consequence, nothing is armored. They serve, maybe, as scarecrows, to keep away those crows who want to speculate with the peso, but the day something more than scaring is needed, they won't be enough. Or if it can, we will be creating a truly serious problem.
There would be no reason to worry about this if it weren't for the bad decisions a few weeks ago regarding the exchange rate. Before a process of devaluation that had the peso at almost 16 to the dollar, the government decided to stick into the currency market money that comes from oil exports, which normally doesn't wind up there. Those are the 100 million dollars that are being injected into the market and have placed the peso where it is now [which is to say, on April 6], between 14.50 and 15.50 pesos. Sometimes less, when the financial markets become excited, which has fortunately been happening since a couple of weeks ago.The problem with this decision is that we don't have a flexible exchange rate anymore, but rather we are on some species of a dirty floating currency. As we said at the time, if this is only a temporary measure, there's not much to worry about, but now that it requested the credit line, it gives the impression that the issue isn't temporary.
What is happening in the exchange rate is surprising, because it goes against what has been done for 20 years, and what, in that sense, has worked very well. Mexico has problems with economic growth, without a doubt, but in terms of stability we've done well, precisely because we took measures that were hard, but that have brought results. Why change them now? Do we really want to incur debt to defend the exchange rate? Are we going to do that in October when oil exports practically don't leave behind any available dollars?
The tone is not as gloomy, nor is the conclusion quite as pessimistic, but the similarities to Rogelio Ramírez de la O's reaction are more striking than the differences.