More on Calderón's Dreams for a Strong Peso

Rogelio Ramírez de la O remains nervous:

The decline in the peso one day after the official recognition of the epidemic flushed away the more than $22 billion invested by authorities since last October to support the peso. This demonstrates how futile it is to use external debt to avoid the market adjusting the peso according to its own perceptions. Trying to influence these perceptions with vast sums of borrowed money always turns out bad. 

Absolutely, in the short term it's possible and even probable that with the big credits, from the American Federal Reserve (Fed) as well as the IMF for $30 billion and $47 billion, respectively, the peso could temporarily --for example, before the elections in July-- locate itself between 12 and 13 per dollar. But it would be a dollar subsidized with public debt. 

Now when the government is dedicated to defending the exchange rate, it can't do many other things, especially spend on public works. This is because said spending provokes questions from ratings agencies over the possible fiscal deficit, well aware that tax collection is dropping because of the drop in [economic] activity. This would contradict the purpose of a strong peso.

So, despite having offered to exercise budgeted spending in an accelerated manner so as to stimulate the weakened economy, the fact is that it is not doing so. Not only have large projects been canceled, like Punta Colonet, because of the lack of private financing. In addition, the proposed Pacific highway network was also declared void. 

[Break]

If [the government] wants to support the economy it should apply other measures. One would be letting the market set the exchange rate and not misusing reserves trying to support it artificially. Second, supporting indebted businesses in dollars because they employ a lot of people, but the support must be transparent, without subsidies and guaranteed by the businesses' stock. Third, to truly support businesses, eliminating the IETU which now turns out to be an onerous burden both economically and and administratively. Fourth, to support economic activity, reduce the value-added tax to 10 percent. 

I've not read or heard any government official addressing the basic critique of its monetary policy.