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Unedited transcript
Pedro da Costa: Hi, I'm Pedro da Costa and this is Peterson Perspectives. The Mexican Peso has just had yet another all-time low following the first press conference of President-elect Donald Trump.
Here to join me to talk about the impact of Trump’s anti-Mexico rhetoric on the country is Monica de Bolle who is a senior fellow here at the Peterson Institute for International Economics. Thank you so much for joining me.
Monica de Bolle: Thank you.
Pedro da Costa: First off, we actually saw a Trump effect on Mexico well before the elections depending on how well he was doing on the polls. You could see it on the currency, you could see it on the capital flows. Talk a little bit about what the Trump effect has been on Mexico.
Monica de Bolle: So, essentially the peso-dollar exchange rate has become one of the main indicators for Mexico and for the rest of the world and for Latin America, in particular, of the ways in which Trump’s economic policies and other policies are going to be affecting both Mexico as well as the region.
Since the exchange rate moves very fast as we know and moves very fast according to whatever is happening on the news front, we have really seen the peso showing the weakness whenever a stronger anti-Mexican rhetoric came out. The peso showing some strength whenever a rhetoric seemed to be a little bit more on the conciliatory side, but nonetheless there's been a very considerable level shift in the peso as we can see in some of the charts that show exactly what's been happening to the peso.
Pedro da Costa: Now, there are many facets of Trump’s approach to Mexico and he really has singled out Mexico as far as Latin America is concerned because I hardly recall him mentioning another Latin America country at all during the campaign.
He started the campaign with a fairly controversial speech that said that Mexico was allowing its worst people -- rapists and thieves to come across the border and vowing to build a wall to protect the country.
But, there's also a kind of protectionist element of this where he has argued that NAFTA was a bad deal for the United States and he’s going to renegotiate NAFTA. He’s actively gone after automakers both American foreign who have intended to do business in Mexico.
What kind of impact is that likely to have both on the Mexican economy and its businesses and on US companies that rely on services from Mexico?
Monica de Bolle: Well, certainly it's not good for anybody. It's not good for Mexico. It's not good for the US. The reason why Mexico has become so symbolic whenever president-elect Trump speaks of any country in Latin America is because Mexico is the country in Latin America that has the closest ties with the US. And Mexico does represent the rest of some of these campaign in continuing rhetoric on immigration issues and on protectionism and on trade deals and all of that.
So, Mexico is really is sort of like the showcase country where you can basically base all of these rhetoric on. Evidently, because of NAFTA and because NAFTA has really made Canada, the US, Mexico a sort of set of completely intertwined economies, this kind of rhetoric is actually, as I was saying in the beginning, bad for Mexico, bad for the US, potentially bad for Canada.
So, nobody really wins with this. This is really a sort of lose-lose situation for everybody.
Pedro da Costa: Now, one kind of really interesting sticking point is this issue of the wall and who is going to pay for it. First of all, to get to the facts, there's already walls and fences on the border. They exist and so the idea that we're going to build something completely new is incorrect. But, he has said that he’s going to build a robust wall across the whole entire border which, I think, most analysts think is probably a physical impossibility giving the geographic characteristics. He has also argued that Mexico is going to pay for the wall.
Since he’s backtracked on the issue and said that he’s going to make them pay for it later and he’s requested funds from Congress. And he had written a piece about the ways in which he might force Mexico to pay for such a wall. Could you speak a little bit to that?
Monica de Bolle: So, Mexico has since a large chunk of remittances back to Mexico. This is money, these are funds, resources that Mexican workers who are here in the US legally or not, send back to their home country and this is very important for the Mexican economy. The volumes are very large.
In fact, over the past two years, remittances have run above actual oil-related exports when one looks at the Mexican balance of payments. It supports, of course, incomes in Mexico, household incomes in Mexico which in turn support growth in Mexico.
And if we look at, for example, all of the rhetoric surrounding Mexico has already had a very significant impact on consensus forecast for growth for the Mexican economy in 2017.
So, we started off the year in 2016 with markets projecting that Mexico would grow by say somewhere around 3.4% in 2017 and we've ended the year with projections at 1.7% of GDP. Part of that is the rhetoric on remittances and related aspects of this for funding the so-called wall. Others have to do with exactly what's going to happen to NAFTA, what's going to happen to the renegotiations, is the US really going to go the route of getting rid of NAFTA completely? Is it going to renegotiate NAFTA in a way that’s not positive for Mexico?
All of these issues, which are currently damaging prospects for the Mexican economy can be seen exactly in the way that people are viewing prospects for Mexico.
By the way, some of these projections are likely to get worse before they stabilize.
Pedro da Costa: Sure. And then lastly, Monica, we can’t forget that Mexico has an electoral cycle of its own and they have presidential elections coming up late next year, what kind of impact is the election of Donald Trump in the United States having on the political scene in Mexico domestically?
Monica de Bolle: Nationalist sentiment in Mexico has gone up. As the anti-Mexican rhetoric has gained in aggressiveness and in tone, Mexican nationalist sentiment has also been on the rise. So, there's a movement for buy Mexican as opposed to buy from countries that belong to the NAFTA and things of that sort.
And in that context, there are candidates out there and specifically one candidate, AMLO, Andres Manuel Lopez Orbrador who now has his own political party. He ran for the presidency in 2006 and he lost by a very, very narrow margin to Felipe Calderon. He ran again in 2012. Since then, he’s formed his own political party and he is a candidate for next year’s elections.
He’s currently up in the polls and he has been gaining strongly in the polls, and he has been gaining strongly, exactly at a time when rhetoric in the US against Mexico has shifted substantially. So, there has been, according to a lot of analysts in Mexico, he has been benefitting from the Trump phenomenon in the US this candidate.
Now, this candidate, AMLO, he has a sort of populist leftist kind of approach to economic policy. If you read some of his proposals, they go exactly in that vein. And again, picking up on some of these nationalist themes and so on and so forth.
So, it's looking very turbulent for Mexico these elections in 2018 and in that context, you have to take into account the fact also that Peña Nieto is having problems of his own. His approval ratings are down. His reform effort has tolled. He is facing a lot of problems and a lot of questions over corruption, crime, violence and all of these things that have plagued Mexico for a very long time.
Pedro da Costa: Monica de Bolle, thank you so much.
Monica de Bolle: Thank you.