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Speech by Richard W. Fisher, President and CEO (2005–2015)

Opening Remarks with an Update on the Continued Outperformance of Mexico’s Economy and Government Compared with that of the United States

November 2, 2012 Houston, Texas

Buenos días a todos y bienvenidos. We are very pleased that you are joining us today for what promises to be an enriching program. I want to acknowledge Pia Orrenius, Roberto Coronado and Jesus Cañas, who have worked so hard to make this conference possible. A big thank you also goes out to Daron Peschel and his staff for hosting all of us here in Houston.

For this conference, we are joined by some of the top development experts in academia from both the United States and Mexico. Also, Ambassador Garza will be speaking at lunch; we are grateful that Tony has taken the time to join us and look forward to hearing his perspective on los cambios que están por venir en México—the coming changes in Mexico. Deputy Governor Sánchez from Banco de México is also here. He addressed conference speakers and organizers at dinner last night. Manuel: gracias por tu presencia y tus comentarios anoche.

The Federal Reserve Bank of Dallas has a long tradition of consultation and exchange with Banco de México. Most recently, we hosted Agustín Carstens, Governor of Banco de México, last year in Dallas, and I was in Mexico City last February where I had a splendid visit at the Banco and la Bolsa Mexicana de Valores. Just two weeks ago today, the Houston Branch board of directors had a joint board meeting with their Banco de México sister branch—la sucursal de Veracruz. The Houston and Veracruz directors, and our respective economists, shared their views of the regional and national economies in Texas and Veracruz, Mexico, and the United States.

When we take the macroeconomic temperature of our two economies, I am always struck by how far Mexico has come. I like to say that the U.S. would do well to borrow Mexico’s play book when it comes to restoring fiscal discipline and fostering macroeconomic stability and growth. Let me explain what I mean, starting with the numbers.

Year over year, the U.S. economy has grown 2.3 percent. Mexico is growing almost twice as fast at 4.1 percent. U.S. employment has grown 1.3 percent year to date at an annualized rate, while formal sector jobs in Mexico have grown 4.8 percent over the same period.

The U.S. deficit is 7 percent of gross domestic product (GDP); Mexico’s deficit is about 2 percent of their GDP. The U.S. national debt—over $16 trillion—is a staggering 103 percent of U.S. GDP, while Mexico’s national debt is just 28 percent of its GDP.

In sum, our economy is growing slowly, weighed down by debt and the pervasive uncertainty caused by our nation’s fiscal imbalances and growing regulatory complexity. Mexico, in contrast, is growing robustly, and, in contrast to their Washington counterparts, Mexican policymakers are demonstrating remarkable commitment to fiscal discipline.

To appreciate the significance of Mexico’s progress, you really need the historical perspective. Between 1975 and 2000, there was one crisis after another: in 1976, 1982, 1985—88 and 1994. Most of those crises corresponded with national elections; presidential sexenios were routinely welcomed with peso devaluations of 40 percent or more. The peso became the symptom of a diseased and dysfunctional macroeconomy. In 1982, Mexico defaulted on its external debt, resulting in capital flight, continuing devaluations and soaring inflation.

Annual inflation averaged 15 percent in the 1970s and 70 percent in the 1980s, before descending to a still punishing level of 20 percent in the 1990s. Living standards stagnated as growth in real output per capita slowed to just 0.7 percent per annum between 1981 and 2000. These were, as others have noted, Mexico’s lost decades.

It seemed each crisis resulted in a package of promised reforms, and that all ended in failure. But that’s not quite right. Several important reforms actually paved the way for future success.

In 1986, for example, Mexico joined the General Agreement on Tariffs and Trade (GATT—now the World Trade Organization, or WTO). Then came the North American Free Trade Agreement (NAFTA). Tariffs fell steeply, and trade would come to prosper.

Other reforms followed, as did deregulation and privatization, but as a central banker, I like to focus on the role of monetary policy reforms in restoring Mexico’s access to global capital markets. In 1993, Banco de México became a truly independent central bank, which spelled the end of the monetization of government debt and the end of hyperinflation. In 2001, the central bank adopted inflation targeting, another significant reform with lasting implications for the nation.

As a result of these reforms, the peso is now a store of value. The central bank’s commitment to low inflation has led to a peso-denominated bond market and falling interest rates. Previous to 1995, the Mexican yield curve ran all the way out to … 28 days! Cetes were the only form of issuance.

In 1995, the Mexican government began to progressively build a yield curve. That year it issued peso-denominated notes up to one year in maturity; in 2000, notes up to five years; in 2004, bonds up to 20 years; and in 2006, 30-year peso-denominated bonds.

Clearly when it comes to monetary policy, Mexico’s reforms have begun to pay off. The progress that Mexico has made is truly remarkable and, I believe, a source of inspiration for both the U.S. and Europe as they contemplate the challenges ahead.

Let me close my welcome by saying that what makes this day even more special is that so many of us are here not only to satisfy our intellectual curiosity and further our professional development, but because of our affection for Mexico. Estamos aqui porque nos interesa México. You may know that I spent my early childhood in Mexico City. We can’t go back to that idyllic period of the 1950s. But it makes me wonder how modern democratic Mexico might recapture and improve upon the optimism, dynamism, peace, prosperity and safety that seemed to prevail back then. Creo que es posible—I think it can; now you just have to tell me how. Les deseo buena suerte. Have a productive conference!


The views expressed by the author do not necessarily reflect official positions of the Federal Reserve System.

About the Author

Richard W. Fisher served as president and CEO of the Federal Reserve Bank of Dallas from April 2005 until his retirement in March 2015.