Damage control

A Latin American country softens recession with counter-cyclical policies

Sandra Fickweil

01.22.2009

01:30

Although Mexico has been in a recession before, it is worse this time as it stems from the "economic mismanagement in the United States". Inflation climbed up to 6.5% this year and the Bank of Mexico cut interest rates by half a percentage point. President Felipe Calderón unveiled fiscal measures amounting to an injection of 1% of GDP which comes on top of an "expansionary budget" for this year and fiscal stimulus last October. As can be noted in the chart which comes with the article, the North American Free-Trade Agreement has tied industry in Mexico and America closely together, therefore the finance ministry has had zero talks of growth for 2009.

Due to the "global credit crunch", several Mexican companies lost billions on derivative contracts because of the devaluated peso (=Mexican currency). The government tried to limit the social impact of the recession and in turn guaranteed credit lines to businesses. Since the central bank spent $ 15 billion of its reserves the currency has now stabilized.

Despite recession, Mexico does not have to reduce public spending due to the "health of public finances". Alexandro Werner – the deputy minister of finance – points out that if recession persists into 2010, the government could still stimulate the economy due to its saved sum, equivalent to 1,8% of the GDP, during economic growth.

Mr. Calderón utilizes this recession to run his re-legislative election campaign in July. Although the government tries to curb the damage a little, it would be more effective if structural reforms took place.

We are all aware that in these days our economy is not in the best mood. With our economy I mean the great majority of all existing economies in this world. Everyone says 'we are in the middle of the worst recession' – but does this mean 'being in a recession'?

I chose this article as it illustrates the effects of a recession. Mexico is just one example whose economy has been badly hurt by the so-called 'recession'.

http://www.economist.com/world/americas/displaystory.cfm?story_id=12974119