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Deteriorated trust?

15/11/2018
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09:11
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Deteriorated trust?
Lately, the Mexican market has suffered losses - Photo: A. G. Cuesta/EL UNIVERSAL

Deteriorated trust?

15/11/2018
09:11
Mexico City
Newspaper Leader
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The administration taking office on December 1 should keep the citizens and foreigners' trust as a priority, as well as the trust of those interested in investing in Mexico

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For a country such as Mexico, with half of the population in social backwardness and infrastructure backwardness in many regions, having the necessary resources to revert this situation becomes a central issue. Reality underlines that there is not enough money to mitigate the situation.

Many countries in the world are facing the same issue; therefore, they place government bonds in the financial markets, to obtain resources and start development actions. The investors who buy those bonds receive a profit at the end of an established period.

Due to the pressures present in the national economy, the Mexican government now has to pay a higher amount to those who acquire the bonds. Currently, the interests are on a level that hadn't been registered since the global crisis in 2008-2009. The Ministry of Finance, through the Bank of Mexico, auctioned bonds valid until 2021 this week, with an annual fixed rate of 8.68%.

There are internal and external factors that drive those levels. Among the internal ones are the peso-dollar exchange rate and the fall of the Stock Market; in three weeks, the dollar price went from $19.60 to $20.80 and the stock index lost 10% of its value. This is in addition to the prospect of an inflation higher than expected and that the Bank of Mexico will increase its interest rate today.

Among the external factors is the decrease in oil prices, which according to analysts, could contribute to a higher depreciation of the national currency.

There are more internal than external factors pressuring the economic scenario. The uncertainty about the path the incoming government will take is affecting the trust in Mexico. For example, countries that need external capital to create sources of employment, can't allow themselves to deteriorate the investment climate. The trust in a country takes years to consolidate. The price of losing that trust in a couple of months could be very high and have direct and immediate repercussions for the general population.

The first signs that it is weakening seem to be the interests demanded by investors to acquire Mexican bonds...and that could be only the beginning.

The administration taking office on December 1 should keep the citizens and foreigners' trust as a priority, as well as the trust of those interested in bringing their capital to trigger productive projects. Not doing it would represent the risk of falling into an unpredictable spiral.

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