How Mexico Can Help Prevent the Next Global Crisis Stephen Keppel - Univision News
go to original June 10, 2012

Here we go again. The eurozone is on the brink of collapse, the US economy is looking weak and emerging markets are slowing down. Policymakers are sweating bullets thinking about the havoc that another global crisis might wreak and the markets are spooked.

Meanwhile, the world’s leaders are all preparing to go to Mexico.

No, not to have a front row seat for the end of the world (though the Mayans may have been on to something) or vacation in Playa del Carmen but to attend this year’s G-20 meeting. On June 18th the world’s most powerful heads of state will gather in Los Cabos to try and figure out how to solve our problems. They have picked the right spot.

Mexico can teach the rest of the world a thing or two about dealing with crisis.

Until now there hasn’t been much buzz about the gathering but with the global economy careening toward disaster, Mexico will be in the spotlight. Sure, Mexico has developed a terrible reputation as a weak state crippled by an exceedingly violent drug and crime war. But if you look more closely you will see a country with strong fiscal accounts, low debt levels, a growing middle class and a surging manufacturing industry.

The Mexican economy grew by 4% in 2011 and 4.6% (year-on-year) during January-March. Most European countries would kill to have Mexico’s economic fundamentals. By many judgments Mexico is now less risky than Spain.

The reason that Mexico is relevant is that it has lived through and rebounded from a series of crises in recent decades. The aforementioned drug war and the 2009 swine flu outbreak are just two recent examples.

Mexico has also faced some of the same debt and currency issues that are currently plaguing Europe. Just over 15 years ago during the so-called “Tequila Crisis,” the Mexican peso tanked and debt levels quickly become unbearable. The country went through some tough years but it clawed its way back from the abyss. Mexico was fortunate to have a strong partner in the Clinton administration which arranged currency swaps and loan guarantees worth $20 billion to help promote stability (the US actually ended up making a $500 million profit on the loan) but Mexican policymakers also made some good decisions.

During the aftermath of the crisis, Mexico combined orthodox economic measures with a focus on improving its social safety net. Initially Mexico increased expenditures but it then gradually cut back while increasing revenues through economic growth, reforms and better tax collection. The government worked hard to get its fiscal house in order but it also pumped funds into depressed areas when it had to through the conditional cash transfer program Oportunidades and other targeted subsidies. While the Mexican economy could still use some fine tuning it stands in a good position to weather the current storm.

The significance of the G-20, which also includes Argentina and Brazil and the leading countries from North America, Asia, Africa and the European Union, is a direct result of the expanding power of emerging markets. The meeting has eclipsed the more exclusive G-7 partly because it has become clear that emerging countries, like Mexico, are a big part of the solution to our global problems. It is time to listen to what they have to say.

By hosting and chairing this meeting Mexico will have the opportunity to tell its story and show Europe and the US how to rebound from an economic crisis.  In a week and a half Mexico will be at the center of a global political and economic storm, but it has seen it all before and is well-placed to lead the discussion.

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