Peso surprise down Mexico way?

A few days ago, a Mexican friend brought this topic of “capital flight” to my attention. I’ve known him for a long time, long enough to remember August 1982 and December 1994. What happened on those dates?  The peso was devalued sharply and lots of people got hurt.

So this article caught my attention:

President Andrés Manuel López Obrador is set to conclude his six-year term as the first Mexican president in over 20 years to see a net outflow of foreign capital invested in government securities.

Citing data from the Mexican bank Banco Base, the newspaper Reforma reported Monday that a net total of just under 349.86 billion pesos (US $20.7 billion) in investments in government securities was taken out of the country between the commencement of the current federal government on Dec. 1, 2018 and the end of last year.

Reforma described the accumulated capital flight as a “record” for a six-year period of government. During the 2012-18 government led by former president Enrique Peña Nieto, a net total of almost 666 billion pesos in foreign capital flowed into government securities.

Gabriela Siller, director of economic analysis at Banco Base, told Reforma that López Obrador, who will leave office Oct. 1, is on track to be the first president since Ernesto Zedillo (1994-2000) to record a net outflow of foreign money invested in government securities. A total of 68.97 billion pesos left Mexico when Zedillo was in office.

Let me add this:  Last week, another Mexican friend said that the peso needed an adjustment because the exchange rate did not seem right.  He was referring to his family visiting Mexico and complaining about prices.  Just remember than an overvalued peso makes dinner in Mexico more expensive.

Unlike 1982, Mexico lets the peso float these days. So a massive devaluation is not likely, but erosion is very likely.

Why capital flight in Mexico?  That’s complicated, but I think that a lot of people are worried about organized crime in Mexico.  

I’ve also heard complaints about the upcoming election. The contest is between two ladies, a supporter of AMLO and a huge critic. Neither one seems to be generating much enthusiasm or talking about insecurity, topic # 1 for most Mexicans.

As a friend once said, it’s always interesting in Mexico.

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Image: Dennis Sylvester Hurd