Your Mexican Portfolio
By Héctor Morales Ortiz
October 3, 2008 San Miguel de Allende

Mexican government budget for 2009

Minister of Credit and Finance Agustín Carstens presented the government budget for 2009 with the following expectations:

Growth: 3% (GDP for Mexican economy for 2009)

Expected Inflation: 3.8%

Exchange Rate: 10.60 (peso vs. dollar)

Average Price of Mexican Oil: US$80/barrel

Internal Rate of Return: 7.56 average

In our point of view the budget is realistic and optimistic, considering that the global environment and an internal reference rate of 8.25% (this rate may even be higher by the end of the year, aiming to control inflation) will slow the growth for next year. Growth of 2.7% may be more real. 

President Calderón’s infrastructure plan has been slower than estimated and the energy reform still is in the process of being passed. Growing overdue debt in commercial credit also is going to restrict credit in the future.

Inflation currently is over 5%, and bringing it down to 3.8% is not going to be easy. We believe inflation will top 4% considering that we are expecting the return rate to be lowered to 7.5% by the second quarter of 2009.

The Mexican economy also is going to be motivated by the US economy. If we see recuperation in the US, then this budget will be met.

Government spending will be 5.7% higher and will be 2,800 billion pesos. Government investments will remain practically the same at 409 billion pesos, and the biggest increase in spending is for public security.

Given these conditions, in fixed income investments pesos will be more attractive than US dollars, and if the rates start to go lower and the growth reaches the 3% expected by the government, the Mexican Bolsa could be a very good investment in the medium to long term given the actual prices of the stocks.

Héctor Morales Ortiz is the director of Actinver San Miguel de Allende, hmoraleso@actinver.com.mx , 152-4046.