IMF Recommendations

It is a pity that López Obrador is not willing to listen to recommendations and suggestions to improve the functioning of the Mexican economy. I am afraid that the IMF report will be filed into oblivion.

I’m sorry to disappoint you Mr. President. But among the large crowd of citizens who marched last Sunday, I did not identify a single racist, classist, corrupt, achichincle, hypocrite, cretin, immoral or pimp. What I saw were thousands and thousands of citizens committed to defending democracy and resisting our electoral system going back decades. New paragraph.

The report of the last “consultation under Article IV of the Constitutive Agreement” of the IMF for Mexico was recently released. Said document contains an evaluation of the economic policies in the opinion of the IMF staff and Executive Board, and their recommendations. I highlight the issue of inflation and general suggestions.

The IMF acknowledges that reversing the current cycle of price increases will take longer than expected, as a “backward-looking” price dynamic has taken root, perpetuating upward expectations that are transmitted to prices and wages. Among the risks for inflation to drop, he acknowledges: greater shocks to the prices of raw materials from global markets; the greater persistence of inflation imported from advanced economies; that the pressures originated in the obstacles of the supply chains are lengthened; inertia resulting from more frequent domestic price adjustments; and the transmission of that inertia to salary negotiations. It is interesting that in its analysis the IMF does not mention PACIC; evidently it does not consider it an effective instrument against inflation.

The recommendation is to persevere and maintain a firmly restrictive monetary policy until a moderation in the pricing dynamics and expectations are anchored. This approach entails an ex ante real reference rate of 5% in 2023. In other words, this implies that inflation would still be far from the central objective of Banco de México. The most recent specialist surveys agree with this.

Finally, the members of the Executive Board issued the following recommendations: broaden the policy agenda on the aggregate supply side to achieve greater and more inclusive growth; increased efforts to address corruption and crime, and strengthen the rule of law; increase investment in human capital; solve bottlenecks in infrastructure; reduce labor and product market rigidities; and promote financial deepening and inclusion. They also recommended a gradual increase in productive spending financed with a tax reform to improve physical and human capital. Finally, they pointed out the need to take additional measures to reduce greenhouse emissions and encourage greater private sector participation in the energy sector, which would help boost competitiveness and investment.

It is a pity that López Obrador is not willing to listen to recommendations and suggestions to improve the functioning of the Mexican economy. I am afraid that the IMF report will be filed into oblivion.

Twitter: @frubli