Tuesday, October 4, 2022
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Remittances save AMLO

Despite AMLO’s mistaken policies and his comments that scare away foreign direct investment, increase capital outflows and create negative expectations about the future of Mexico, in 3 and a half years of his government the peso has devalued little and Banxico reserves.

López Obrador received a dollar at 19.65 in December 2018 and as of May 24, 2022, 3 and a half years into his government, the dollar is trading for around 20 pesos, almost at the same price. The reserves totaled 174.6 billion dollars when the government received them, as of May 17, 2022 they increased to 198.7 billion, 24.1 billion more than what it received.

High interest rates, an increase in the poor, unemployment and the loss of purchasing power of millions of Mexicans are the main causes of the increase in Banxico’s reserves.

Foreign financial investment is speculative, it buys pesos to take advantage of the high interest rates, which make them earn in one day what they would earn in 9 if they deposited them in the US, where the rates are 0.75%, while in Mexico 7%, due to the highest country risk.

The oil sector and foreign trade do not contribute dollars to the reserves. There are more dollars to import oil derivatives than to export crude oil. Mexico receives fewer dollars for total exports than those spent on all imports, there is a deficit in the trade balance.

The record increase in remittances is the factor that has so far saved the Q4 economy from a scenario similar to that of Venezuela. The growth of reserves in Banxico is due to the fact that millions of poor families reduce their purchasing power due to inflation above 7% and ask for more help from their relatives who work in the US. The increase in the misery of millions of Mexicans is the main cause of the record increase in remittances, dollars that their receivers exchange for pesos to satisfy their needs. Remittances bring 4 times more resources to the poor than government social programs.

In 2016, López Obrador said “blessed remittances” which he criticized as the mainstay of the economy in poor areas, but in his government they increased in importance. Without them, inflation and devaluation would be higher, the Bank of Mexico would have lost an important part of its reserves and the government of the 4T would have already crashed.

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