Foreign Policy Blogs

Pena Nieto’s Latest Reform

The flurry of reform continues in Mexico. On Wednesday, President Enrique Pena Nieto announced plans to ease the flow of credit to small businesses.

Mexico’s sky-high interest rates have long kept small businesses from growing, driven entrepreneurs into the informal economy, and pushed many Mexicans to illegally immigrate to the United States. The Washington Post notes:

Economists estimate that one-quarter to one-half of Mexicans work in the “informal” sector, the off-the-books bazaar of churro vendors, fruit stands and other forms of micro-commerce that rarely offers more than a subsistence living. Providing those entrepreneurs with affordable banking services and credit is viewed as a key step toward building a broader Mexican middle class.

Luis Videgaray, Mexico’s treasury secretary, says the reforms are needed become Mexican finance is “too conservative.” In part, this is a result of reforms enacted after the 1995 peso crash.

But now Mexican state finances are sound and its banks are strong, calling into question if Mexico has overlearned the lessons of the 1980s and 1990s. For example, lending only accounts for 16 percent of Mexican GDP, whereas across Latin America the figure is about 50 percent. Indeed, banks should heed the call to end their conservatism, and the government may need to pat them in a more freewheeling direction.

The call for lending reforms coincides with another benefit. On Thursday, Fitch Ratings upgraded Mexico’s credit rating, citing recent reforms and the country’s strong macroeconomic fundamentals.

 

Author

Sean Goforth
Sean Goforth

Sean H. Goforth is a graduate of the University of North Carolina-Chapel Hill and the School of Foreign Service at Georgetown University. His research focuses on Latin American political economy and international trade. Sean is the author of Axis of Unity: Venezuela, Iran & the Threat to America.

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