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Cordero Sees Mexico Beating Fed’s ‘Bad News’ Inflows

Mexican Finance Minister Ernesto Cordero said the country’s recovery is “solid” even as he warned the U.S. Federal Reserve’s decision to pump $600 billion into its economy may be “bad news” for emerging markets.

“Our exports are showing a much more vigorous recovery than the domestic sector,” Cordero said during Bloomberg’s Mexico Economic Summit in Mexico City today.

Bank lending and consumer demand are rebounding and the wage gap between Mexico and China is narrowing, Cordero said.

Mexico’s economy, which the central bank forecasts will grow 5 percent this year on the back of exports, may get a boost when consumer spending rebounds in the $1.09 trillion economy. The country is recovering from last year’s 6.5 percent contraction, the steepest since the 1930s.

The peso has gained 7.1 percent against the U.S. dollar this year, in part because of increased capital flows from foreign investors into Mexico.

The government is monitoring the inflows “very, very carefully,” Cordero said. It has no plans to take steps to stem gains in the peso, he said.

“The inflows could be bad news because it represents an appreciation of our currency,” Cordero, 42, said in an interview at the same event.

Brazil, Thailand

Efforts by some countries to devalue their currencies are a short-term solution and there is no evidence that trying to limit capital inflows is effective in preventing currency appreciation, he said.

Cordero said he was comfortable with “whatever exchange rate the market decides” for the peso.

The Federal Reserve agreed last week to buy an additional $600 billion of Treasuries through June to help boost economic growth.

Brazil, Thailand and Colombia are among nations that have imposed taxes on foreign inflows, ended tax exemptions for foreigners or stepped up purchases in the spot currency markets as near-zero interest rates in the U.S. and other developed economies prompt investors to seek higher returns elsewhere.

Mexican exports, buoyed by a 44 percent rise in auto sales abroad, climbed 21 percent in September from a year earlier. The central bank forecasts the economy will grow 3.2 percent to 4.2 percent in 2011.

‘Vigorous Recovery’

“Our exports are showing a much more vigorous recovery than the domestic sector,” Cordero said.

Unlike other regional economies where domestic demand is booming, private consumption in Mexico remains below pre-crisis levels, Gray Newman, chief Latin America economist at Morgan Stanley in New York, said in a Nov. 4 interview.

The sluggish recovery in consumer demand reflects the country’s deteriorating terms of trade, which are running below their five-year average before the global financial crisis, Morgan Stanley said in a Nov. 8 report. In contrast, income from exports in commodity producers like Chile and Peru has rebounded to near all-time highs since the end of the global recession.

The peso rose 0.7 percent to 12.2189 per dollar as of 5 p.m. in New York.

Consumer confidence fell to 89.2 in October from 91.6 in September. The indicator was 105.6 in December 2007. Unemployment rose to 5.7 percent in September, higher than the 3.4 percent registered in December 2007.

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