Can This Man Keep The Peso On An Even Keel?
Mexico's peso, battered by three major devaluations in 12 years, is getting a new defender. On Dec. 14, President Ernesto Zedillo Ponce de Leon picked Finance Secretary Guillermo Ortiz Martinez for a six-year term as governor of Mexico's central bank. A key mission: to make sure that the country isn't hammered by another devaluation when Zedillo's term ends in three years. In the past, uncertainties at the end of presidential terms have regularly triggered currency turmoil. "The trauma we've suffered has made the country's political and economic actors very conscious that we don't want that to ever happen again," Ortiz said in an interview with BUSINESS WEEK.
The 49-year-old, Stanford University-trained economist knows the remedy. He aims to wield the Banco de Mexico's considerable clout to make sure the country will stay on Zedillo's free-market, fiscally cautious course, even if a candidate of the resurgent opposition wins the presidency in 2000. That prospect is reassuring to business executives and foreign investors, though not to all politicians. His appointment was denounced by Senator Jorge Calderon Salazar of the center-left Party of the Democratic Revolution as a continuation of "neoliberal policies" that have done much harm, he said, to Mexicans.
RECENT CONVERT. Ortiz faces fewer problems as the country's top banker than when Zedillo picked him as Finance Secretary in the near-chaos following the peso's December, 1994, collapse. Before then, the peso's exchange rate had been managed. But the upheaval and its painful aftermath have converted Ortiz, like outgoing central bank governor Miguel Mancera Aguayo, to a free-float philosophy. Asia's troubles have reinforced that view. "Mexico is one of the countries that have fared best during the [Asian] crisis, in good measure because its economic fundamentals are strong," Ortiz says, "but also because it has a free-float mechanism that acts as a shock absorber." Mexico's gross domestic product is expanding at a 7.3% clip, and it has a $26 billion cushion of currency reserves.
Critics complain, though, that the peso's 13% upward drift in real terms over the past year, driven by heavy capital inflows, has hurt Mexico's competitiveness. "This is the big financial problem that many economies in the world face," Ortiz says, because economic success attracts capital, raises the exchange rate, and causes current-account deficits as credit and consumption expand. He concedes that he does not have any new solutions to offer. But supporters applaud his pragmatic approach. "Ortiz brings a fresh mentality to the bank--a focus on growth, a greater concern with the real world," says Rogelio Ramirez de la O, an economic consultant to multinational companies. "It's about time."
On the negative side, though, economists such as Jonathan Heath believe the appointment of Ortiz, a close collaborator of Zedillo, has deprived the central bank of its fledgling independence from control by the executive branch, which it was officially given just four years ago. Ortiz' designation is "a big blow to the autonomy of the central bank and to the credibility of future monetary policy," Heath warns. But if the government pursues policies that threaten economic stability, Ortiz vows, "we will say so immediately."
ACHILLES' HEEL. Ortiz has been coming under increasing criticism, too, for his handling of Mexico's 1991-92 bank privatizations in his former job as finance undersecretary and for several banks' subsequent failure. Two more are believed to be on the brink. The feisty lower house of Mexico's Congress, now controlled by opposition parties, has warned that it will investigate the government's bank rescues and cut back on funds for bailouts.
To avoid future bank crises, Zedillo intends to shift more banking oversight to the central bank. "Bank supervision is enormously important," Ortiz says. "We've seen in Asia, and in Mexico, that the financial system is frequently the Achilles' heel of emerging economies." That's a lesson Ortiz learned the hard way. Now, in his new job, he has the hands-on chance to apply it.