Mexico: The Other Central Banker Under Fire

Mexico City - For the past dozen years, Guillermo Ortiz has served as Mexico's inflation-fighter-in-chief. Since his appointment in 1998, the central bank governor has managed to wrestle down consumer price increases from nearly 19% a year to a low of 3.3% in 2005. The Stanford-educated Ortiz has also earned the respect of Wall Street by resisting political pressures to loosen monetary policy. In the summer of 2008, he held firm when Mexican President Felipe Calderón called on the central bank to cut interest rates to stimulate the economy. "It would have been a big gamble to lower rates before we were sure that inflation was reaching an inflection point," said Ortiz in a Nov. 26 interview.

DEBT DOWNGRADESuch acts of defiance may end up costing Ortiz his job. His second term expires at the end of December and Calderón is considering replacing him. It might not be an ideal time to make a switch: Mexico's economy is set to shrink by as much as 7% this year on a mix of plunging exports to the U.S., falling tourism revenues due to the swine flu scare, and declining oil production. The government's overreliance on oil as a source of funding is one reason Fitch Ratings downgraded Mexico's sovereign debt rating on Nov. 23 to just two notches above junk. "Given the bad economy, it's probably not a good time to remove Ortiz," says Rogelio Ramírez de la O, an independent economic consultant.

Ortiz is no stranger to crises. Named Finance Secretary in the aftermath of the 1994 peso crash, he coordinated a massive bank rescue and helped rebuild credibility with international investors. Amid the recent financial turbulence, Ortiz's able monetary management—including the sale of some $31billion in dollar reserves—has helped stabilize the peso while keeping inflation in check.

Although Calderón recently acknowledged that Ortiz has done "good work," it's long been clear there is no love lost between the two. When Ortiz was appointed to head the central bank, Calderón, then president of the leading opposition party, lobbied to have him removed from the post, arguing that he had stuck Mexico's taxpayers with the $100 billion tab for the bank bailout. Ortiz has at times struck back. During a visit to Yale University in November, he told reporters Mexico needed "a little bit of leadership" to fix its fiscal problems, a comment that annoyed Calderón. "The fact that we have had excess oil revenues for a number of years allowed postponement of the day of reckoning, which is here today," Ortiz told Bloomberg BusinessWeek.

Calderón is considering nominating Finance Secretary Agustín Carstens to replace Ortiz. Carstens, 51, would be a capable successor: He holds a doctorate in economics from the University of Chicago and spent 10 years working at Banco de México before being appointed deputy managing director of the International Monetary Fund in 2003. If Ortiz proves dispensable, he may have no one to blame but himself. On his watch, Banco de México "has become one of Mexico's strongest, most credible institutions," says Jonathan Heath, chief Latin America economist at HSBC (HBC). "But if the institution is strong, it shouldn't matter anymore whether Ortiz is there or not."

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