In an effort to increase private sector commercial credit and stimulate Mexico's flagging economic growth, president Enrique Peña Nieto said yesterday his government will make available one trillion pesos to the nation's development bank.
"Esto es un millón de millones de pesos, otorgados e inducidos por la Banca de Desarrollo del Estado Mexicano," the president announced to thundering applause at the executive mansion in Mexico City. "That's a million million pesos in direct loans and loan guarantees to the Bank."
At this morning's exchange rate of 12.85, the government funds are worth more than $77.82 billion USD.
"It's an ambitious proposal, but it's doable," said Peña Nieto, who appeared with Mexico's internal revenue and budget planning secretary at a business development forum in the capital. The secretary told the audience that such a stimulus could promote "sustained economic growth of 10%," although he offered no time line for that very optimistic prognosis.
In early 2013 both Peña Nieto and the director of Mexico's central bank, Banixco, predicted 4% growth this year. The economy has cooled considerably since then, and some experts say it will grow no more than 3.5%, and perhaps less. The peso, which roared for six months and reached a two year high in early May, nosedived at the end of last month. Some analysts contend the peso's rapid rise in world markets sabotaged internal growth by making Mexican products more expensive abroad. As May ends, U.S. dollar stages powerful rebound.
Mexico's Development Bank makes direct loans to business and underwrites others. According to a Reuters report yesterday, the country's "private sector credit is below its peers at 26 percent of gross domestic product." In blunt language, Peña Nieto said yesterday the Bank's approach must change.
"It seems as though the Bank has been focused exclusively on the preservation of its capital - part of its legal obligation, to be sure - but all while forgetting the very reason for its existence: to help those in the private sector who have no access to a direct line of credit from commercial banks. That has to change. The Bank must become just what its name indicates, an agent for development. It must fill in the gaps which the market ignores (smaller borrowers), which is a social necessity."
"A main focus of my government will be to ensure that loans made by the Bank have the greatest possible impact on the national economy. Credit institutions operated and funded by the state must use their capital to extend credit throughout the financial system. That's what we're trying to do."
Peña Nieto noted that "Mexico is a country with solid macroeconomic structures, but with a long history of poor access to credit. We're pushing initiatives which will guarantee the cheapest loans possible, to stimulate development nationwide."
Internal revenue secretary Luis Videgaray Caso concurred. "The Development Bank must become an instrument of innovation, of creativity, working together with those in the private sector to promote competition with one ultimate objective: that commercial credit becomes accessible and cheap."
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