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The President Has Decided to Exchange Problems: Jonathan Heath

By Gabriela Mastache | Fri, 05/22/2020 - 14:35

Jonathan Heath, Deputy Governor of Banxico acknowledged that the approach the Mexican government is taking to tackle the economic crisis generated by the COVID-19 pandemic, will make economic recovery even more difficult.


In an interview podcast, reported by El Financiero Newspaper, Heath said the government's focus is to not increase the country's debt . “The President of Mexico says that we will not resort to debt, because later we will have greater problems. Remember what happened in the 1980’s, a crisis  that led the country to not experience any growth in a decade,” he said.

“What the President is doing, is changing the problem. Instead of having a short recession and then an immense headache with an unplayable debt, he is betting on having a more profound and complicated recession, but once we are out, we will not have the same headache that other countries will have,” said Heath, while arguing that the focus of Mexico is not a solution, but rather and exchange of the problem we are facing.

Heath also acknowledged that it is too soon to tell how long the crisis will last, and acknowledged that the time the crisis lasts might depend on factors such as the economic opening of the US economy, especially if there is synchrony between the two economies, and if a second wave of the virus is registered in both countries.

While Banxico’s mandate focuses on controlling inflation using monetary policy, the bank’s use of monetary policy can also have an effect on investments. Last week, Banxico reduced for the fourth time this year the interbanking interest rate (TIIE) in 50 base points to reach a 5.5 percent level. The 5.5 percent rate is the lowest level since December 2016. Among factors that led the central bank to this reduction, were reduced economic activity. “The COVID-19 pandemic and the adopted measures to prevent it from spreading which have affected considerably the global economic activity. This has led to an unprecedented reduction of economic expectations.” Said the central bank in its press release.

Heath said, the central bank would continue reducing the TIIE. “I think we will continue to see a reduction in the interest rate of the country’s monetary policy. I do not think we have reached the end point of this loosening cycle.” Moreover, Heath acknowledged that while there was consensus in Banxico that interest rates must continue to decrease, Heath said that the discussion varies regarding how low will they go and the pace they will follow.

Regarding inflation, Heath said that while most indexes revised by the central bank are below Banxico´s objective, the food category has registered inflationary pressures before COVID-19.

Regarding to what President López Obrador’s said of creating a new index that measures happiness instead of the GDP, Heath says that the President is right when he says that GDP cannot measure happiness. However, for Heath, the institution best qualified to do this is the INEGI. However, Heath said that a happiness indicator should never eliminate the GDP indicator. According to Heath, López Obrador is not the first president to ask about happiness measures. Heath mentioned that Nicholas Sarkozy, former French President had asked about these happiness measurements in the past, which led to the report “The Measurement of Economic Performance and Social Progress Revisited” by Joseph Stiglitz, Amartya Sen and Jean Paul Fitoussi. 


If you want to listen to Jonathan Heath, Gabriel Casillas and Alejandro Casillas click here.

The data used in this article was sourced from:  
El Economista, El Financiero
Gabriela Mastache Gabriela Mastache Senior Journalist and Industry Analyst