US$4.6 Billion Left the Country in March 2020By Gabriela Mastache | Tue, 03/31/2020 - 10:51
According to the IMF, in March 2020, international investors sold their positions in the country accounting to a capital loss of approximately US$4.6 billion, representing 0.4 percent of the country’s GDP. This capital exit in March led to a 25 percent depreciation of the Mexican peso that reached parity levels with the US of MX$25.
Though S&P warns that all emerging markets have suffered capital losses, Mexico has been the market that has experienced them worst. Mexico is followed closely by Russia in terms of capital exits, which also saw its national currency depreciated in 24 percent in 2020. Meanwhile, Brazil’s currency has experienced a 22 percent depreciation. According to IMF, more capital is expected to leave these countries as stronger measures to prevent the spread of COVID-19 are put in place.
In an interview with El Economista, Jonathan Heath, Deputy Governor of Banxico, mentioned that the central bank was more focused on ensuring the liquidity of the country’s economic system and that the weakening of the Mexican peso was “a typical overreaction of the market, where funds have sold their positions in Mexico and went to more secure assets.”
Sanitary Emergency Spells Economic Emergency
After the government declared the country in sanitary emergency, the private sector asked for the implementation of a series of measures that would help to alleviate the contingency crisis for the private sector. CCE published a press release where they recognized the measures taken by the federal government but also acknowledged that the “quarantine … would have as a consequence an impact in the generation of additional income for the operation of businesses.” To address this, CCE asked for five measures from the authorities including:
- Postponing the presentation of tax records of companies for six months
- Allowing for an automatic reduction of all provisional payments of 2020
- Differing tax payments for 12 months
- Establishing an expedite procedure for tax rebates
- Allowing tax payers to universally compensate favorable balances during 2020
According to CCE, the implementation of these measures will provide companies with the minimum required liquidity to maintain employment sources. Moreover, CCE mentioned that the OECD recommended countries to implement measures such as differing or condoning tax payments, eliminating advanced payments for tax purposes, simplifying processes for returning favorable VAT balances and differing the payments of social security quotas.