Turn on your TV and listen to the news, open up a newspaper near you, turn on the raido.. What do you hear? Chances are you will find something related to the economic crisis.
So we all have heard about it right?
But what's truly behid it all? What does a crisis really mean? Should we really be panicking ?
Who is to blame?
Well we're going to try to clear all that up for you.
First of all Mexico, while getting little attention in 2008, likely deserved it the most. Factories of large international companies and banks closing due to economic crisis, top officials being sacrificed in a drug war that cost more than 4000 lives and a new President being thrown into the fire when Mexico has some of the worst problems in generations was the legacy of Mexico in 2008. While this drama has received little attention since February 2008 when it mostly began, it will likely be a defining factor of media attention in 2009. Latin America, while affected by the latest global recession, is not inexperienced in tightening their belts during economic crisis. The difference between the latest recession however and ones in the past is that Latin America and many of its nations were actually at the pinnacle of exiting the problems of the past and were hit by an economic downturn created by those in the US and Europe who often advised their own governments via the IMF and World Bank and IADB. Many leaders of Latin American states made it clear that the latest problems were not created by them or problems in their own nations, but by the United States, which for better or for worse, for truth or embellishment, is often taken as partly responsible for many problems in Latin America. With the Global Recession, Latin America has fallen off the economic map if you consider the lack of media attention the region has received. No one knows where the money will come from to curb the new debts created in the region, but with processes and institutions in place against inflation and debt, maybe Latin America will pass through this crisis as it often has in the past.
OVERCOMING THE FINANTIAL CRISIS
Despite improved macroeconomic fundamentals, Mexico is being hit hard by the financial crisis and world economic downturn
Mexico is affected severely by the global recession, like many other OECD countries, with negative economic, budgetary and social consequences. Although the banking sector has so far weathered the financial crisis rather well, manufacturing industries are being severely affected by the downturn of global demand, particularly in high-value added industries. Shipments of goods to US markets have plummeted at a fast pace, following a global readjustment of industrial inventories and leading to a sharp contraction of industrial production. Like other emerging markets, Mexico has suffered from reduced net capital inflows, as investments returned to safer havens, contributing to a decline in equity prices, rising interest rate spreads and a large depreciation of the peso. In addition, several country-specific shocks have had adverse consequences, such as the outbreak of influenza A H1N1. Also, the budget has been put under pressure by the sharp decline in energy prices, as oil exports provide a large share of tax revenues, although temporary relief comes from a price hedge and weaker peso. The rise in uncertainty has depressed business and consumer confidence to record lows, which, coupled with tightening credit conditions at home and abroad, is bearing on consumption and investment. Despite the slowdown in activity and declining commodity prices, inflation has remained persistently high as prices of tradables and food are adjusting with a lag.
The authorities should remain vigilant in monitoring overall financial stability, including corporate balance sheets
The financial sector looked relatively sound at the onset of the crisis and its limited exposure to foreign assets and liabilities reduced vulnerability to shocks. Conservative lending policies helped contain credit demand and avoided housing bubbles. The sector remains well capitalised and profitable, which partly reflects strict prudential regulations that limited banks’ asset exposure to currency risk and risky products. High net interest margins and operating costs also provide some cushion for absorbing losses. However, the financial indicators tend to be backward looking and can change rapidly as the economy worsens. The weakening economy and declining asset prices may lead to second round effects on Mexican banks with a feedback to the real economy. Both consumers and enterprises may find it difficult to service their debts, thus affecting the quality of bank portfolios. Vulnerabilities might also arise from the enterprise sector, which relies on foreign sources for close to half of its credit needs, if maturing foreign debt cannot be rolled over. These risks should be monitored closely by the authorities.
Despite improved macroeconomic fundamentals, Mexico is being hit hard by the financial crisis and world economic downturn
Mexico is affected severely by the global recession, like many other OECD countries, with negative economic, budgetary and social consequences. Although the banking sector has so far weathered the financial crisis rather well, manufacturing industries are being severely affected by the downturn of global demand, particularly in high-value added industries. Shipments of goods to US markets have plummeted at a fast pace, following a global readjustment of industrial inventories and leading to a sharp contraction of industrial production. Like other emerging markets, Mexico has suffered from reduced net capital inflows, as investments returned to safer havens, contributing to a decline in equity prices, rising interest rate spreads and a large depreciation of the peso. In addition, several country-specific shocks have had adverse consequences, such as the outbreak of influenza A H1N1. Also, the budget has been put under pressure by the sharp decline in energy prices, as oil exports provide a large share of tax revenues, although temporary relief comes from a price hedge and weaker peso. The rise in uncertainty has depressed business and consumer confidence to record lows, which, coupled with tightening credit conditions at home and abroad, is bearing on consumption and investment. Despite the slowdown in activity and declining commodity prices, inflation has remained persistently high as prices of tradables and food are adjusting with a lag.
The authorities should remain vigilant in monitoring overall financial stability, including corporate balance sheets
The financial sector looked relatively sound at the onset of the crisis and its limited exposure to foreign assets and liabilities reduced vulnerability to shocks. Conservative lending policies helped contain credit demand and avoided housing bubbles. The sector remains well capitalised and profitable, which partly reflects strict prudential regulations that limited banks’ asset exposure to currency risk and risky products. High net interest margins and operating costs also provide some cushion for absorbing losses. However, the financial indicators tend to be backward looking and can change rapidly as the economy worsens. The weakening economy and declining asset prices may lead to second round effects on Mexican banks with a feedback to the real economy. Both consumers and enterprises may find it difficult to service their debts, thus affecting the quality of bank portfolios. Vulnerabilities might also arise from the enterprise sector, which relies on foreign sources for close to half of its credit needs, if maturing foreign debt cannot be rolled over. These risks should be monitored closely by the authorities.
