Mexico Suffers For The Price Of Oil

How to control the inflationary phenomenon that live all around the world? It is clearly not a simple question to answer, even for specialists in the matter. At each meeting, my colleagues can not agree on how to control inflation in a context where international prices of food and energy continue to grow.

One conclusion we arrived and there was much discussion, was that while the sharp rise in international prices of food and energy prices hit all economies, at least get benefit from economies that are net exporters of these commodities.

A second conclusion was clear almost immediately above, was that this context creates a great opportunity for those countries where they are not net exporters of these commodities, they might become so because they have enough natural resources.

This is the case of Brazil, not only with the energy issue with the oil (since it is a policy of more than two decades), but also with the issue of biofuels and the promotion policies to increase the areas planted with grains. Brazil shows the way to limit dependence on imported commodities and seize the opportunity offered by high international prices of the same.

Thinking in Mexico, the first thing I wanted to ask about is: How is impacting high energy prices and food in the Mexican economy?

On 16 May, inflation fears caused the Bank of Mexico decided to maintain the reference rate constant. The context is not the best because, as the monetary authority, inflation pressures are increasing along with the risk of slower economic growth possible recession in the U.S.: "continue to rise significantly in the world inflationary pressures and Mexico, which is a growing cause for concern?.

Guillermo Ortiz Martinez, Governor of the Bank of Mexico said a few days later: "There are still inflationary pressures in the pipes, which could continue up the prices of processed foods, although there is now stability in grain prices ?.

Inflation worries Mexico and also a possible economic slowdown ... But there is another issue of major concern and is related to energy reform.

PEMEX reform is at the center of much debate in Mexico. The state oil company is of great importance for the Mexican economy given the magnitude of revenues generated and are intended for public spending in sensitive areas such as education, security and social policies. The first quarter of this year, the contribution of PEMEX Mexican national exchequer accounted for 45% of total revenue.

The truth is that beyond the increase in the contribution to the treasury that makes PEMEX, the income sources of oil are in jeopardy. Oil production is falling and proven reserves have declined significantly in recent years.

PEMEX production peaked in 2004 and since then began to decline steadily. Oil production fell 13% in 2006. In 2007 oil production fell 5.3%, and in the first quarter of this year, Mexico's oil production registered a decline of 7.8% in annual terms.

But more worrying is that between 2000 and 2007, proven oil reserves in Mexico fell by 54% (this according to PEMEX Statistical Yearbook).

And while the price of oil continues to break barriers (and exceeded the U.S. $ 130 a barrel), Mexico is losing a great opportunity. The lack of investment by poor Mexican government policy behind this result.

But there's still time to reverse history. Although it takes large amounts of investment capital, which should resolve the Mexican people look how to get that volume of investment.

Mexico is not the only case that currently exists in the region of countries that are missing an historic moment for growth. Argentina and so is the same I'll talk tomorrow, discussing the main findings of the seminar to be held today at the Sheraton Buenos Aires, where leading economists discuss the outlook for Argentina's economy.

We will meet again tomorrow,

Horacio Pozzo

www.latinforme.com