Teaching Comparative Government and Politics

Friday, January 30, 2009

Economic policy 13

If you and your students have time, comparing Mexico's policies with those in China would probably be a fruitful and interesting study.

Economic policy in Mexico -- Damage control

"A Latin American country softens recession with counter-cyclical policies

"MANUFACTURERS and banks are firing workers. The value of wages fell last year. Credit card debts are piling up. The economy began to contract in the last quarter of last year. Mexico has been here before. But there are two big differences between this recession and the three that preceded it in the past quarter of a century. This time the problem stems from economic mismanagement in the United States, not at home. And for the first time Mexico’s government is in a position to lean against the economic cycle with expansionary fiscal and monetary policies.

"On January 16th the Bank of Mexico, the independent central bank, cut its benchmark interest rate by half a percentage point (to 7.75%). It was the first cut since April 2006, but will not be the last...

"Days earlier President Felipe Calderón unveiled fiscal measures amounting to an injection of 1% of GDP, including cuts in energy prices, extra investment in roads, railways and oil wells, and measures to extend medical cover, welfare benefits or temporary jobs to the unemployed. That comes on top of an expansionary budget for this year, and a previous fiscal stimulus last October (which included extra payments to poorer Mexicans). All told, the government is injecting about three percentage points of GDP.

"Officials are under no illusion that this will prevent recession...

"Officials hope, however, they can at least limit the damage from the global credit crunch...

"In past recessions Mexico has had to cut public spending. That it is different this time is tribute to the health of public finances..."

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