Mexican president Felipe Calderón urged his Latin
American peers to join him in biting the fiscal bullet or risk
scrambling for credit when deficit-laden rich countries start
to issue debt.
These unprecedented deficits in industrialized nations
are going to suck up enormous flows of credit for many years to
come, Calderón told an audience of finance
ministers from across the region.
For poor countries in Latin America and the Caribbean it
will be very, very difficult to access [...] affordable
credit, he said.
He joined a chorus of voices this weekend issuing dire warnings
that fiscally lapse countries face a far greater risk of being
crowded out of credit markets when richer nations begin
unravelling last years unprecedented fiscal and monetary
Economists are particularly worried about an abrupt reversal of
the so-called carry trade, by which investors such
as hedge funds borrow from countries with low interest rates to
invest them in fatter yielding assets elsewhere.
Mexico last year briefly stared into the fiscal abyss
left in the lurch by a drop in oil prices and facing a wide
budget gap despite having a reputation as one of Latin
Americas most prudent countries in recent years.
To bridge the gap, Calderons government pushed through an
unpopular tax increase, months before crucial gubernatorial
elections where an emboldened opposition have an
The tax hike has contributed to a decline in Calderons
popularity ratings. According to most polls, voters are more
concerned about the economy than the horrific drug violence
sweeping the country.
Mexico did it, and at a significant ... political
cost, Calderon said of the bitter fiscal pill.
Other countries havent made the adjustment [...]
and should make it, once the worst of the international
financial recession is over.
Economists give Mexico good marks for getting ahead of the
curve, but are concerned about other countries, including some
of the regions largest.
Given the crowding out fears, Calderon welcomed the IDBs
capitalization increase. He said it was vital that the
multilaterals, and in particular, the IDB, could step in to
help the regions development goals if private sector
credit dried up.