Volatility the “great challenge” for emerging markets, says Mexico’s Videgaray

Volatility the “great challenge” for emerging markets, says Mexico’s Videgaray

Volatility generated by the end of fiscal stimulus in the US will be a major test for emerging economies, but Mexico was doing better than most, the country's finance minister Luis Videgaray told a LatinFinance event on Thursday.

“That will be the great challenge for EM countries, how we face that volatility,” he said.

The Mexican peso had fallen less than other emerging market currencies, and the country's credit default swaps remained at similar level to early 2013, he said.

“International markets are recognizing that the Mexican economy is stronger than others. That has a lot to do with the fact that we have better fundamentals.”

Mexico is on track to grow nearly 4% this year, he said. The structural reforms pushed through by the government of Enrique Peña Nieto would spur growth in the medium term, putting the country in a sweet spot in the eyes of capital investors, Videgaray said.

In the opening speech of LatinFinance's summit on Mexican debt capital markets in Mexico City, Videgaray said one of the factors that would underpin growth this year was the economic recovery in the United States, which led the US Federal Reserve to announce the gradual end of its quantitative easing program last year.

“For Mexico that was good news, after all, because it means that the economy of the US, a country to which we are strongly linked was starting to grow," Videgaray said.

About 80% of Mexico's exports are to the US, and stronger growth in the neighboring country would lift Mexico's prospects, said Videgaray. Foreign investors are excited about medium-term growth in the Mexican economy on the back of the structural reforms.

Even though Mexican policymakers said the country would need huge amounts of capital in the next few years to bring economic growth to 5% to 6%, Videgaray said the Mexican sovereign would need very little financing for the rest of 2014 compared to other EM economies. Mexico last sold foreign bonds in January, issuing $4 billion in a transaction it combined with a liability management exercise. LF