Disinvestment

For the first time in some thirty years (the second quarter of 1967), there was a US$0.64 billion OUTFLOW of direct foreign investment (DFI) in the third quarter of this year. Banco de Mexico, the central bank, tells us it was the result of a single company's repatriation of capital. New DFI was negative to the tune of US$1.06 billion between July and September; reinvested profits totaled US$0.07 billion; and parent companies extended US$0.34 billion in debt to their subsidiaries.

Another figure in the capital account -- the portfolio investment number -- was disturbing. Foreigners increased their net position in Mexican equities and fixed income obligations by US$4.34 billion in the third quarter. The inflow been larger in only four quarters since 1989, when portfolio investment was first broken out. Those quarters were: the first and last quarters of 1993 (US$4.99 billion and US$6.72 billion, respectively); the fourth quarter of 1994 (US$4.93 billion); and the first quarter of 2006 (US$4.34 billion).

Given the magnitude of the portfolio investment in the third quarter, is the strength of the peso a surprise? However, portfolio investment is a shaky base upon which to rely...

How much direct foreign investment has there been in Mexico this year?

When the central bank published the balance of payments statistics for the second quarter almost three months ago, it reported that direct foreign investment (DFI) totaled US$9.98 billion in the first six months of the year. Now, the Ministry of the Economy tells us that DFI in the first nine months of 2009 totaled US$9.75 billion.

Was there an outflow of DFI in the third quarter? Was DFI "overcounted" or double counted in the first part of the year?

Remember what a surprise the second quarter numbers brought? In May, DFI in the first quarter was reported to be US$2.66 billion. Three months later, when the second quarter numbers were published, DFI in the first quarter was revised: what had been US$2.66 billion more than doubled, to US$5.53 billion. Will the third quarter figures contain downward revisions for the first half of the year?

Here's the link to a concise analysis by the governor of Mexico's central bank, Guillermo Ortiz, of the causes and consquences of the crisis, along with his assessment of some of the measures proposed to prevent its repetition.

www.banxico.org.mx/publicaciones-y-discursos/discursos-y-presentaciones/discursos/%7B6D43C45D-EB35-C606-5CDC-F172DEEDCCEE%7D.pdf

Politics Makes Strange Bedfellows

After PRI Senator Manlio Fabio Beltrones' break with his party's position in favor of President Calderon's modified Income Law (LIF), it might be surprising to see Beltrones making common cause with the PAN on the Expenditures Law (PEF). The answer to the riddle is to be found in the distribution of expenditures between the federal government and the states.

PRI governors want the states to gain more control over spending. The PAN wants the present tilt conserved. The Oportunidades program is a battleground. Had the Administration's proposed 2% "contribution to combat poverty" been approved, some of the funds raised would have gone to Oportunidades, an effective program administered by Sedesol. As it turns out, the trade-off the PRI has presented the PAN is either to reduce the proposed funding for Oportunidades or allow the states to administer the program. According to news reports, the PAN has opted for the former.

By law, the PEF has to be approved by November 15. Congress does have the option to extend the deadline to December 31. What happens if Congress approves a budget which President Calderon vetos? If Congress does not pass a new budget, one acceptable to the President, by December 31, the 2008 budget will remain in force.

Stock Market Returns in the US

Here's an interesting fact....

Annual real returns (including dividends) on the S&P 500 under the previous four US presidents are as follows:

Reagan 10.08%
Bush I 10.16%
Clinton 14.35%
Bush II - 5.81%