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...