Peso predicted to tumble 15% on deficits
Ramírez: Peso to tumble 15 pct on twin deficits
BY VALERIE ROTA
Bloomberg News
The peso, the worst performer among the world's most-traded currencies in the past six months, will weaken another 15 percent by year-end as the
nation's twin deficits swell, said Rogelio Ramírez de la O, the economist who predicted the 1994 devaluation.
The peso will slide to 18.2 per dollar from 15.5343 Monday, said Ramírez, the partner at Mexico City-based economic research firm Ecanal and former
chief economic adviser to 2006 presidential candidate Andrés Manuel López Obrador. The peso tumbled 32 percent in the past six months as the recession
in the United States, the buyer of 80 percent of Mexican exports, deepened.
The currency will keep falling as oil output drops at the fastest pace since 1942, the current account deficit grows almost three-fold and President
Calderón boosts spending ahead of July congressional elections, said Ramírez. Banco de México spent $19.6 billion since October to stem the peso's
decline, reducing international reserves 5 percent. "We have foreign reserves that are finite and we are soon going to see that the external account
will be in deficit this year and next," said Ramírez, a 60-year-old Mexico City native who earned his Ph.D. in economics at Cambridge University. "The
political climate doesn't contribute to a stabilization of the currency."
`EMPEROR HAS NO CLOTHES'
The peso declined more against the dollar than any of the 16 most-traded currencies, according to data compiled by Bloomberg. South Korea's won had
the next-worst performance, weakening 29 percent in the past six months.
The peso sank 2.4 percent against the dollar Monday, the biggest decline among all currencies tracked by Bloomberg, and touched a record low of
15.5892 per dollar.
Last year's 20-percent drop in the peso was the biggest since the December 1994 devaluation drove the peso down 55 percent by the end of 1995. Ramírez
was the only analyst "who maintained an outright sell on Mexico" throughout 1994, according to a May 1995 article in Institutional Investor magazine
titled "Why Wall Street Missed Mexico."
In 1994 "nobody dared to say what they were thinking," Ramírez said in a March 6 telephone interview. "But if you see that the emperor has no clothes,
well you should say the emperor has no clothes and look at his belly."
Ramírez is in the minority today.
The peso will strengthen to 14.1 per dollar by year-end, according to the average estimate of 30 economists in a central bank survey published March
2. Morgan Stanley predicts it will rally to 12.8 while Bank of America forecasts 13.25, according to data compiled by Bloomberg.
`LOPEZ OBRADOR GUY'
Ramírez says politics don't influence his forecasts and that he first began expressing concern that a drop in oil prices could sink the peso during
the 2006 campaign.
"Even though I was López Obrador's adviser, I have nothing against Calderón and my forecasts are based on hard data," Ramírez said.
Ramírez says he sees similarities between today's crisis and the one that triggered the 1994 devaluation, mainly in the widening current account
deficit, the broadest measure of a country's trade in goods and services. Declines in exports, migrant remittances and tourism pushed the deficit to
$6.1 billion in the fourth quarter, the widest since 2000.
The deficit will reach $41 billion this year, bigger than the $29.7 billion gap in 1994, Ramírez predicts.
FAITH sees the invisible, believes the incredible, and receives the impossible!
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