And at a time that the central bank would normally need to loosen policy to stimulate the economy, it needs tighter policy to ward off inflation. I am not as concerned about cyclical adjustments as I am about structural impediments to long-run growth in Brazil. During this time of remarkable liquidity and cheap credit, and despite a decade of high commodity prices and booming exports, Brazil failed to advance further market reforms. Mexico, on the other hand, has continued to build on its earlier reforms such as its commitment to free trade through NAFTA and other trade agreements. Mexico has secured the openness of its economy and ensured the global competitiveness of its manufacturing sector. Exports plus imports as a share of Mexico GDP reached 64 percent in 2012 while Brazil’s trade share of GDP was just 21 percent. Mexico is now the No. 2 exporter of auto vehicles to the U.S. after Japan and has been the top exporter of auto parts since 2001. BIS central bankers’ speeches  5  Mexico reforms and the Texas shale oil boom Mexico in the last year has logged impressive structural change. Your government stands as an example for many other nations, including my own. A dozen reform bills passed Congress and were signed into law in 2013, five requiring constitutional amendments. To put this feat in perspective, this government has accomplished more in the last year than the three preceding administrations combined.
This is in addition to international migration, which is still high but has decreased from where it was before the crisis. This is what I see for Mexico. Structural reforms – handled judiciously, especially as U.S. economic growth accelerates and Europe recovers – can pay off in spades for the Mexican people, who deserve it many times over. While Mexico has somewhat reduced its dependence on the U.S., 80 percent of exports still go to El Norte. In a strange twist of fate, it may be helpful in the near to medium term to be exporting manufactured goods to a slowly recovering U.S. and Europe rather than maintain the last decade’s shipments of raw materials to China as in the case of Brazil. 6  BIS central bankers’ speeches  Mexico has emerged I began my talk tonight by running through the events, institutional backdrop and the thinking behind the Fed’s quantitative easing efforts. I clearly have not been onboard with all the decisions the FOMC has taken during the economic recovery. I fear that we are feeding imbalances similar to those that played a role in the run-up to the financial crisis. With its massive asset purchases, the Fed is distorting financial markets and creating incentives for managers and market players to take increasing risk, some of which may result in tears. And all this is happening in uncharted territory. We have aided creation of massive excess bank reserves without a clear plan for how to drain them when the time comes.