Foreign direct investment doubled over 2012, although a large portion of the increase was due to the acquisition of Grupo Modelo. Mexico stands apart. As of February, Moody’s boosted its rating on Mexico’s government bonds to A3 – joining Chile as only the second Latin American country with an “A” rating. The structural reforms Mexico has passed played a role, but so did the ability to pass them. A unified political will to work for what’s in the nation’s best interests is a rare find these days and something about which Washington can only dream. Other nations, such as Brazil, may be headed in the opposite direction. Brazil’s economy likely shrank in the second half of 2013 and prospects for 2014 are half of what Mexico’s growth is projected to be next year. The Brazilian slowdown follows years of rapid growth and rising prices. Now, there are fears of a Brazilian house price bubble – homes in Sao Paulo are selling at three times 2008 prices. In contrast, Mexico City house prices are up 35 percent. I am not forecasting a housing bust for the Brazilian economy, mind you. But consumers may have to deleverage, which will detract from growth. The government may have to rein in spending as well. Brazilian government debt has outpaced GDP growth in recent years and currently stands at 57 percent of GDP, nearly twice that of Mexico. Faced with poorer growth prospects and a weakening labor market, Brazilian banks will likely tighten lending after a decade of credit expansion.
Our critics have told us that we should not have squeezed so hard on interest rates last October and that we should not have increased the cost of borrowing for business and for those who have to service their home mortgages. We should have introduced our measures to strengthen our monetary and financial systems earlier. We should not have departed from our free market policy and intervened in the stock and futures markets. That there was a lack of a “sense of crisis” in how we handled the situation. These are the more significant criticisms. 4. I can fully understand the sentiment behind these criticisms. The people of Hong Kong have been suffering the worst conditions we have had to face for many years. Even the most patient and understanding community will have grievances when the value of the assets they hold has been halved while they have to pay significantly higher interest costs for their liabilities. Furthermore, income has not been growing, and, for some, it has been shrinking. And, worse still, the probability that they may lose their jobs has doubled in the past year. 5. So, whatever the cause of this difficult situation, whether or not it arose from events outside the control of the authorities, it is considered, and rightly so, the responsibility of a caring government to do what it can to relieve these grievances. Refusal or reluctance to do so, even for very sound reasons in the larger long-term public interest, is not looked upon kindly.