Mexico registers a historic outflow of capital

19/04/2020

The coronavirus pandemic caused a greater outflow of capital from Mexico than that recorded in the financial crisis of 2009, according to information from the Bank of Mexico.

Between December 31st, 2019 and March 31st, 2020, Mexican government debt in the hands of foreigners was reduced by $129,743 billion pesos.

This figure is 683 percent higher than that observed in the same period of 2009, in real terms (considering inflation). Eleven years ago there was a capital exodus of 9.608 billion pesos. The almost 130 billion pesos that have left the country are similar to the 139 billion pesos required by the investment of the Mayan Train.

Gabriela Siller, the chief economist of Banco Base, said that while this year the outflow of capital was observed worldwide, there is a greater perception of risk on Mexico, which was exacerbated by the cancellation of the Constellation Brands brewery and the lack of tax incentives by the federal government to companies.

According to analysts, the difference between the crises of 2009 and 2020 lies in the position of the Mexican economy. While in both there were external shocks, now the country is experiencing stagnation and political uncertainty that was not seen 11 years ago.

In the first quarter of the year, net Mexican debt in the hands of foreigners fell from $2.15 to $2.02 billion pesos. In March there was an exodus of 166,541 billion pesos, which was compensated by the income in the previous two months.

According to Banxico, in January foreigners bought Mexican debt for $32,352 billion pesos, and in February, $4,446 billion pesos. Alejandra Marcos, director of analysis at Intercam, said that March recorded the largest outflow of foreign investment since August 2016.

With respect to the crisis of the so-called Tequila effect (1995), capital flight in the first 90 days of 2020 was lower by 6 percent in real terms, according to Banxico.

Capital flight is usually a symptom rather than a cause of the financial crisis. Expectations of devaluation can become self-fulfilling, as depletion of the central bank's reserves forces it to devalue.