Mexico's 2013 capital account surplus of US$58.6 billion was the largest in the country's history. That's good news. So is the fact that portfolio investment
played a less significant part in it and that foreign direct investment (FDI)
posted an historical high.
There's bad news too. Mexico’s net foreign debt
climbed; Mexican deposits in foreign bank accounts soared; and the proportion
of the capital account surplus going into reserves declined while that required
to finance the current account deficit rose.
Let’s look at the good news. In each of the
last four years (2010 – 2013), Mexico’s capital account surplus has posted a
new historical high. Between 2010 and 2012, portfolio investment drove the
surplus: in 2010 and 2011, portfolio investment equaled half of the capital
account surplus; in 2012, portfolio investment exceeded the capital account
surplus. In 2013, the 62.9% fall in portfolio investment inflows (to US$$21.0 billion) and the doubling of FDI (to US$35.2 billion) reduced portfolio
investment’s contribution to the capital account surplus to 35.9%.
The surge in FDI was thanks to AB
InBev’s purchase of the 50% of Grupo Modelo
shares it didn’t yet own. New investments constituted half of last year’s FDI. Increases
in subsidiaries’ debt with their parent companies accounted for a fifth of FDI in 2013. Reinvested profits, which appear as an outflow in the current
account, accounted for 29.4%.
Now for the bad news... First, there's how the capital account surplus
was distributed between reserves and financing the current account deficit. Last
year, reserves rose US$13.0 billion, their smallest increase since 2009 and an
increase that was US$8.0 billion smaller than in 2012. Financing the
US$22.3 billion current account deficit, the largest since 1994, required
US$7.6 billion more than in 2012.
The near tripling of Mexico’s net debt with the
exterior is another piece of unwelcome news. Mexico’s net foreign debt
increased US$41.9 billion last year, second only to 2010’s US$45.4 billion increase. To put
the figures in perspective, the increase in 1995 when the US Treasury arranged
the famous loan to Mexico, net foreign debt rose US$26.5 billion.
Mexico's net foreign debt soared last year, just as in 2010, because of jump in private sector borrowing. Private
commercial banks took on an additional US$15.1 billion of net debt in 2013. In 2012,
they repaid US$3.2 billion. In 2010, they borrowed US$29.3 billion. The net
debt of private sector firms increased US$18.1 billion last year, more than
double 2012’s increase, which was an historical high. In 2010, the non-banking
private sector borrowed US$8.4 billion. In 1995, the private sector –- banks
and non-banks – repaid US$1.3 billion.
In contrast, the public sector (development
banks plus the non-banking public sector) took on just US$8.6 billion in net
debt in 2013, 1.8% less than in 2012. In 1995, the public sector took on
US$14.5 billion in net debt and the
Banco
de México, another US$13.3 billion.
Another piece of bad news is the jump in assets held abroad, which rose US$39.5 billion in
2013, 15.9% more than in 2012. There were significant changes in their composition: Mexican FDI plunged while
Mexican deposits in foreign bank accounts climbed.
Last year, Mexican FDI
totaled US$10.0 billion, a bit more than half of its 2012 level. While
well below its 2010-2012 annual average of US$17.0 billion, it was still above
its US$6.3 billion annual average in 2005-2009.
The big movements in the assets held abroad account came from the growth of Mexican deposits in foreign bank accounts. Those deposits soared US$27.4 billion last year, an historical record. In 2012, they rose US$3.1 billion. The tremendous jump in deposits in foreign bank account may well be
explained, in part, by the sale of Grupo Modelo:
Mexican shareholders may have chosen to place the proceeds of the sale in
foreign bank accounts.
The valuation adjustment to reserves bears
mention because of its size. Until 2013, the largest valuation adjustment to
reserves ever made was in 2011. It reduced the value of reserves by US$441
million. In 2013, the valuation adjustment added US$4.6 billion to reserves.
