sábado, 1 de marzo de 2014

Mexico's record 2013 capital account surplus: good news and bad news...

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. 

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