When
Hacienda sent the Administration’s budget proposal to Congress on September 5,
US$82 for a barrel of Mexican export crude seemed extremely conservative. Five weeks later, it doesn’t look quite so unlikely: on October 16, Mexican export
crude sold for US$76.70. The “puts” Hacienda purchases each year to protect the
budget from a sharp drop in oil prices may be in the money in 2015. (With an
exercise price of US$80, the puts are well worth their US$450 million estimated
cost.)
Lower oil prices mean larger trade and current account deficits. A
larger current account deficit requires larger capital inflows to finance it –
at a time when capital flows to emerging markets are declining. Bad luck for Mexico...
