The temptation of Q4 to use international reserves

Finally, the Bank of Mexico received yesterday, August 23, the allocation for 8,542 million Special Drawing Rights (SDR) that corresponded to Mexico, out of a total of 458,000 million SDR that the International Monetary Fund (IMF) distributed among its members. The amount assigned to our country is equivalent to 12,117 million dollars, and as the central bank explained yesterday in a statement, they will be reflected in the balance of international reserves in the weekly statement that will be released on August 31 next.

In that same statement, he explained that if the federal government wishes to have those 12,117 million dollars, the mechanism to do so is through the respective purchase of those currencies from the central bank. That is, if the government of President López Obrador wants to pay foreign debt, it has to have 247,211 million pesos, at today’s exchange rate, to buy those little more than 12,000 million dollars from Banxico. That is if you intend to do things the way they should be done. Where could those billions of pesos that are required to pay Banco de México come from? Well, they could be derived from a surplus in public sector accounts or from the issuance of debt bonds in the domestic market.

If this were to happen like this, there would be no major problem with regard to the reputation of the federal government and, above all, that of our central bank, regardless of whether that operation is the one that could represent the best possible use of those resources at this time.

But, the signals that the president has sent are outlined to an intention to capriciously dispose of the resources received, as if the legal framework allows it in such a discretionary and simplistic way, and use them to settle debt commitments. In other words, the temptation to use part of the international reserves to start paying foreign debt has already appeared, as happened in Argentina in 2010 with Cristina Kirchner, and only now in 2020, with the return of “Kirchnerism” to power, under the conduction of Alberto Fernández.

In January 2010, due to the refusal of the president of the Central Bank of the Argentine Republic, Martin Redrado, to constitute a fund with about 6.559 million dollars from international reserves, to pay interest on the foreign debt of that nation, as To a decree issued by then-President Cristina Fernández de Kirchner, she enraged and put extreme pressure on the central bank official until he forced him to resign, following an attempt to resist by Redrado, which did not last long. At that time, the balance of the international reserves of the Argentine central bank stood at 48,116 million dollars.

Ten years after that episode, just after the Alberto Fernández administration began, the new president decided to use part of the international reserves, again, in this case $ 4,571 million, to pay Argentina’s foreign debt. As of today, the balance of international reserves is close to 42.8 billion dollars, of which only 20 percent is considered freely available liquid. In other words, the central bank’s room for maneuver in the event of an exchange rate run (periods of high volatility in the price of the country’s currency) is frankly low, if not zero.

The lessons of the Argentine case are that far from solving Argentina’s macro problems, the temptations of Kirchner governments to take a bite out of the central bank’s international reserves simply and simply affected its reputation and credibility, reducing its capacity to a minimum. to react to periods of high volatility of the exchange rate, without having solved the macro problems of that nation. The autonomy of the central bank should not be gambled. We must be vigilant in Mexico for the first signs of these capricious temptations.


Gerardo Flores Ramírez

Telecommunications expert

Economic Momentum

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