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The outgoing Mexican central bank governor, a leading figure in global finance, has urged the US to maintain its “openness and leadership in the world economy” and warned that weaker international rules would hurt business in the US and worldwide.
In the 10 months since he took office, President Donald Trump has pulled out of the 12-nation Trans-Pacific Partnership, regularly threatens to quit the North American Free Trade Agreement with Mexico and Canada, blasts any US trade deficit as unfair and wants to revamp a South Korean trade pact.
Fears that his ultimate goal is to destabilise the World Trade Organisation, whose rules govern global commerce, have been fuelled by US blocks on appointments to the trade referee’s appellate body.
“I think the US is very important for the world economy . . . and international trade is very important for the US,” said Agustín Carstens, who takes the helm of the Bank for International Settlements next month, in an interview with the Financial Times.
“I don’t think the US can move to a world of autocracy or trade conflicts on many fronts, which would also affect the business climate in the US, so I think it’s important for the US to maintain its openness and leadership in the world economy,” he added.
“It would be very drastic and to some extent unexpected if the US wanted to weaken the entire framework that governs international trade today” by disregarding the WTO, said Mr Carstens, a former finance minister and deputy director of the International Monetary Fund.
Mr Trump tapped into the protestations of those feeling left behind but the answer, Mr Carstens said, was not to reverse decades of trade openness. “The setbacks do not justify negating the benefits globalisation has brought . . . we’re a long way from declaring globalisation a failure,” he said, adding technological change was in part responsible for the shifts that globalisation is being blamed for.
For the past seven years, Mr Carstens has steered Mexican monetary policy through domestic storms and external shocks, including the plunge in oil prices and the peso’s collapse to a historic low after Mr Trump’s election.
His departure comes as Mexican inflation, which for part of his term was at a historic low, remains high despite interest rates of 7 per cent.
Consumer prices hit a higher-than-expected annual rate of 6.59 per cent in the first two weeks of November. The figure was announced a day after the central bank cut its 2017 growth forecast but reaffirmed its assertion that inflation would be brought to back to the 3 per cent target by the end of 2018.
“Obviously, the final photo of my mandate isn’t the best,” Mr Carstens said with his trademark wry humour. While acknowledging Mexican growth has been low, compared with other countries, he says “it’s consistent”. Mexican bank Banxico is forecasting growth this year of 1.8-2.3 per cent.
The impact of the global financial crisis is still being felt, he said, adding that organised crime and the violence it engenders “has cost us between half and one point of GDP”. But whatever happens with Nafta, he says, Mexico has healthy and “solid” public finances and structural reforms will continue to bear fruit.
Where Mexico did need to pull up its socks, though, was rule of law — starting with “appointing all the prosecutors who haven’t been named”, Mr Carstens said, referring to the fact that Mexico is without an attorney-general, electoral crimes or anti-corruption prosecutors.
“Mexico has to pick up the pace to strengthen the rule of law so that there is no impunity and to eradicate corruption. This is a key part of what we need to achieve a higher potential GDP,” he added.
Mr Carstens, whose replacement has yet to be named, heads to Switzerland “with no regrets”. Mexico’s well-anchored state finances bear no resemblance to the over-indebted economy that plunged it into the “Tequila effect” sudden devaluation of the peso, which caused other currencies in the region to decline, and banking crisis of 1994-95.
But there are challenges still, not least whether the latest increase in inflation will result in another interest rate rise at the bank’s next monetary policy meeting on December 14. “That’s not my problem,” laughs Mr Carstens.