–Fed Not Adopting Employmnt Target Important Signal To Fisc Authorities

MEXICO CITY (MNI) – Dallas Federal Reserve Bank President Richard
Fisher Wednesday renewed his attack on authorities in the United States
for their lack of progress on fiscal reform, contrasting the stalled
process with reforms in its neighbor south of the border that he said
has led to a “bright” macroeconomic future for Mexico.

He also said the Fed’s decision not to adopt a numerical target for
employment serves as an “important signal” to Congress of the need for
fiscal and regulatory reforms to restore sustainable jobs growth.

“Mexico’s rapid recovery in all dimensions of its macroeconomy and
financial sector is proof positive that the gain from reform is worth
the pain,” Fisher said in prepared remarks to the Bolsa Mexicana
(Mexican Stock Exchange) in Mexico City.

While the outspoken Fisher focused the majority of his remarks on
Mexico, where he spent some of his childhood, he used the opportunity to
draw comparisons between what he sees as successful reforms in Mexico
and the current macroeconomic trajectory of “El Norte.”

“Mexico’s future is bright; its prospects keep improving,” he said.
“I would go so far as to say there are lessons to be learned here,
lessons for the U.S. and even lessons for Europe.”

Fisher said while Mexico’s achievements have come through both
monetary and fiscal reforms, “American politicians and policymakers have
proven incapable of fiscal reform.”

“U.S. fiscal authorities have not gotten their act together to
figure out how to construct and implement a budget that restores
confidence by reeling in the nation’s long-term deficits and unfunded
liabilities while encouraging investment, job creation and risk taking,”
he added.

And in his only comments on U.S. monetary policy, Fisher noted that
while the Fed formally adopted a long-term inflation target of 2%, it
did not set one for employment “because ‘nonmonetary’ factors have as
much or more influence on employment dynamics as does monetary policy.”

“I personally consider this an important signal to our fiscal
authorities that they cannot expect inflation to absolve them of their
duty — the need to institute fiscal and regulatory reforms necessary to
restore sustainable employment growth,” he said.

With regards to Mexico, Fisher said it is actually doing better
than the U.S. in many macroeconomic areas.

He noted that Mexico recovered “more rapidly” from the Great
Recession and the global financial crisis, and applauded its fiscal
reforms.

“Your government has implemented greater fiscal discipline than
mine and has done so in a way that has not hampered economic recovery,”
Fisher said.

Fisher also lauded Mexico’s efforts on the monetary front, saying
that with inflation now at 3%, the Banco de Mexico appears to have
successfully influenced inflation expectations.

“The central bank’s short- and long-run commitments to low
inflation have, over time, led to the development of a peso-denominated
bond market and falling interest rates on government debt,” he said.

“The point is that with regard to both inflation and cost of debt,
Mexico’s monetary policy reforms are beginning to pay off,” Fisher said.

Mexico’s banking sector also proved resilient during the recent
global financial crisis, Fisher continued, adding that the majority have
capital levels that allow them to fully comply with Basel III capital
standards.

But while Mexico has made a lot of progress, Fisher cautioned that
“much work remains to be done.”

The Dallas Fed chief voiced his concern about the future ability of
Mexico’s government to fund itself “in an era of declining oil
production,” noting that production has declined 25% from its 2004 peak
to new lows of just 2.5 million barrels a day.

And excluding oil, Fisher said taxes as a share of Mexico’s GDP are
still among the lowest in Latin America. “New ways may have to be found
to maintain the balanced budget your Congress demands and to do so
without choking off economic growth,” he said.

** Market News International – Mexico City **

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