By Dave Graham and Luis Rojas
MEXICO CITY Oct 14 Rich countries must urgently
take advantage of looser monetary policy to stabilize their
economies and stimulate growth, without relying solely on
central banks, Mexican central bank governor Agustin Carstens
said on Monday.
He was speaking as lawmakers in the United States haggled
over the U.S. debt ceiling while the world's No.1 economy stares
down the barrel of a potentially devastating debt default.
Central bankers in several advanced economies have opened a
space for their governments to implement fiscal, financial and
regulatory reforms that should be seized, Carstens told central
bankers from Europe, the Americas and Asia gathered at a forum
in Mexico City on Monday.
"It is urgent that the countries most affected by the crisis
effectively use this window of time that the central banks have
offered," Carstens said. "Monetary policy alone can't solve the
problems economies are suffering from."
Carstens said he believed a U.S. default was a remote
possibility, and if it were to happen, could create financial
"No one would win," Carstens said.
U.S. Federal Reserve Chairman Ben Bernanke, who did not
attend the gathering, addressed the policymakers in a
pre-recorded video and made no comment on the current outlook
for the U.S. economy or monetary policy, instead praising the
Mexican central bank.
In Mexico, visiting Polish central bank governor Marek Belka
said central bankers were keeping their fingers crossed for a
"The problem is that the world has never faced such a
possibility," he said. "I think we are not prepared for it,
U.S. President Barack Obama said on Monday there seemed to
be progress in Senate fiscal impasse negotiations but that there
is a good chance the United States will default on its debt if
Republicans are unwilling to set aside some partisan concerns.
U.S. senators later hinted that a possible fiscal deal could
come as soon as Tuesday.
Carstens previously said Mexico was well placed to weather a
U.S. default, citing $170 billion in Mexican reserves and its
flexible credit line from the International Monetary Fund for
use in an emergency.
"Mexico is well prepared to confront it," Carstens told El
Economista in an interview published on Sunday evening. "We have
taken due care in the management of international reserves and
we are well provisioned."
"The problem is so serious because the obstacle is political
in nature, not financial nor economic."
The chief economist at Mexico's finance ministry, Ernesto
Revilla, said last week that Mexico's slowing economy could face
an "extreme situation" if the United States fails to raise its
RESPONSIBILITY TO THE WORLD
Mexico's economy has stumbled this year due to low
government spending, a drop in construction and slack U.S.
demand for local exports. The United States is Mexico's top
trading partner, the destination of about 80 percent of Mexican
Failure to reach a deal "would be very complicated,
particularly if you factor in the Mexican slowdown," Gerardo
Gutierrez Candiani, head of Mexico's Business Coordination
Council, told Reuters.
"We hope they understand that their responsibility is not
just to the United States but to the whole world," he added.
Following Mexico's shock economic contraction in the second
quarter and devastating floods last month, the government has
repeatedly cut back its growth forecast and now expects gross
domestic product to expand by around 1.7 percent this year.
The International Monetary Fund last week said Mexico's
gross domestic product (GDP) would grow 1.2 percent this year,
down from the 2.9 percent expansion it forecast in July.
Taking advantage of cooling inflation, Mexico's central bank
has cut its benchmark interest rate twice this year to a
historic low of 3.75 percent, in a bid to boost sagging growth.
In a separate interview with Excelsior newspaper, Carstens
said he sees a broader role for the bank than simply managing
"Our duty is not just to (make sure inflation) converges
towards its target, but to do it in the best way possible," he
said in the interview published Monday. "If a space opens up,
such as a chance to lower a reference rate, we have to take
advantage of that opportunity," he said.
Data earlier this month showed annual inflation eased in
September for the fifth month in a row to an eight-month low of
The central bank's annual inflation target is 3 percent.