A view from Mexico...

Yesterday I attended one of the more interesting lectures I've encountered here in London, a frank discussion with Jesús Silva Herzog, the former finance minister of Mexico (during the 1982 debt crisis, no less), among other things. Here are some highlights from his talk Monday evening:

(1) Mr. Silva Herzog sharply criticized neo-liberal orthodoxy, saying it has prevented Mexico's government from promoting full employment and economic development. He pointed to the escalating debt-to-GDP ratios of many industrialized countries (think U.S. and U.K.) as reason for why Mexico should allow its debt ceiling to increase slightly if it means preventing a total economic collapse.

(2) On the financial crisis - "We've been through it before, so a 2 percent drop in GDP [which has been projected] is not that bad." He expected Mexico, 80% of whose exports go the contracting United States economy, to suffer in 2010 as well. "This crisis is not a liquidity problem, it is about solvency."

(3) The banking sector - One of the main areas of vulnerability that Mexico has during the financial crisis is the opening of its well-capitalized, healthy banking sector to foreign ownership. For example, Banamex is owned by the ailing Citigroup. Further complicating this is that if the U.S. government takes a 30-40% stake in Citigroup as planned, that would break Mexican law, which bars any foreign government for owning a stake in domestic banks.

Liberalization of the Mexican banking sector (which was a bone of contention during NAFTA negotiations in 1993), was one of the greatest mistakes Mexico has made, he said. Mexico is the only G/20 country that has allowed such deep, widespread ownership of domestic commercial banks. The threat of foreign banks repatriating capital for their own survival in their home countries is an omnipresent threat Mexican officials must consider.

(4) On aid from the United States to fight crime related to the drug trade - "it's nothing. It's more of a symbolic thing, that the U.S. is helping us fight the drug cartels." He used this point to stress that unemployment, particularly in the maquiladores in the northern cities near the U.S. border, could help fan the flames of the drug trade.

(5) On Latin American unity - Mr. Silva Herzog said Latin American unity has been difficult to find during the financial crisis because of the lack of synchronicity. Unlike the Euro zone countries, which more or less share the same business cycle (a big reason why the Eurozone has been a strong monetary union), Latin American countries experience differing business cycles.

He was also a little bit of a comedian, at times cutting through serious topics with a little bit of humor. Like when he said Mexico needs to once again take the lead among Latin American countries (a role Brazil has now assumed), especially at the G/20 summit in London next month. He suggested the three Latin American representatives in the G/20 meet somewhere in South America or in Madrid, across the Atlantic, "and I don't mean in the middle of the Atlantic."