Accounting for the Mexican paradox 1
6.2 UNDER-‐FINANCED …
This section will first establish that, by standard measures, and relative to its overall level of economic development, Mexico is under-financed. Countries at lower levels of income per capita can be expected to have, ceteris paribus, lower levels of financial system development4. Goldsmith (1969b) believed that the ratio of financial sector assets to GDP would steadily increase as a country became richer, flattening out at about three to four times GDP. However Mexico exhibits financial under-development even when compared to countries at similar or lower levels of income per capita, both in terms of overall monetary aggregates as well as the size of the banking industry and the capitalisation of securities markets.
Typically in the mainstream literature, overall ‘financial depth’ is measured by using various measures of the money supply as a share of GDP (Goldsmith, 1969b; King & Levine, 1993; Levine, 2004). One such measure accessible for
4 Though the exact level of financial development of any particular country reflects its historical and institutional specificities.
152 emerging capitalist countries is the IMF’s ‘broad money’ to GDP5. Figure 6.01 shows that by this measure Mexico’s ‘financial depth’ is considerably less than a number of other countries, including those at lower levels of per capita GDP. The difference is made more emphatic by the fact that Mexico includes deposits of residents in banks abroad in its monetary aggregates, while most other countries do not (Lim & Sriram, 2003).
Figure 6.01: Broad money to GDP Source: IMF International Financial Statistics
In terms of bank-based finance, Mexican deposit money banks’ claims on the domestic non-financial sector peaked at 47 per cent of GDP in 1969 (figure 6.02)6. It is important to note that this ratio excludes claims on the financial sector and international claims, by definition limiting itself to what is generally considered
‘productive’ lending. Since 1969, with the exception of the immediate period after
5 The use of the IMF’s ‘broad money’ category is not unproblematic. The IMF’s Monetary and Financial Statistics Manual does not prescribe a specific definition of broad money. But as presented here, the data will be understood as indicative. Data is only available from 2001 forward. Data for the US and UK is included for comparative purposes; note that the measure used for the UK is M4 (M2 is unavailable). Germany and France do not make M2 data available; the ratio for Japan is above two times GDP so its inclusion would have obscured the differences between other countries.
6 This ratio measures deposit money banks’ total assets to GDP. Time series begin from when data is available. The same dataset makes available private credit by deposit money banks to GDP, however no additional insight into either relative levels or the trends in the size of the banking sector is
153 bank re-privatisation, these claims have hovered around 30 per cent of GDP. This is considerably lower than the levels of Korea, Thailand, South Africa and Brazil. In the last decade, the relative size of the Mexican banking sector, as indicated by this particular metric, has also been surpassed by the other laggard of the group, Turkey.
Figure 6.02: Deposit money banks’ claims on domestic non-financial sector to GDP Source: World Bank financial structure dataset
In terms of market-based finance, with the exception of the pre-NAFTA surge in the years 1990-3, stock market capitalisation as a share of GDP in Mexico has been below that of all countries except for Turkey (figure 6.03)7. Private bond market capitalisation is gradually increasing from a low level, tracing a similar path to that of Brazil, South Africa and Thailand, but decidedly less important as a source of financing than in Korea (figure 6.04)8. From a situation in the early 1990s where Mexico had one of the most significant public bond markets (smaller only than South Africa), a decade of fiscal austerity resulted in the smallest public bond market by the end of the 1990s (figure 6.05)9. Despite steady growth since that time, it remains the smallest public bond market in relative terms throughout the 2000s.
7 Time series begin from when data is initially available.
8 The time series data for Turkey are incomplete, and the level is below one per cent of GDP. Data for other countries is only available from 1990.
9 Data is only available from 1990.
154 Figure 6.03: Stock market capitalisation to GDP
Source: World Bank financial structure dataset
Figure 6.04: Private bond market capitalisation to GDP Source: World Bank financial structure dataset
0 0.5 1 1.5 2 2.5 3 3.5
1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
ZAF KOR BRA THA MEX TUR
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
KOR ZAF BRA THA MEX
155 Figure 6.05: Public bond market capitalisation to GDP
Source: World Bank financial structure dataset
Having established that Mexico is relatively under-financed by traditional measures, can it also be argued that it is, at the same time, financialising? To address this apparent paradox, the macroeconomic picture will be first examined, followed by a consideration of each of the non-financial corporate, banking and household sectors. Within each category, the indicators of financialisation developed in relation to advanced capitalist economies in chapter three will be assessed, as well as additional measures capturing the subordinate nature of financialisation theorised in chapter five.