New York – The deputy governor of Mexico's central bank acknowledged here that organized crime violence is slowing economic growth, although he said JP Morgan Chase's estimate of a 1-1.5 percent hit to Mexico's gross domestic product was too high.
"One can conclude that, although the Mexican economy continues to grow, it would probably be growing more," Manuel Sanchez told Efe in an interview after a meeting Thursday with investors in New York organized by the United States-Mexico Chamber of Commerce.
He said that "qualitatively, it's clear that to some degree the economy should be growing a little bit more, especially in the regions specifically affected by the violence."
Mexico has been wracked by violence involving well-funded, heavily armed drug cartels fighting over smuggling routes to the United States. Turf battles among the mobs and the gangs' clashes with security forces have left some 40,000 dead over the past four-and-a-half years.
Sanchez, one of Banco de Mexico's four deputy governors, said tourism has been one of the hardest-hit sectors in the most organized crime-plagued regions, although he said a "larger study" is needed to learn the specific impact of violence on Mexico's GDP.
The economist said he read a report by investment bank JP Morgan Chase on the subject "with interest" but considers the figures it arrived at to be "elevated."
Though adding that he has not discounted them entirely, Sanchez said the numbers are "tentative and preliminary, considering that fortunately" Mexico has a relatively short history of organized crime-related violence.
"They probably don't have enough data to be so certain" about their findings, he added.
The violence affects specific parts of the country, according to Sanchez, who said he hopes it can be eliminated "not because of its impact on economic activity, which thus far has not been that dramatic, but rather for the sake of Mexican families' tranquility and happiness."
Noting that the central bank is forecasting solid GDP growth of between 4-5 percent this year, Sanchez highlighted Mexico's fiscal and monetary stability and financial strength and said those factors will enable the country to tackle future challenges.
In that regard, he referred to ongoing negotiations in the United States, Mexico's biggest trade partner, to lift that nation's $14.29 trillion debt ceiling, as well as the possibility of an unprecedented default if no agreement is reached by the Aug. 2 deadline.
"I see that scenario as very improbable. I'm sure they're going to reach an agreement," Sanchez said, adding that even in the "very remote case" of a suspension of some payments by Washington, it is very unlikely the U.S. government would fail to pay interest to bond holders.
"In that extremely remote scenario, I think there would be a huge, unimaginable financial disruption," the economist said, noting that even in the most recent global crisis of late 2008 and early 2009 investors sought refuge in U.S. Treasury bonds because they are seen as the world's safest investment.
Sanchez also said that it was positive for Mexico that its central bank governor, Agustin Carstens, had been one of two shortlisted candidates this summer to become the International Monetary Fund's new managing director.