Mexico Ranks Second Worldwide in Capital Flight

Photo: The Financial Express


Mexico placed as the country with the second-highest rate of capital flight in February, according to a report released earlier this week by the U.S. Treasury Department.

In total, $11.531 billion in government bonds and corporate securities left the country in February, the Treasury Department said.

Only Brazil registered a higher rate of capital flight.

The report reviewed month-on-month total capital outflow of 139 countries, comparing February 2020 to February 2019.

Russia and Argentina ranked third and fourth, respectively, in capital reduction in February, compared to the same month of 2020.

The amount of Mexican stocks and government and corporate bonds in the hands of U.S. citizens totaled $152.8 billion as of the end of February, an annual drop of 7 percent.

Of the capital that left Mexico, 3 percent ($1.969 billion) were corporate bonds and 9 percent ($9.562 billion) government instruments.

Juan Musi, a partner at the Alpha Patrimonial investment firm in Mexico City, said that Mexico’s rise in capital flight was “due to mistrust of the country’s economic and political stability.”

“A lack of growth, poor fiscal structure, constant messages of uncertainty and a weaker rule of law are the ingredients that discourage investors, that block new investments from coming in. and cause investors to decide to go to other destinations,” Musi said.

In addition to this, lower interest rates at the Central Bank of Mexico (Banxico), currently at 4 percent, have contributed to a weaker balance between expected returns and risks, he said.

Also, the extremist governing style of leftist Mexican President Andrés Manuel López Obrador (AMLO) and Brazilian President Jair Bolsonaro clearly coincide with the political instability of Russia, Musi said.

He also said that Mexico is currently enjoying a currency exchange rate stability because the U.S. dollar has weakened against the entire basket of currencies.

“What we are experiencing as exchange rate stability has nothing to do with Mexico making good decisions,” he said.

“It is a side effect of a weak dollar.”

The countries that have increased capital investment the most so far this year are Japan, Canada and Taiwan, by $183 billion, $175 billion, and $141 billion, respectively, according to the Treasury Department report.

In Latin America, Brazil, Argentina, Ecuador, Venezuela, Costa Rica, El Salvador, Belize, Honduras and Cuba registered capital outflows, while Colombia, Uruguay, Paraguay and Peru had capital inflows.

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