Central Bank Governor of the Year 2008: Guillermo Ortiz, Mexico


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Mexico’s central bank governor has achieved rock-star status with his tough line on inflation by standing up to the president’s pressure to reduce interest rates.

Ortiz hits all the right notes 

Guillermo Ortiz, Mexico’s central bank governor

Guillermo Ortiz, Mexico’s central bank governor

Mexicans are accustomed to disappointment on the international stage, losing to the US in the World Cup football preliminary rounds and struggling to win more Olympic gold medals over a century than Michael Phelps won in Beijing. Graft and tax evasion are Mexico’s national sports, Mexicans say. In monetary policy, though, Mexico is considered world-class and Guillermo Ortiz, Mexico’s central bank governor, can take the credit for that.

"It is widely accepted in central banking circles that, under his direction, Banco de México has become one of the most highly regarded central banks in the world," says Federal Reserve Bank of Dallas president Richard Fisher. "In monetary policy circles, Guillermo Ortiz is considered quite the rock star."

As world oil and food prices have driven inflation to alarming levels worldwide and some central bankers are in disarray, Ortiz has shown quiet confidence, taming Mexican consumer price inflation to 5.4% in July, a tad lower than the US at 5.5% and the lowest in Latin America, well below 34% in Venezuela and Argentina’s 9%. "It’s a difficult time and Mexico is more exposed than any country to the US slowdown," Ortiz said in a speech in late August in the northern Mexican city of Monterrey. "Inflation has been continually higher than projections for central banks around the world, including Mexico," he added. As a former Mexican finance minister and IMF official, Ortiz has focused on inflation-targeting as his main approach to monetary policy, keeping medium-term inflation expectations anchored and carefully using interest rates to maintain bank independence from intrusive politicians. With three consecutive rate increases since June – taking Mexican rates to 8.25% in August – Ortiz has tried to head off Mexico’s fastest annual inflation growth since March 2003.

His policies have made him unpopular in some circles. Higher interest rates mean more costly credit for an emerging middle class and, in June, president Felipe Calderón accused the central bank of damaging the competitiveness of local companies. He questioned why the US and Mexico had similar inflation levels and yet Mexican interest rates were four times those north of the border. "Hopefully our independent monetary authorities here, like the Bank of Mexico, will some day take this into consideration when setting monetary policy for interest rates," said Calderón, a US-educated lawyer and economist, in a speech. Ortiz, the son of a general, was quick to assert his authority and increased rates in July, sticking to his argument that inflation pressures were still in the pipeline.

With Mexico facing food price rises of 9% and the government cutting subsidies that have softened the impact of world oil price increases, Ortiz says consumer prices could rise as much as 6% during the last three months of this year as global commodities costs gradually feed in. The market applauded his reaction to what many saw as interference from Calderón, a conservative who is under pressure to generate jobs. "The central bank was legally autonomous before Ortiz took over in 1998 but it is he who has made the bank independent of politicians and their short-term needs," says Cesar Castro, head of analysis at the Capem consultancy in Mexico City. "Ortiz’s reaction to Calderón was proof of that."

Ortiz, 60, is clearly not a pushover. In 1994, he was named Mexican finance minister in a baptism of fire days after Mexico’s Tequila Crisis broke. That crisis and the peso devaluation shattered the economy and devastated the banking system. Ortiz steered the country out of chaos and gradually won back credibility on Wall Street. Four years later, he took charge of the central bank when annual inflation was running higher than 15%. Once again, the Stanford-educated economist showed his mettle, cooling consumer prices and helping Mexico enjoy an unprecedented period of economic stability.

Tennis-playing Ortiz, who also weathered the political instability of Mexico’s contested 2006 election that Calderón narrowly won, might be heading for calmer waters. He predicts an end to the upward march of Mexican inflation around the middle of next year. This might coincide with an uptick in economic growth, increased capital market activity and recovery in the US. Agustin Carstens, Mexico’s finance minister, expects growth to move towards 5% in 2011, a year before Calderón leaves office, above the 2.8% expected this year. That could also be an Indian summer for Ortiz, whose second governorship term ends in 2010. He will not disclose if he wants a third term or will be tempted away to academia, a multilateral institution or to a lucrative job at an international bank. The markets would certainly miss him.