Interview: Ernesto Cordero


Ernesto Cordero has been a Mexican senator for the conservative National Action Party (PAN, per its Spanish acronym) since September 1, 2012, presiding over the Senate of the Republic until August 31, 2013. Before being elected to the senate, Cordero served as Mexico’s Secretary of Finance during the troublesome years of the world financial crisis from 2009 to 2011. Before devoting his life to the public service of his nation, Cordero received his bachelor’s degree from the Mexico Autonomous Institute of Technology and his Master’s degree in Economics from the University of Pennsylvania in 1998. The Penn Political Review sat down with the Mexican senator to talk about US-Mexico relations, the 2016 US elections and Mexico’s monetary policy in dealing with the Mexican peso.  

Conducted by Luis Ferre Sadurni and Michaela Palmer

Transcribed by Luis Ferre Sadurni, Claire Lisker, and Francis Leong

Penn Political Review: How would you describe the current state of the diplomatic and economic relationship between the United States and Mexico? What is the most significant challenge ahead?

Ernesto Cordero: For Mexico, the US is the most important country. We have very close ties. Not only in trade, but also familial, historical. For Mexico, it is very important what happens in the US and the relationship we have with it. The common notion is that we are closer to Latin America, but that is probably not true. We are closer with the United States in many ways. Right now the relations are quite well. I think that the relation between the administrations of presidents Clinton, Bush and Obama were quite well. Their relationship with the Mexican government under President Calderón and Peña Nieto was also very close. There is a lot of understanding. I hope that whatever happens in the next administration in the United States, that Mexico continues that fashion. There are a lot of things that need to be solved together as a region. You cannot understand the success of the United States, without Canada or Mexico. You cannot understand the success and advancement of Mexico without our neighbors. It is going to be crucial whatever happens in November in the United States. I hope that the future president understands that we are very good partners, that we are neighbors, and that they need us to succeed.

PPR: So, moving on to the topic of U.S. elections the topic of immigration policy in the United States has been a very controversial one, a very heated one. It has been a topic that one of Penn’s alumnus, Donald Trump, has been talking a lot about and has built his support on. What is the conversation within the Mexican senate and government regarding U.S. elections and the current candidates’ proposed policies?

CORDERO: With all due respect, I don’t think that Mr. Trump has any idea of what is going on in the United States and the world. I hope that he is just trying to be noisy and trying to receive attention. I don’t think his [proposed] policies are not the ones of a real leader for a country like the United States. So, let me put it in an anecdotal way. Immigration is a cornerstone of the relationship between Mexico and the United States, but it is not the only one. It is an important cornerstone that has to be solved properly. Right now there are a lot of Americans that were immigrants from Mexico and Latin America, that their kids are Americans. They don’t feel Mexican, Salvadorians or Latin American. They feel American. [The US] has to understand that. They need the rule of law in order for this group to succeed and contribute to America as they have always done. The movement of people that go from one country without papers has to be solved. We have to understand why they are going. [It’s] because someone is demanding their labor and there is excess of supply of labor around the world. Economics fixes and arranges that type of externality. You have to accept that there is a flow of people, a flow of opportunities, and people are coming to the United States because there are opportunities here and that is a good thing.

PPR: The Obama administration has had a sort of frustration getting comprehensive immigration reform passed through a Republican Congress, but he has been able to order some executive actions. Do you think that has been enough? What else should be done regarding immigration policy in the US and to what extent?

CORDERO: Well, that is a very difficult question. There is always something extra you can do. The good thing is that reality advances faster than politicians do. So, right now the kind of integration you have in the United States is far beyond of what people are doing in the capital and in the White House. I am sure there are a lot of things that have to be done, but reality has advanced faster than politicians have in the US and in Mexico. We need an ambassador in Mexico; we do not have a US ambassador in Mexico yet. For example, that is something that has to be done. That is very important.

PPR: So shifting to the topic of when you were secretary of finance in Mexico– I think that it was from 2009 to 2011, a time of global financial crisis—what sort of tough decisions did you have to have to take as secretary of finance and how effective were they for Mexico’s economic recovery at that point in time?

CORDERO: Well, it was a very interesting time and probably there were days that all the [decisions] were tough, but in the end everything came out quite well. Mexico was very, very strong in macroeconomic fundamentals. We also had a financial crisis in 1994-1995. The genesis of that crisis was the financial system in Mexico, the banking system in Mexico. We learned lessons from that situation in 1995. Since then, Mexico created one of the strongest regulatory systems in the world with respect to the financial system and the banks. So, by 2009, when we were discussing in the G20 what had to be done with the financial system, many of the measures that were going to be implemented in the world were already working in Mexico for years. So, for Mexico, it was of course rough times. In 2009 we had a recession of 6% of GDP; it was huge, and we were able to rebound by 2010 growing at 5.4%. That could be because our financial system was in very good standing. So, after the financial turmoil finished, we were to develop very, very fast. It was a rough time for the world and right now, when I was flying from Mexico to Philadelphia, I was reading that the shadows of the crisis are still haunting Europe and there are problems in countries like Italy. There are problems everywhere. So, the world has not been able to recover from that time.

PPR: Shifting to the present, Mexico has suffered some problems with depreciation. The Mexican peso, this week, depreciated at historic levels since 2012. Can you explain how the plunge of the peso came to be? What is the Mexican government doing to put Mexico on a path of economic prosperity to keep appreciating the Peso?

CORDERO: I believe there are two episodes of the same story. The first one is that it was not the depreciation of the Peso— you cannot say this in Mexico because they will crucify you, and especially if it comes from an opposition senator— but it was not really the depreciation of the Peso, it was the appreciation of the Dollar. For the first time in the history of the Mexican peso and the US dollar relationship—which had been very troublesome—for the first time in the history it was… that the Dollar was appreciating worldwide because after of the monetary policy of the US Fed everyone was expecting that the US Fed was going to raise the interest rates of the United States. It is simple arithmetic. If you receive more money if you are the United States, then the money is going to flow to the United States leaving other countries. That happened everywhere including Mexico. That’s why that was the first part of the story. Then the second part of the story, once the Fed was very clear with the message and the signal that they had to send, the central bank in Mexico incorporated that information and we were able to tranquilize the markets. The next thing was the plunge of the oil prices and that hit Mexico in a very particular way. Many of the dollars that were offered in Mexico come from the Pemex exports. So if there is a reduction of 50% of the price of the Mexican barrel, to international markets, we receive half of that amount of dollars that you were supposed to have. That depreciated the peso also, so you have two effects going on there. Now the most important is the one of the decrease in the price of the Mexican barrel. I think that the decision that the authority took just a couple of days ago, I think it’s correct, I mean, whoever thinks that the peso is going to rebound, that’s not going to happen. But the decision provided stability to the foreign exchange market in Mexico and the peso has been stabilized around 18.50 per dollar, that’s good, that’s good. I think no one should expect that we are going to go back to a level of 17 or 16. No. I think it’s going to be between 18 and 19, but you have to reduce volatility and have to provide certainty about what’s going on. I think the decision was correct.

PPR: So, in recent months, what has been the monetary policy that Mexico has taken in order to stabilize the peso?

CORDERO: Well, Mexico has [had] a very loose monetary policy as in the United States. The interest rate was very, very low according to Mexican standards in the past few months. That was the fashion, then we will increase interest rate when then Fed increased interest rates. So there was a complete synchronization between the US and Mexico. Now because of the depreciation of the peso, there are some inflationary pressures going on there. So the central bank in Mexico has only one mandate: to preserve the acquisition power of the Mexican currency and to preserve the purchasing power of the Mexican peso. They don’t have another mandate. They don’t care about economic growth as some other central banks. The only thing that they pay attention to is inflation.

PPR: Do you think that is the correct approach?

CORDERO: Yes, I think it is. Right now what is going on is that because of the depreciation of the peso, there are huge inflationary pressures. So, the central bank has to be increasing the rates in order to prevent inflation. It’s the beginning of a new normalization of the Mexican monetary policy. So we will be seeing an increase in the interest rates in the months ahead, and I think that’s correct. If you don’t do that, if you keep filling the Mexican economy with pesos, there is going to be a huge inflation and you don’t want that. You want — if we are not growing —a humble economic growth rate, that’s true also, but that’s not because of the monetary policy. Right? So, fix the economic growth with fiscal policy, creating certainty, giving greater expectation of the country, and maintain inflation under control. And that’s the mandate of the central bank in Mexico.

PPR: Very interesting. To wrap up, you’ve been through a lot of different levels and positions within the Mexican government. What drives you to keep on being a public servant and what are your future aspirations?

CORDERO: Well I think that my vocation is the public service. I had the opportunity to serve my country in different positions. Right now I am a senator in the Mexican senate and right now my party is not in power. I am an opposition member. My drive is [recognizing that] there are a lot of things to do in Mexico. A lot of things have to be changed. Mexico [has been] a history of success in the last 35 years and we have to keep growing in that fashion. The Mexican democracy has to deliver public goods. That is the only way that people in Mexico are going to believe in democracy. So that is the responsibility of everyone who is involved in the public agenda in Mexico. That motivates me a lot. What is going to happen to me in the future? I don’t know. I am going to be in the senate for three more years and that’s it. Let’s wait and let’s see.