Arturo Herrera: "Whenever there is an increase in the interest rate there is a slowdown in the economy"

Like other economies in the world, Mexico faces runaway inflation that already exceeds 7.6% at an annual rate.

Both the Bank of Mexico and other central banks are carefully observing the risks associated with the pandemic, the worsening of geopolitical tensions and greater adjustments to monetary and financial conditions.

In the midst of this maelstrom, Arturo Herrera (Actopan, Hidalgo, 56 years old) will assume as of July 1 the global direction of the Government of the World Bank, a position from which he seeks to strengthen the public institutions of those countries in conditions of greater vulnerability. .

With his appointment to the international organization, he leaves behind the controversial setback he experienced in November 2021, when President Andrés Manuel López Obrador,

Less than two months after leaving for Washington, Herrera receives EL PAÍS in the library of the Colegio de México in Mexico City, where he still teaches.

Surrounded by books of poetry and literature, who was one step away from assuming the reins of Banco de México recounts the journey of months that his selection process meant: a thorough review of his career by an examining committee, the sifting from hundreds to one Twenty and finally to a select group of five people until, last Friday, his appointment was made official.

Ask.

How do you receive this new position as Global Director of Government of the World Bank?

Response.

It is a pride, it is a position that is going to gain new momentum within the World Bank for various reasons, one of the most important is the exit from this situation with three very complicated ingredients: the first is the covid issue, the second is a growing inflation and the third is the invasion of Ukraine which, in addition to all the geopolitical effects and the unfortunate human losses, has very important economic effects such as increases in the prices of some raw materials, of energy, so, get out of this This situation will require the strengthening of certain institutions.

In addition, the poorest countries are being the most affected countries.

Q.

What type of actions will you specifically carry out in this new position?

R.

The spectrum of governance goes from fiscal issues, from how to prepare a budget, how to manage a treasury, where a budget should go, that is one extreme, but there are other issues, for example, the management of human resources, One that is becoming more and more important is government procurement processes, and there you can see issues associated with corruption.

And at the other extreme are the issues of judicial reform.

P.

Will you have a special interest in Latin America from your management?

R.

_

My responsibility is global.

The Bank, in turn, has these regions that are attending to specific countries, but my responsibility is to try to build a team with the greatest experts in the world on these issues to develop these agendas in the various regions.

Q.

Will your decisions have a cascading reaction in Mexico?

R.

Of course, in all countries, but the scope is global, the World Bank has 189 countries, one of them will be Mexico.

P.

You take on this new task in an environment in which the rise in inflation worries the main central banks and countries.

He recently declared that increases in interest rates will not be enough to stop this phenomenon.

R.

Today we are facing a global phenomenon.

A part of inflation is covid.

There is a shortage of microchips and that caused the price of cars to rise, so there are issues related to the pandemic that are impacting prices, these issues will be resolved as the pandemic is resolved.

Later, there are impacts from the side of the Russian invasion in Ukraine.

There are some products in which the two countries are large producers: oil, gas, wheat.

What is going to happen?

Monetary policy anywhere can be restrictive, that helps contain inflation, but monetary policy does not resolve the conflict in Ukraine, so what we are seeing is that we have three causes that are moving in parallel, two of which The covid and the invasion in Ukraine are not for economic reasons.

And finally, we have a cause that is for economic reasons.

In the face of covid, the United States gave a very large monetary and fiscal boost and that has caused the unemployment rate in the US to be at the lowest level since the Korean war and it has already been proven that the US economy is overheating and the way to slow down an economy that is overheating, among others, is to increase the interest rate.

Now, that has an impact as the US is an economically predominant country, that has an impact on the rest of the economies

P.

The head of the Bank for International Settlements, Agustín Carstens, has asked to avoid too strong rises in interest rates so as not to stifle growth, what do you think of this position?

R.

While it is clear that the US, the world's largest economy, is overheated, this does not mean that the rest of the economies are overheated.

Mexico has already recovered practically all the jobs that had been lost during the pandemic, but in Mexico 800,000 people per year join the Economically Active Population, that is, we must give employment not only to those who lost it during the pandemic, but also those who are joining the labor market, so it is not clear if the rest of the countries are in an overheated economy and that is what some analysts or members of international organizations are referring to when they say 'be careful because if you start to raise them (the rates of interest) when you haven't completed the recovery yet you're going to stop the recovery dead in its tracks.'

P.

Do you consider that this is a latent risk for Mexico?

R.

It is a risk for all countries, it is a risk for the United States, what they are trying to do is a soft landing, that is the great debate that is already taking place, if a soft landing can be done.

Here we are not even talking about a landing, we are trying to avoid that the recovery is not affected.

P.

But there is a risk of cutting short the economic recovery in the country...

R.

Whenever there is an increase in the interest rate, the economy slows down and the Central Bank in Mexico, it must also be remembered, has only one objective by law, which is to control inflation.

Q.

At the most recent meeting of the Bank of Mexico's governing board, one of its members voted for an increase in the interest rate by 75 basis points. What is your opinion of these more aggressive positions to tackle inflation?

R.

For obvious reasons I am reluctant to comment on it, what I do believe is that there should be a clear idea of ​​where it is going, this is very well defined in the United States, it can be questionable, it is what is called

[expectations orientation], not only is the interest rate raised or lowered if it is not said where it is going, sometimes even the terminal interest rate is said, that is a little less clear in Mexico because there is no

specifically.

P.

The López Obrador Administration presented a plan a few weeks ago to stop the escalation of prices, what do you think about the strategy?

A.

There are some elements that clearly should have an immediate impact, if you don't charge duties and the duty is a part of the price, that should have an immediate impact.

One of the focuses of the program is to lower the products that are in the basic basket and this has a very obvious reason, which is that inflation affects the lowest part of the income pyramid, but the basic basket is only a subset of all the products with which inflation is built.

Surely this program, if successful, will have an impact in mitigating the effects of inflation in the most unprotected sectors, although it will have a lesser impact on the Consumer Price Index.

P.

_

When do you think inflation will give up in Mexico?

R.

The central element of the discussion at the international level is not so much if inflation is high today, but if this is going to generate higher inflation in the future.

What people tend to look at is how inflation expectations are doing, and all [expectations] seem to point to relatively low levels of inflation over a two- or three-year horizon, and that's probably because they believe that one of the most distorting effects , which is the covid will be controlled, the issue of microcomponents is an issue for a few months.

The Ukraine issue makes a lot of noise because that was something that was not in the formula at the beginning of the year and the solution is not entirely an economic solution, it is geopolitical.

That makes this situation extraordinarily complex.

P.

Could this economic crisis be an opportunity for Mexico?

R.

_

Like all these countries, Mexico is experiencing a very difficult crisis, but coming out of this crisis with a very stable macroeconomy, with a stable debt, with well-capitalized banks and with the most important trading partner in the world on our border.

All these phenomena are forcing us to rethink a global rearrangement of production, and in this sense, Mexico has several advantages: its proximity to the United States, a Free Trade Agreement that has just been renewed, and the three countries in the Free Trade Agreement In North America, the only emerging country is Mexico, this means that surely we are not going to be providing state-of-the-art technology, but we do have workers who are willing to have jobs at a cheaper relative cost.

Q.

Do you currently have any contact with President López Obrador?

A.

No, I haven't seen him for a long time.

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