Challenges and Opportunities in an Adverse Economic Situation
Unemployment is undoubtedly one of the consequences of the United States’ financial problems that will most affect society in the coming months. The U.S. banking crisis is making far fewer loans; and without sufficient credit, companies fave a difficult environment for operating and investing. At the same time, families are reducing consumption. These two parallel phenomena are creating a widespread economic recession.
Given that the United States represents more than one-fourth of the world’s production, and that the banking problem has also spread to Europe, prospects for the global economy seem particularly adverse for the near future.
In a later post, I will share some thoughts on the causes of the crisis and the global consequences of a now inevitable recession. On June 10, I talked about the current U.S. administration’s fiscal excesses, but this is only part of the problem. Today, I prefer to talk about the consequences for Mexico.
In Mexico, we are not facing the same banking problems as our neighbor because we do not share its excesses. However, the U.S. economy’s weakness will be transmitted to our country for three reasons: i) 80 percent of our exports are shipped to the North; ii) 60 percent of foreign direct investment comes from the United States; and iii) remittances represent more than 2 percent of the value of our economy. A recession in the United States will necessarily affect all our sources of foreign currency —tourism and oil earnings will also be affected. Not to mention that thousands of Mexicans are already returning to their communities, and they will demand public services and jobs.
A long-term vision is needed in these difficult times, as well as disciplined spending, both in our companies and as individuals. We must focus our efforts on adding maximum value using fewer resources.
Changes in business require: i) adjustments in costs and expenditures: ii) solid capital structure; iii) manageable debt, or long-term debt contracted in the same currency as earnings, at a competitive, fixed rate; iv) diversification of operations to less affected regions and market segments, or the development of products and services with greater value in an adverse economic situation; and v) better risk management.
On a personal level, we must be disciplined, emphasizing work and saving a larger share of our income, since we don’t know for certain how long this profound crisis will last.
The Chinese Word for Crisis Combines Danger and Opportunity
We must not forget that difficult situations also bring enormous opportunities: we must have the vision and the ability to take advantage of them. Twenty centuries ago, the Roman philosopher Seneca wrote, “Adversity is the time for virtue.”
Those who add value to society and maintain financial discipline and liquidity will find ways to strengthen their assets. Given that the economy is cyclical, banking activities will grow again in the future, as will consumption, employment and the value of our assets.