Anchoring Public Support: Mexico's Communication & Investor Relations Strategy After the Crisis

Seminar Report, Vol II, No 2, February 17, 2000

On 15 February 2000, the Carnegie Economic Reform Network (CERN) inaugurated its new series Economic Reform: Anchoring Public Support with a seminar on Mexico?s Communication and Investor Relations Strategy after the 1994/95 Crisis. The speaker, Augustín Carstens, is currently executive director at the International Monetary Fund and was previously chief economist for Banco de Mexico from 1995 until June, 1999. After the Peso collapse of 1995, one of his chief responsibilities was to improve substantially the credibility of the stabilization program for Mexico. This led to a major effort to educate market participants, the press and the public about the nature of Mexico?s problem and its policy response.

Mr. Carstens began by reviewing the pre-crisis situation in Mexico. After its external debt was renegotiated under the Brady Plan, Mexico returned to the international financial markets in late 1989. It was attractive to investors because of a successful stabilization efforts, structural reforms that included privatization, deregulation, market liberalization, and gradual but sustained political reform. In addition, the government was involved in major efforts to ?sell? Mexico as a prime destination for investment through membership in the OECD and APEC, NAFTA negotiations, bank and utility privatization, as well as good relations with the big international institutions.

In the wake of the Peso crisis, it became clear that Banco de Mexico, like many other central banks in the mid-nineties, was part of an old school of central banking. This method included protecting the market against volatile information, limited and lagged disclosure of the status of reserves, and a policy making strategy in which communications did not play an integral role. Many heated complaints about the availability of information erupted, and although the lack of information was not a main cause of the crisis, it was evident that a new strategy was needed.

The crisis coincided with a change in administration, with very little communication between the old and new regimes. Mexico was completely unprepared for the banking crisis and lost credibility and trust with the devaluation. The sheer amount of information needed by the markets during this time was much more than expected. In 1995, Mexico devised a new communication strategy to hopefully help attenuate such crises in the future.

Mr. Carstens distinguished between the content and tactics of the communications strategy in Mexico after the crisis. Under content, he emphasized that credibility is the key for success in any stabilization program. For the communication strategy to enhance credibility, it needed to present a clear diagnosis of what went wrong and establish a program to address both the causes of the crisis as well as the sensible criticisms that the government was facing. In addition, the support of the IMF and the US government was key in re-establishing credibility in Mexico.

The tactics used by the Ministry of Finance and Banco de Mexico emphasized coordination between the many offices that are involved in the economy. It was important to homogenize official information at all levels of the public sector, both domestic and international. The Chief of Staff of the President of Mexico served as the umbrella that coordinated with ministries, the central bank and the development banks. A single spokesperson was designated to explain the new measures to the press. Another element that was important in Mexico was the treatment of foreigners versus nationals. It was important not to discriminate against foreigners, and to get the same message, at the same time, to people within Mexico and abroad. To do this, the Chief of Staff, the spokesman, and the individual ministries and banks used electronic and printed press, presentations and speeches, printed materials such as reports and technical papers, and bilateral meetings to ensure that government economic policy in the wake of the crisis was transparent.

In addition to emphasizing transparency, the ministry of finance and Banco de Mexico tried to get and use feedback in policy making and evaluations. They set up meetings with specialists and investors groups and commissioned technical material that was available to the general public.

Mr. Carstens noted that not only was the establishment of the program important, but a strategy for maintaining transparency and coordination over time was key. They continue sharing information through their webpage, with statistics, technical reports, new laws and charters, as well as at public presentations, bilateral meeting and with road shows. The hope is that all sectors, business, academia, public figures and civil society can benefit from greater transparency and information coordination and sharing.

In his conclusion, Mr. Carstens emphasized how important it is that the leaders are able to say what went right and what went wrong. The new system opens the door to greater criticism, but the government has been receptive to public concerns and has acted on them or explained why they failed to. A communications strategy is an integral part of policy making, as transparency leads to credibility and stability. Within this, not only are the tactics of information dissemination key, but the content of the strategy must be very strong technically. Finally, Mr. Carstens stressed the importance of an active approach by government authorities in recognizing its own failures and acting to correct them.