The installation of Felipe Calderón as Mexico’s new president provides an occasion for Dallas Federal Reserve Bank economists William C. Gruben and Erwan Quintin, both specialists on the Latin American region, to discuss Mexico’s progress toward economic stability as well as its remaining hurdles to growth.

      Q: Why has the Mexican economy been so stable in the face of recent political turmoil?

      Gruben: The first thing to recall is the protracted period of Mexican history when presidential transitions were accompanied by fiscal misbehavior, which created worries for the investment community. Investors would understandably be highly uncertain about the exchange rate, so Mexico would get boom-and-bust cycles every six years.

      One of the most important developments in the last 50 years is that Ernesto Zedillo, Mexico’s president from 1994 to 2000, didn’t engage in this type of behavior as his sexenio, or six-year term, came to a close. Although Calderón inherits a stable, growing economy, he faces the challenges of an ineffective educational system, a legal structure in need of repair and excessive government interference in the private sector.

      Q: What have been the fruits of this good fiscal behavior?

      Quintin: I like to say that Mexico has been able to grow a yield curve in recent years. The Mexican government was unable to sell any debt with over a year to maturity in the aftermath of the mid-1990s Tequila Crisis, but the situation has changed tremendously in the past five years.

      Investors, both domestic and international, are now much more willing to entrust the government with their money. In 2004, Mexico issued its first 20-year bonds. And the government just started issuing...

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