DEVALUATIONS AND INDEPENDENCE

Mexico's Economics Forecasting Guru
By John H. Christman
Abel Beltran-del-Rio, generally acknowledged as the father of the econometric forecasting model for developing countries, died at his Philadelphia home in June, 2010. He was 79. Abel was an economics innovator, a dedicated mentor and a true friend, who devoted some 40 years to teaching — whether it was at the academic or professional level.

An incessant numbers cruncher and traveler, he combined his econometric model building and subsequent refining with "preaching the econometric Gospel" throughout Mexico and the U.S., as well as numerous other countries (both industrialized and developing).

Beyond just almost flawless macroeconometric forecasting, which he was always willing and in fact eager to discuss, Abel had the unique quality of making friends — in the private and public sectors in Mexico, academia and in international organizations such as the IMF and the World Bank. He was frequently sought after as a speaker in a variety of countries, but primarily in Mexico. For many, he was the "guru" of forecasting prospects for a given economy.

Over the course of the years, he developed a series of econometric models and submodels for Mexico and tailor-made macro econometric models for other countries such as Spain, Peru and Costa Rica, as well as Puerto Rico.

Abel and I first met in 1970 when he was still doing his Ph.D. thesis at the Wharton School at the University of Pennsylvania, where he first put together the framework for the first Mexican mathematical econometric model. He wandered into our Mexico City offices at "Expansion" magazine, where the author was editorial director at that time.

He wanted to talk about his doctoral work and what it could mean to business and government in Mexico. First of all, he had to patiently but excitedly explain to me about econometrics and why he felt an article on the subject and his work in that field could be of interest to our readership, which was almost 100% in the business sector.

To be honest, he had to tell me just what was econometrics (and its potential benefits). While I had closely followed the evolution of the Mexican economy during the Lopez Mateos and Diaz Ordaz Presidencies, my scholastic background was not economics. Trying to keep up with the Mexican economy (and in a period of basic stability with growth) was more than enough, not to mention editorial deadlines.

The word econometrics had never once come up in my talks with Mexican economists and businessmen. And then, along came Abel.

That first meeting lasted several hours, long enough to convince me of the values of the work Abel was doing and certainly worth writing an article about econometrics and his pursuit of the Mexican or developing economy model, subsequently published in "Expansion". I believe we were the first publication in Mexico to write anything about an as yet to be born model (Mexico in those days was noticeably lacking in business or economic magazines) and Abel's was the first for a developing economy. The meeting also resulted in a lasting friendship.

The Early DaysAbel was born in the city of Chihuahua in October of 1930 and subsequently received his degree in Economics from the Monterrey Technological Institute. After working in his father's auto dealerships for a few years and getting married, he received a Fulbright scholarship for his Master's Degree studies in economics from the University of Pennsylvania.

This was when he became fascinated with the econometric concept, since he was studying under Dr. Lawrence Klein, who later earned a Nobel Prize in Economics for his pioneering work in basic econometrics.

Beltran-del-Rio found the concept to be fertile ground for a derivative macroeconometric model which focused on developing economies such as Mexico. He continued at Penn for his Ph.D. work and chose Dr. Klein as his thesis advisor.

Abel Jr. passed on a story regarding his father's advisor choice: Another Ph.D. student warned Abel about asking Dr. Klein to be his thesis advisor, saying that he was "famous for always suggesting another chapter, add this, change that", etc. Nevertheless, Abel asked Dr. Klein — thanks to his increasing interest in econometrics and amazingly (given the date) the recommendation of one of his fathers friends from Chihuahua whom somehow knew about Dr. Klein's work (no internet at the time) — and he accepted.

"After a couple of years", Abel Jr. adds, "my Dad was still in the add this, change that cycle, spending numerous nights running his model on the 'punchcard' computer... until one day, Dr. Klein told him 'Abel, I just came from a meeting where the department approved a thesis that was not as complete as yours - turn in your thesis this month, it's done' – it was quite an accomplishment to hear Professor Klein say this... he never told any of his students they were done. It was rare, and a welcome surprise and relief. And a few months later my father became the first Mexican to receive a Ph.D. in Economics from Penn. In the final analysis, the Nobel laureate, in addition to becoming a lifelong friend of my father, was the greatest influence in my Dad's career in economics", said Abel Jr.

LAUNCHING CIEMEX-WEFA

Upon receiving his Ph.D. at Penn, Abel decided to make econometric model building, forecasting and consultancy his career. In the early 1970s, with the encouragement of Dr. Klein and others, he formed DIEMEX (Investigation Department for the Mexican Economy) as a founding department of the Wharton Econometric Forecasting Associates (WEFA) consulting organization started by Dr. Klein and his students.

A decade later, he decided to set up a new company with the initial investment help of a group of high-level Mexican businessmen.

The group included Eloy Vallina, Jaime Bermudez Sr., Juan Luis Prieto and Lorenzo Zambrano, to name a few. The result: the formal creation of CIEMEX (Center for Econometric Investigation in Mexico) in association with WEFA.

CIEMEX-WEFA soon became known and respected by private, public and academic sectors, and not exclusively in Mexico.

From the beginning, CIEMEX-WEFA –via conferences, meetings, articles and statistic-packed books — continued to fine tune and disseminate the original model created by Abel in 1969. Primarily, it consisted of three different models — with 5-year forecasts included — for all of the mathematical variables used in the modeling process, close to 1,000 variables all told. The trio of forecasts — baseline, optimistic and risk scenario — always considered among the variables the correlating WEFA forecasts for other major economies, primarily that of the U.S., on which the Mexican economy has traditionally been so dependent.

Abel promoted his program tirelessly, primarily selling annual memberships or subscriptions to companies and institutions in Mexico and abroad. I attended my first Macroeconomic Conference in the late 1970s, held in the city of Chihuahua. Over the years, these conferences were held in multiple cities in Mexico — from Mexicali to Monterrey to Tuxtla Gutierrez — and the U.S. Usually, one per year was held in Philadelphia, CIEMEX-WEFA's headquarters.

I was privileged to be invited by Abel to be a speaker or panelist at a number of these conferences. This was before I joined the CIEMEX-WEFA team in 1997. Econometrics suddenly became a buzzword in Mexico. Starting in the 1970s and accelerating in the 1980s, both public and private institutions, particularly banks and certain government Secretariats plus universities such as Monterrey Tech and then the Anahuac began creating their own forecasting models, using Abel's pioneering doctoral thesis and the early CIEMEX-WEFA conferences and reports as guidelines.

Abel was called on to consult in development of many of these models and many of the economists that worked under him at CIEMEX on the Mexican model or developing models for other countries went on to successful consulting careers of their own or jobs at the IMF and top Mexican companies.

THE MODEL EXPANDS

Abel then decided to expand the scope of CIEMEX activities in forecasting/ consulting. In the early 1980s, he added the Automotive Industry Macroeconomic Forecasting Service. Half a decade later, the Maquiladora Industry Service came into the picture. These new services, both successful and very similar in basic format to the Macroeconomic Service, narrowed their scope to Mexico's automotive and auto parts industries and to the burgeoning Maquiladora Industry.

Today these sectors continue to be critically important to Mexico's economic development, especially as concerns direct foreign investment, exports, employment and technology transfer and development. In all CIEMEX-WEFA conferences and in his many lectures, he always stressed opening the Mexican market, promoting foreign investment, not being overly dependent on oil export revenues and "letting market forces work".

Dr. Beltran-del-Rio was probably the first person of prominence (to the best of my knowledge) to stress that Mexico's economy needed to grow at an annual average of 7% (real GDP) in order to reach developed nation status — and that it was possible. He was a strong supporter of free trade agreements such as GATT and NAFTA.

But he was equally dismayed at the snail-like progress (where progress was made at all) in successive governments making key structural reforms in Mexico's economic, social and political environment. Frequently, at least in private conversations, he expressed his disappointment on the lack of any real forward progress on domestic structural reform issues.

 

In the decade of the l980s, the WEFA Group expanded further, acquiring both Chase Econometrics and the DRI consulting organization. But CIEMEX-WEFA continued as a separate entity, offering the same 3 basic services. All the while, the Mexican economy was undergoing a series of upheavals, leading it to be labeled "Mexico's lost decade" (except in the maquiladora sector). One result was devaluation of the peso, and Abel's success at predicting when the government was going to devalue led him to fame in the 80s. On one occasion he received a call from the central bank, as Abel Jr. recalls the events:

"During the 80s, my father had been successful in anticipating the government devaluation of the peso, and this success had put him in the public eye (he even got autograph requests!). On one occasion he and his team had determined that it was likely the government would devalue again. He was contacted by a high-ranking official of the Bank of Mexico, who assured my father the government was not going to devalue again, and asked my father not to suggest the possibility at his next conference as this would be enough to cause a panic and a •currency rush• of pesos into dollars, causing the problems they hoped to avoid. My father agreed, somewhat surprised at the request. A few weeks later, Bank of Mexico devalued again, and my father realized he had been set-up. From that day on my father became adamant about not letting his forecasts be •influenced• — to the degree that he decided never to allow the consultancy headquarters to be moved to Mexico, believing CIEMEX would remain more independent headquartered in the U.S. – the story illustrates the influence of his work in Mexico during the 70s and 80s, Banco de Mexico was worried he would start a panic as he had correctly predicted their next move".

Abel invited me to join the CIEMEX- WEFA team full time in January 1997, to head up the Maquiladora Industry Service. We followed the basic Service format, changing a few things here and there, and adding a monthly maquiladora report, published without interruption for 11 years. During the period, we held Maquiladora Econometric Forecasting meetings in 10 different cities along the Mexico-U.S. border, plus Chihuahua and Monterrey. Our working and personal relations only became better during my stay at CIEMEX in charge of the maquiladora consulting and forecasting areas.

Dr. Beltran-del-Rio spent the last 3 years of his life battling Parkinson's disease. Just prior to the onset of this horribly disabling disease, Abel worked arduously in the negotiations of the sale of what had become DRIWEFA to Boston-based Global Insight, but CIEMEX retained its identity. The same was true in 2007 when Global Insight was in turn acquired by the IHS consulting group of Englewood, Co. While the company is now IHS-Global Insight, it has continued with most of its Mexico programs.

Because of his illness, Abel was not able to participate actively in the IHS-Global Insight era. He was honored posthumously at the IHS-Global Insight Mexican Economic and Automotive Industry Outlook Conference held in Mexico City this past July 21.where commemorative plaques were received by his brother Salvador and his son Abel Jr.

Abel is survived by his wife Patricia, 3 children (Andrea, Abel Jr. and David) and 4 grandchildren. His ashes will be deposited in Majalca, where Abel and his family vacationed every summer, in the mountains of Chihuahua. Majalca was Abel's favorite vacation spot and he always looked forward to August (Majalca Time), even publishing a book of poetry about his magical place.



One final personal note: there is an old Pennsylvania Dutch saying that you can count on the fingers of your hands the number of true friends you'll make in a lifetime. Abel for me was one of those fingers.