FINANCIERS in Mexico with a touch of grey in their hair vividly remember the last time the Federal Reserve abruptly tightened monetary policy, in 1994. It helped provoke the peso crisis that nearly drove the country into bankruptcy.

The lessons of that debacle are not forgotten. Stability trumps everything. Economic growth and inflation are steady; the current-account deficit is modest; debt is low; and banks are well-capitalised. Yet like other emerging markets, Mexico is suffering from Ben Bernanke’s intention to roll back the Fed’s easy-money policy.

Although other Latin American currencies have been weaker for longer, the peso took the Fed chairman’s punch on the nose (see chart). Since early May, when speculation that the Fed was likely to rein in its bond-buying programme increased, the currency has plummeted from below 12 per dollar to over 13. In the same period the yield on Mexico’s benchmark ten-year bonds has risen from an historic low of 4.4% to 6.2%, battering the Mexican pension funds that invest in them. So far the feared mass exodus of foreign investors has not materialised. According to Banco de México, the central bank, there has been a $4.3 billion net outflow of foreign money from the stockmarket in the three months to the end of May. But the stock of foreign holdings remains historically high; several firms have raised money on the bourse in recent days. Foreign holdings of government bonds have been relatively stable. Much of the peso’s volatility has been driven by investors hedging the currency risk on their fixed-income exposure rather than dumping bonds. Craig LeVeille of the Chicago-based CME Group, where peso futures are traded, says investors with Latin American exposure may also have hedged in the Mexican peso market because it is deeper and more liquid than its peers in the region, exacerbating the currency’s slide. One reason investors may be prepared to tread water in Mexico is that economic growth, which has been weaker than forecast in the first four months of the year, is highly dependent on demand in America. If the economy north of the border accelerates that would benefit Mexico, even if it also encourages Mr Bernanke to “taper”.

The wild card, though, is whether the seven-month-old government of Enrique Peña Nieto can present a bill in September that succeeds in meaningfully reforming the energy sector, which is considered vital for boosting Mexico’s long-term growth potential. In London this month Mr Peña spoke of big proposed changes to increase the participation of private firms in the energy industry, but it was not clear how dramatically his reforms would alter the 1917 Constitution, which specifies that all natural resources belong to the state. Even such guarded comments sparked a backlash at home, suggesting Mr Peña would need to present a watered-down bill to keep the left in a three-way political pact he has forged to promote reform.

It is hard to measure the impact of such uncertainty on markets, but some senior officials think it is meaningful. “Every fund manager that I speak to who knows Mexico well speaks about energy reform,” says one. “There have been so many mixed signals about energy that people are very sceptical.” Mr Bernanke’s writ runs far, but local politics still matter.