World Bank Documents & Reports - World Bank Group

784 Pages·2001·3.75 MB·English

by  World Bank Group

PP 000i-34.rrd 4/4/01 10:59 AM Page i
Mexico
dd
ee
zz
riri
oo
hh
utut
AA
e e
rr
uu
ss
oo
clcl A Comprehensive
ss
DiDi
c c
blibli
uu Development Agenda
PP
for The New Era
dd
ee
zz
riri
oo
hh
utut
AA
e e
rr
uu
ss Edited by
oo
clcl
ss
DiDi Marcelo M. Giugale,
c c
blibli
uu Olivier Lafourcade,
PP
and Vinh H. Nguyen
dd
ee
zz
riri
oo
hh
utut
AA
e e
rr
uu
ss
oo
clcl
ss
DiDi
c c
blibli
uu
PP
dd
ee
zz
riri
oo
hh
utut
AA
e e
rr
uu
ss
oo
clcl
ss T H E W O R L D B A N K
DiDi
c c W A S H I N G T O N , D C
blibli
uu
PP
PP 000i-34.rrd 4/4/01 10:59 AM Page ii
Copyright © 2001 The International Bank for Reconstruction
and Development / THE WORLD BANK
1818 H Street, N.W.
Washington, D.C. 20433, U.S.A.
All rights reserved
Manufactured in the United States of America
First printing April 2001
1 2 3 4 03 02 01
The findings, interpretations, and conclusions expressed in this paper are entirely those of the
authors and should not be attributed in anymanner to the World Bank, to its affiliated organ-
izations, or to members of its Board of Executive Directors or the countries they represent.
The World Bank does not guarantee the accuracy of the data included in this publication and
accepts no responsibility whatsoever for any consequence of their use. The boundaries, col-
ors, denominations, and other information shown on any map in this volume do not imply
on the part of the World Bank Group any judgment on the legal status of any territory or the
endorsement or acceptance of such boundaries.
The material in this publication is copyrighted. The World Bank encourages dissemina-
tion of its work and will normally give permission to reproduce portions of the work
promptly.
Permission to photocopyitems for internal or personal use, for the internal or personal use
of specific clients, or for educational classroom use is granted by the World Bank, provided
that the appropriate fee is paid directly to the Copyright Clearance Center, Inc., 222 Rose-
wood Drive, Danvers, Massachusetts 01923, USA; telephone [phone], fax 978-750-
4470. Please contact the Copyright Clearance Center before photocopying items.
For permission to reprintindividual articles or chapters, please fax a request with com-
plete information to the Republication Department, Copyright Clearance Center, fax 978-
750-4470.
All other queries on rights and licenses should be addressed to the Office of the Publisher,
World Bank, at the address above or faxed to 202-522-2422.
The cover illustration is Aprendiz de Agorero(1969) by Carlos Mérida, reproduced courtesy
of Galería de Arte Mexicano (GAM), Mexico City and © Estate of Carlos Mérida/VAGA,
New York/SOMAAP, Mexico
ISBN 0-8213-4914-7
Library of Congress Cataloging-in-Publication Data has been applied for.
PP 000i-34.rrd 4/4/01 10:59 AM Page iii
Contents
Acknowledgments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xix
Foreword. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxiii
Acronyms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxvii
Synthesis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
I. Rationale and Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. Core Messages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidating Macroeconomic Gains . . . . . . . . . . . . . . . . . . . . . . . . . 4
Accelerating Growth through Enhanced Competitiveness. . . . . . . . . . . 8
Reducing Poverty through Human Capital Development. . . . . . . . . . 12
Balancing Growth and Poverty Reduction with Protecting
Natural Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Building an Efficient, Accountable, and Transparent
Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
III. Conclusion: Putting It All Together . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Synthesis (in Spanish) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Part I
Chapter 1. Fiscal Sustainability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
I. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
II. Government Solvency and Sustainable Debt. . . . . . . . . . . . . . . . . . . . . . 52
III. Conceptual Distinctions: Explicit and Implicit
(Real or Contingent) Fiscal Deficits. . . . . . . . . . . . . . . . . . . . . . . . . . 53
IV. Recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Fiscal Sustainability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Public Debt Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Pension Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Chapter 2. Growth and Competitiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
I. Macroeconomic Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
iii
PP 000i-34.rrd 4/4/01 10:59 AM Page iv
iv MEXICO—A COMPREHENSIVEDEVELOPMENTAGENDAFORTHENEWERA
II. The Financial Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Need for Increased Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Need for Improved Accessiblity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Need for Increased Stability and Soundness. . . . . . . . . . . . . . . . . . . . 68
III. Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Consolidating and Extending Sectoral Reforms . . . . . . . . . . . . . . . . . 71
Financing Infrastructure Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
IV. Agriculture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Table 1. GDP: Average Yearly Growth Rates by Sector. . . . . . . . . . . . . . . . . . 61
Figure 1. Foreign Direct Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Figure 2. Exports by Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Figure 3. Evolution of the Minimum Wage. . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Figure 4. Evolution of Mean Daily Earnings Per Worker,
Manufacturing Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Figure 5. Public Investment versus Oil Prices. . . . . . . . . . . . . . . . . . . . . . . . . . 65
Figure 6. Mexico: Public, Private, Total Investment as
Percent of GDP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Figure 7. Economic and Agriculture Growth Rates. . . . . . . . . . . . . . . . . . . . . . 80
Chapter 3. Poverty and Inequality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
I. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
II. Providing Security. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Evaluating Government Programs. . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Identifying Key Risks and Gaps in Coverage . . . . . . . . . . . . . . . . . . . 94
III. Building Opportunities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Health. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Education. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Urban Labor Markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Rural Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
IV. Empowering Specific Groups. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Indigenous Peoples. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Gender Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Figure 1. Broad-based and Targeted Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Figure 2. An Alternative Framework for Poverty Reduction . . . . . . . . . . . . . . . 86
Figure 3. Resources Channeled to Poverty Alleviation Programs . . . . . . . . . . . . 89
Figure 4. Government Spending for Poverty Alleviation. . . . . . . . . . . . . . . . . . 89
Table 1. Managing Social Risk in Mexico: Main Risk Indicators,
Size of At-Risk Groups, and Best Practice Policy Responses . . . . . . . . 96
Chapter 4. A Sustainable Future. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
I. Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
International and Domestic Context . . . . . . . . . . . . . . . . . . . . . . . . 117
PP 000i-34.rrd 4/4/01 10:59 AM Page v
CONTENTS v
The Legal and Institutional Response . . . . . . . . . . . . . . . . . . . . . . . 118
Some Initial Successes and Achievements: Biodiversity and
Air Pollution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
II. Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Environmental Degradation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Policies and Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Institutions and Environmental Management. . . . . . . . . . . . . . . . . . 124
III. Options for the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
Institutional Strengthening . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
More Clout to Core Functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Mainstreaming. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Table 1. Sectoral Distribution of Depletion and Degradation, 1996. . . . . . . . 122
Figure 1. Environmental Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Chapter 5. Accountability and the Demand for Quality Government. . . . . . 133
I. Rationale and Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
II. Decentralization: Assuring the Sustainability of a Process
Already in Motion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
III. Justice: Making Reforms Work. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
IV. Corruption: A Broad, Pending Agenda. . . . . . . . . . . . . . . . . . . . . . . . . 139
Part II
Fiscal Sustainability
Chapter 6. Macroeconomic Assessment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
I. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
II. Macroeconomic and Financial Vulnerability. . . . . . . . . . . . . . . . . . . . . 148
III. Fiscal Sustainability and Opportunities to Increase
Potential Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
IV. Fiscal and Monetary Policies: Their Role in
Macroeconomic Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
V. The Choice of an Exchange Rate System . . . . . . . . . . . . . . . . . . . . . . . 155
VI. Options with Regard to Monetary Policy Regime. . . . . . . . . . . . . . . . . 158
Money Anchor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
Inflation Targeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
VII. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
Figure 1. Annual Inflation (Variation: December to December) . . . . . . . . . . . 146
Figure 2. Annual Growth of Real GDP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
Figure 3. Current Account Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
Figure 4. Real Exchange Rate Indexes (1990=100). . . . . . . . . . . . . . . . . . . . . 151
Figure 5. Public Sector Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
PP 000i-34.rrd 4/4/01 10:59 AM Page vi
vi MEXICO—A COMPREHENSIVEDEVELOPMENTAGENDAFORTHENEWERA
Table 1. Indicators of Foreign Vulnerability . . . . . . . . . . . . . . . . . . . . . . . . . 148
Table 2. Foreign Debt in Regional Context. . . . . . . . . . . . . . . . . . . . . . . . . . 150
Chapter 7. Fiscal Sustainability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
I. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
Brief History of Mexican Fiscal Policy . . . . . . . . . . . . . . . . . . . . . . . 163
Fiscal Sustainability Defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
II. Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
Fiscal Policy and Business Cycles. . . . . . . . . . . . . . . . . . . . . . . . . . . 166
Deficit Reductions and Infrastructure . . . . . . . . . . . . . . . . . . . . . . . 168
Taxation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
Contingent Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
Summary of Empirical Tests of Fiscal Sustainability . . . . . . . . . . . . . 172
III. Policy Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174
Assessment of the Scope of the Problem:
Omissions and Benchmarking. . . . . . . . . . . . . . . . . . . . . . . . . . . 174
IV. Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177
Figure 1. Mexico Public Net Debt and Primary Deficit (+) as
Percent of GDP 1980–98. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
Figure 2. Mexico Overall and Primary Deficit (+) as
Percent of GDP 1980–98. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
Figure 3. Composition of Exports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Figure 4. Fiscal Revenues and Oil Dependence . . . . . . . . . . . . . . . . . . . . . . . 167
Figure 5. Primary Deficit vs. Public Investment. . . . . . . . . . . . . . . . . . . . . . . 168
Figure 6. Public Investment vs. Oil Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
Figure 7. Tax Revenue as Percent of GDP, Selected Countries 1992–98. . . . . . 170
Figure 8. Components of Tax Revenues as Percent of GDP,
Mexico 1980–98 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
Figure 9. Concentration and Growth of Subnational Debt, 1994–98:
Selected States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175
Figure 10. Gross Federal Debt as Percent of GDP:
International Benchmarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
Table 1. Estimate of the Overall Cost of the Financial Rescue,
December 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
Table 2. Contingent Liabilities Recognized by the Federal Government. . . . . 173
Table 3. Mexico Federal Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174
Chapter 8. Challenges and Prospects for Tax Reform . . . . . . . . . . . . . . . . . 179
I. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
II. Level and Structure of Taxation in Mexico . . . . . . . . . . . . . . . . . . . . . . 180
III. Current Policies and Options in Mexico’s Tax Regime. . . . . . . . . . . . . . 182
Oil Taxation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183
PP 000i-34.rrd 4/4/01 10:59 AM Page vii
CONTENTS vii
Corporate Income (Profit) Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
Personal Income Tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186
Value-Added Tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188
Excises. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190
Sub-national Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191
IV. Administration, Collection, and Enforcement. . . . . . . . . . . . . . . . . . . . 194
V. Tax Reform Implementation Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . 196
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197
Table 1. Mexico: General Government Revenues. . . . . . . . . . . . . . . . . . . . . . 180
Table 2. Effectiveness of Value-Added Tax Collection, 1997. . . . . . . . . . . . . . 188
Chapter 9. Public Debt Management Stocktaking and Challenges Ahead. . . 199
I. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199
II. Public Debt Management: Recent Experience in Mexico. . . . . . . . . . . . 201
Nonfinancial Public Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201
III. Instituto de Protección al Ahorro Bancario (IPAB) . . . . . . . . . . . . . . . . 207
IV. Fideicomiso de Apoyo para el Rescate de Autopistas
Concesionadas (FARAC). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210
V. Proyectos de Impacto Diferido en el Registro del Gasto
(PIDIREGAS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212
VI. Other (Contingent) Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213
VII. Indexation of Domestic Debt Instruments . . . . . . . . . . . . . . . . . . . . . . 213
VIII. Absorptive Capacity of the Domestic Debt Market. . . . . . . . . . . . . . . . 214
IX. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
Figure 1. Total, Domestic and External Public Debt, 1989–99. . . . . . . . . . . . 202
Figure 2. Real Exchange Rate, 1989–99. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202
Figure 3. Average Maturity, Domestic Public Debt. . . . . . . . . . . . . . . . . . . . . 205
Figure 4. Composition of Domestic Public Debt Instruments. . . . . . . . . . . . . 205
Annex 1. Mexico’s Domestic Debt: Auction Structure
(February 1998–December 2000). . . . . . . . . . . . . . . . . . . . . . . . . . 220
Annex 2. IPAB Debt Accounting Framework. . . . . . . . . . . . . . . . . . . . . . . . . 221
Chapter 10. Pension Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223
I. The Demographic Context to Pension Reform. . . . . . . . . . . . . . . . . . . 223
II. The Fiscal Context of Pension Reform. . . . . . . . . . . . . . . . . . . . . . . . . 224
The Mandatory Pension System for Private Sector Workers . . . . . . . 225
Pension System for Federal Government Employees. . . . . . . . . . . . . 226
Pension Systems for State Government Employees. . . . . . . . . . . . . . 226
Pension System for Employees of Parastatal Enterprises. . . . . . . . . . . 227
III. Status of Reforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
IV. The Future Reform Agenda. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228
Pension Systems for Private Sector Employees . . . . . . . . . . . . . . . . . 229
PP 000i-34.rrd 4/4/01 10:59 AM Page viii
viii MEXICO—A COMPREHENSIVEDEVELOPMENTAGENDAFORTHENEWERA
Pension Systems for Public Sector Employees. . . . . . . . . . . . . . . . . . 231
INFONAVIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232
Complementary Reforms in Capital Markets. . . . . . . . . . . . . . . . . . 233
V. The Social Dimension of Pension Reform: Equity,
Poverty, and Coverage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234
VI. Reform Priorities: A Suggested Plan of Action. . . . . . . . . . . . . . . . . . . . 237
Figure 1. Mexico’s Demographic Outlook, 1990–2035. . . . . . . . . . . . . . . . . . 224
Figure 2. Sector Allocation of Mexican Workers. . . . . . . . . . . . . . . . . . . . . . . 225
Figure 3. Distribution of Payroll Contributions in a
Reformed Pension System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
Growth and Competitiveness
Chapter 11. Banking Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
I. Financial Sector Objectives: Efficiency, Accessibility, and Stability . . . . . 241
II. The High Cost of Banking Crises . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242
III. Mexico’s Financial Sector Reform. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242
IV. Measures Adopted to Avert a Systemic Collapse of the
Banking System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
V. IPAB Bank Recapitalization and Resolution Programs. . . . . . . . . . . . . . 245
VI. The Regulatory Reform Program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246
Pending Regulatory Issues and Continuity of
Implemented Strategies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246
Pending Legal Reforms to Improve Incentives to the
Financial Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246
VII. Supervisory and Regulatory Arrangements . . . . . . . . . . . . . . . . . . . . . . 247
VIII. Financing to the Private Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248
IX. Globalization and the Entry of Foreign Banks. . . . . . . . . . . . . . . . . . . . 253
X. IPAB’s Liabilities and Funding Requirements . . . . . . . . . . . . . . . . . . . . 255
Annex I. Regulatory Reforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261
Figure 1. Real Return on 28-Day Cetes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
Figure 2. Stock and Flow of Commercial Bank Credit to the Private Sector. . . 249
Figure 3. Commercial Banking System: Total Deposits. . . . . . . . . . . . . . . . . . 250
Figure 4. Commercial Banks: Asset Composition. . . . . . . . . . . . . . . . . . . . . . 251
Figure 5. Commercial Banks: Sources of Interest Income . . . . . . . . . . . . . . . . 252
Figure 6. Overhead Costs as Percent of Total Assets . . . . . . . . . . . . . . . . . . . . 254
Figure 7. FOBAPROA Notes: Debt Service Commitments. . . . . . . . . . . . . . . 256
Figure 8. BPA Premium Costs Over 28-Day Cete Rates. . . . . . . . . . . . . . . . . 257
Table 1. Sources of Financing to the Private Sector. . . . . . . . . . . . . . . . . . . . . 253
Table 2. Structure of IPAB Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255
Chapter 12. Micro, Small, and Medium-Scale Enterprises. . . . . . . . . . . . . . 265
I. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265
II. Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268
PP 000i-34.rrd 4/4/01 10:59 AM Page ix
CONTENTS ix
III. Possible Areas of Work. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269
Government Programs that Provide Business
Development Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269
Microfinance and SME Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . 272
Monitoring and Evaluation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277
Figure 1. Export Status by Size, 1993–98. . . . . . . . . . . . . . . . . . . . . . . . . . . . 267
Chapter 13. Housing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279
I. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279
II. Characteristics of Supply and Demand. . . . . . . . . . . . . . . . . . . . . . . . . 279
III. Institutional and Market Structure. . . . . . . . . . . . . . . . . . . . . . . . . . . . 280
IV. Recent Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282
V. Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285
Macroeconomic Instability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285
Sector Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286
Bias toward Finished Housing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287
Poor Performance of Public and Quasi-Public Institutions . . . . . . . . 288
Poorly Designed Subsidies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291
VI. A New Housing Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292
Key Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292
VII. Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299
Figure 1. Housing Finance in Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281
Table 1. New Mortgage Originations and Outstanding Mortgage Debt. . . . . . 284
Chapter 14. Urban Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301
I. Introduction and Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301
II. The Challenges in Mexico’s Urban Development . . . . . . . . . . . . . . . . . 301
Size Specific Challenges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311
The Institutional Context. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312
III. Perspectives and Key Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314
Urban Governance and Institutional Design in Mexico. . . . . . . . . . . 314
Enhancing Local Economic Productivity and
Competitiveness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315
Cities and Poverty Reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316
Learning from Successes and Failures of Urban Management . . . . . . 317
IV. Toward an Agenda for Urban Development in Mexico . . . . . . . . . . . . . 317
Figure 1. Mexico: States Population and Crime Rates. . . . . . . . . . . . . . . . . . . 307
Table 1. Urban-Rural Population and Crimes in Mexico, 1998. . . . . . . . . . . . 302
Table 2. Mexico’s Expenditure Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . 303
Chapter 15. Rural Development and Agriculture. . . . . . . . . . . . . . . . . . . . . 319
I. Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319
PP 000i-34.rrd 4/4/01 10:59 AM Page x
x MEXICO—A COMPREHENSIVEDEVELOPMENTAGENDAFORTHENEWERA
Some Facts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321
II. Key Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323
Rural Poverty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323
An Unfriendly Incentive Framework . . . . . . . . . . . . . . . . . . . . . . . . 325
Poorly Functioning Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327
The Efficiency of Public Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . 333
The “Institutionality” of Rural Development. . . . . . . . . . . . . . . . . . 337
III. Options for the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339
Figure 1. Growth Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322
Figure 2. Age Pyramids. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332
Table 1. Real Producer Prices for Key Crops . . . . . . . . . . . . . . . . . . . . . . . . . 325
Table 2. Nominal Protection Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326
Chapter 16. Federal Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347
I. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347
II. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348
III. Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348
The Non-Tolled Federal System . . . . . . . . . . . . . . . . . . . . . . . . . . . 349
Urban Transport. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350
Institutional Setting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350
IV. Policy Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351
Rationalizing The Toll Road System . . . . . . . . . . . . . . . . . . . . . . . . 351
Ensuring the Preservation and Modernization of the
Non-Tolled Road Network. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352
Establish Institutions that Reflect the New Characteristics
of the Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353
Improve the Efficiency and Efficacy of Urban Transport. . . . . . . . . . 354
Chapter 17. Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357
I. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357
II. Current Situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358
III. Recent Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359
Energy and the Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360
IV. Energy Demand Projections and Supply Requirements. . . . . . . . . . . . . 362
Oil and Oil-Based Products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 362
Natural Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363
Electricity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364
V. Challenges Facing the Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365
VI. Policy Priorities and Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366
Meeting Investment Needs through Increased Private Sector
Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366
Deepening Reforms in the Oil and Gas Sectors . . . . . . . . . . . . . . . . 369
Deepening Reforms in the Power Sector . . . . . . . . . . . . . . . . . . . . . 373