Upload
others
View
0
Download
0
Embed Size (px)
Citation preview
Document of
The World Bank
Report No: ICR00001939
IMPLEMENTATION COMPLETION AND RESULTS REPORT
(IBRD-78140)
ON A
LOAN
IN THE AMOUNT OF US$ 1,503.8 MILLION
TO THE
UNITED MEXICAN STATES
FOR A
ECONOMIC POLICIES IN RESPONSE TO THE GLOBAL CRISIS
DEVELOPMENT POLICY LOAN
June 28, 2011
Poverty Reduction and Economic Management Department
Colombia and Mexico Country Management Unit
Latin America and the Caribbean Region
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
CURRENCY EQUIVALENTS
(Exchange Rate Effective June 27, 2011)
Currency Unit = Mexican Peso
1.00 = US$ 0.08403
US$ 1.00 = MXN 11.90
FISCAL YEAR
January 1 – December 31
ABBREVIATIONS AND ACRONYMS
AAA Analytical and Advisory Services
ALMP Active Labor Market Policies
ANFEFE Acuerdo Nacional en Favor de la Economía Familiar y el Empleo
(National Agreement in Support of Households and Employment)
BANCOMEXT Banco Nacional de Comercio Exterior (Foreign Trade Bank of
Mexico)
BANOBRAS Banco Nacional de Obras (National Bank for Public Works)
BANSEFI Banco del Ahorro Nacional y Servicios Financieros SNC (National
Bank of Savings and Financial Services SNC)
CAFTA Central America Free Trade Agreement
CAS Country Assistance Strategy
CFAA Country Financial Accountability Assessment
CFC Comisión Federal de Competencia (Federal Competition Commission)
CNBV Comisión Nacional Bancaria y de Valores (National Banking and
Securities Commission)
CONDUSEF Comisión Nacional para la Protección y Defensa de los Usuarios de
Servicios Financieros (National Commission for the Protection of
Users of Financial Services)
CONEVAL Consejo Nacional de Evaluación (National Evaluation Board)
CONSAR Comisión Nacional del Sistema de Ahorro para el Retiro (National
Commission of the Retirement Saving System)
CPAR Country Procurement Assessment Review
CPS Country Partnership Strategy
CY Calendar Year
DEC Development Economics
DECDG Development Economics, Developments Data Group
DFI'S Development Finance Institutions
DG Director General (General Director)
DPL Development Policy Loan
EFTA The European Free Trade Association
ENEU Encuesta Nacional de Empleo Urbano (National Survey of Urban
Employment)
ENIGH Encuesta Nacional de Ingresos y Gastos en los Hogares (National
Survey of Income and Expenditures in the Households)
ENOE Encuesta Nacional de Ocupación y Empleo (National Survey of
Occupation and Employment)
FAO Food and Agriculture Organization
FED Federal Reserve Bank
FLC Flexible Credit Line
FRL Fiscal Responsibility Law
FSAP Financial Sector Assessment Program
FY Fiscal Year
GATT General Agreement of Tariffs and Trade
GDP Gross Domestic Product
HIPC Heavily Indebted Poor Countries
HTS Harmonized Tariff System
IBRD International Bank of Reconstruction and Development
ICR Implementation Completion Report
IDA International Development Association
IDB Inter-American Development Bank
IDE Impuesto a los Depósitos en Efectivo (Cash Deposit Tax)
IEG Independent Evaluation Group
IETU Impuesto Empresarial a Tasa Unica (Business Flat Tax)
IFC International Finance Corporation
IMF International Monetary Fund
IMMEX Programa para la Industria Manufacturera, Maquiladora y de
Servicios de Exportación (Program for the Manufacturing Industry,
Assembly Plants and Export Services)
IMSS Instituto Mexicano del Seguro Social (Mexican Institute of Social
Security)
INEG Instituto Nacional de Estadística y Geografía (National Institute of
Statistics and Geography)
INFONAVIT Instituto Nacional de Fomento a la Vivienda de los Trabajadores
(National Institute of Promotion of Housing for Workers)
ISSSTE Instituto de Seguridad Social al Servicio de los Trabajadores del
Estado (Social Security Institute at the Service of the State Workers)
JSAN Joint Staff Assessment Note
LAC Latin America and the Caribbean
LAIA Latin America Integrated Association
LCRCE Latin America and the Caribbean Chief Economist Unit
LDP Letter of Development Policy
LFT Federal Labor Law
M&E Monitoring & Evaluation
MDGs Millennium Development Goals
MFN Most Favored Nations
MIGA Multilateral Investment Guarantee Agency
MOE Ministry of Education
MOH Ministry of Health
MOU Memorandum of Understanding
MP Mexican Pesos
MTEF Medium-Term Expenditure Framework
NAFIN Nacional Financiera
NAFTA North America Free Trade Agreement
NDP National Development Plan
NIC's Newly Industrialized Countries
NLTA Non-Lending Technical Assistance
OECD Organization for Economic Co-operation and Development
OTRI Overall Trade Restrictiveness Index
PAE Programa de Apoyo al Empleo (Employment Support Program)
PAETTSS Programa de Apoyo Emergente a los Trabajadores del Sector Servicios
(Emerging Support Program for the Workers in the Service Sector)
PAL Programa Alimentario (Food Program)
PDO Program Development Objective
PEMEX Petróleos Mexicanos (Mexican Oil Company)
PER Public Expenditure Review
PET Programa de Empleo Temporal (Temporary Employment Program)
PFE Employment Fostering Program
PHRD Japan Policy and Human Resources Development Trust Fund
PIB Producto Interno Bruto (Gross Domestic Product)
PIDIREGAS Proyecto de Infraestructura Productiva de Largo Plazo con Impacto
Diferido en el Gasto (Program of Long-Term Productive Infrastructure
with Differed Impact on the Expenditure)
PITEX Programa de Importación Temporal para Producir Artículos de
Exportación (Temporary Import Program to Produce Export Goods)
PND Plan Nacional de Desarrollo (National Development Plan)
PPE Employment Preservation Program
PREM Poverty Reduction and Economic Management
PROSEC's Programa de Promoción Sectorial (Program for Sectoral Promotion)
PSBR Public Sector Borrowing Requirements
PSIA Poverty and Social Impact Analysis
RMBS Residential Mortgage Backed Security
ROA Return on Assets
ROE Return on Equity
ROSC Report on the Observance of Standards and Codes
SAAI Sistema Aduanero Automatizado Integral (Comprehensive Automated
Customs System)
SAR Sistema de Ahorro para el Retiro (Retirement Saving System)
SAT
Servicio de Administración Tributaria (Revenue Administration
Service)
SCT Secretaría de Comunicaciones y Transportes (Ministry of
Communications and Transport)
SDR Special Drawing Rights
SE Secretaría de Economía (Ministry of Economy)
SED Sistema de Evaluación de Desempeño (Performance Evaluation
System)
SEDESOL Secretaría de Desarrollo Social (Ministry of Social Development)
SEMARNAT Secretaría de Medio Ambiente y Recursos Naturales (Ministry of
Environment and Natural Resources)
SHCP Secretaría de Hacienda y Crédito Público (Ministry of Finance and
Public Credit)
SHF Sociedad Hipotecaria Federal (Federal Mortgage Corporation)
SME Small and Medium Enterprises
SOFOL Sociedad Financiera de Objeto Limitado (Limited Purpose Financing
Society)
SOFOM Sociedad Financiera de Objeto Múltiple (Multiple Purpose Financing
Society)
STPS Secretaría del Trabajo y Previsión Social (Ministry of Labor)
TA Technical Assistance
TESOFE Tesorería de la Federación (Federal Treasury)
TIGIE Tarifa de Importación y Exportación (Import and Export Tariff)
TIIE Tasa de Interés Interbancaria de Equilibrio (Interbank rate)
TPR Trade Policy Review
TPRB Trade Policy Review Body
TTRI Trade Restrictiveness Index
UISA Unemployment Insurance and Savings Association
UNDP United Nations Development Program
USITC United States International Trade Commission
VAT Value Added Tax
WPS World Paper Study
WTO World Trade Organization
Vice President: Pamela Cox
Country Director: Gloria M. Grandolini
Acting Sector Manager: Oscar Calvo-Gonzalez
Task Team Leader: Jozef Draaisma / Esperanza Lasagabaster
ICR Team Leader: Jozef Draaisma
MEXICO
Economic Policies in Response to the Global Crisis
Development Policy Loan
Contents Data Sheet
A. Basic Information
B. Key Dates
C. Ratings Summary
D. Sector and Theme Codes
E. Bank Staff
F. Results Framework Analysis
G. Ratings of Program Performance in ISRs
H. Restructuring
1. Program Context, Development Objectives and Design ............................................ 1
2. Key Factors Affecting Implementation and Outcomes .............................................. 3 3. Assessment of Outcomes ............................................................................................ 7
4. Assessment of Risk to Development Outcome ......................................................... 16 5. Assessment of Bank and Borrower Performance ..................................................... 17 6. Lessons Learned........................................................................................................ 19
7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners........... 21 Annex 1 Bank Lending and Implementation Support/Supervision Processes.............. 23
Annex 2. Beneficiary Survey Results ........................................................................... 24 Annex 3. Stakeholder Workshop Report and Results ................................................... 25
Annex 4. Summary of Borrower's ICR and/or Comments on Draft ICR ..................... 26 Annex 5. Comments of Co-financiers and Other Partners/Stakeholders ...................... 31
Annex 6. List of Supporting Documents ...................................................................... 36 Annex 7a. Fiscal Policy and Expenditure Management ............................................... 37 Annex 7b. Financial Sector Policies ............................................................................. 44 Annex 7c. Labor Markets ............................................................................................. 51
Annex 7d. Trade Policy ................................................................................................ 59 Annex 7e. Poverty and Distributional Impacts ............................................................. 66 MAP SECTION ............................................................................................................ 73
i
A. Basic Information
Country: Mexico Program Name:
MX Economic Policies
in Response to the
Crisis DPL
Program ID: P118070 L/C/TF Number(s): IBRD-78140
ICR Date: 06/28/2011 ICR Type: Core ICR
Lending Instrument: DPL Borrower: GOVERNMENT OF
MEXICO
Original Total
Commitment: USD 1,503.8M Disbursed Amount: USD 1,503.8M
Revised Amount: USD 1,503.8M
Implementing Agencies:
SHCP
Cofinanciers and Other External Partners:
B. Key Dates
Process Date Process Original Date Revised / Actual
Date(s)
Concept Review: 09/15/2009 Effectiveness: 03/03/2009 12/18/2009
Appraisal: 10/19/2009 Restructuring(s):
Approval: 11/24/2009 Mid-term Review:
Closing: 12/31/2010 12/31/2010
C. Ratings Summary
C.1 Performance Rating by ICR
Outcomes: Satisfactory
Risk to Development Outcome: Moderate
Bank Performance: Satisfactory
Borrower Performance: Satisfactory
C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)
Bank Ratings Borrower Ratings
Quality at Entry: Satisfactory Government: Satisfactory
Quality of Supervision: Satisfactory Implementing
Agency/Agencies: Satisfactory
Overall Bank
Performance: Satisfactory
Overall Borrower
Performance: Satisfactory
ii
C.3 Quality at Entry and Implementation Performance Indicators
Implementation
Performance Indicators
QAG Assessments
(if any) Rating:
Potential Problem
Program at any time
(Yes/No):
No Quality at Entry
(QEA): None
Problem Program at any
time (Yes/No): No
Quality of
Supervision (QSA): None
DO rating before
Closing/Inactive status:
D. Sector and Theme Codes
Original Actual
Sector Code (as % of total Bank financing)
General finance sector 29 29
General industry and trade sector 14 14
General public administration sector 57 57
Theme Code (as % of total Bank financing)
Improving labor markets 10 10
International financial standards and systems 20 20
Macroeconomic management 30 30
Public expenditure, financial management and
procurement 30 30
Trade facilitation and market access 10 10
E. Bank Staff
Positions At ICR At Approval
Vice President: Pamela Cox Pamela Cox
Country Director: Gloria M. Grandolini Gloria M. Grandolini
Sector Manager: Oscar Calvo-Gonzalez Rodrigo A. Chaves
Program Team Leader: Jozef Draaisma Jozef Draaisma
ICR Team Leader: Jozef Draaisma
ICR Primary Author: Jozef Draaisma
David Michael Gould
Natasha Zamecnik
iii
F. Results Framework Analysis
Program Development Objectives (from Project Appraisal Document) To support economic policies to mitigate the impact of the global crisis and strengthen
the structural medium-term framework for sustainable economic recovery and growth.
Revised Program Development Objectives (if any, as approved by original approving
authority)
(a) PDO Indicator(s)
Indicator Baseline Value
Original Target
Values (from
approval
documents)
Formally
Revised
Target
Values
Actual Value
Achieved at
Completion or
Target Years
Indicator 1 : Public Sector Borrowing Requirements (PSBR, as percent of GDP)
Value
(quantitative or
Qualitative)
2.1 3.1 3.4
Date achieved 12/31/2008 12/31/2010 12/31/2010
Comments
(incl. %
achievement)
The target value of the PSBR for 2010 did not incorporate the changes
introduced by Congress to the budget for 2010. A methodological change to
the PSBR modified the baseline for 2008 to 1.6 percent of GDP
Indicator 2 : Programmable Expenditure (as a percent of GDP)
Value
(quantitative or
Qualitative)
18.4 18.7 19.9
Date achieved 12/31/2008 12/31/2010 12/31/2010
Comments
(incl. %
achievement)
Programmable spending increased to 19.9% in 2010, more than anticipated but
down from 20.4% in 2009. The impact of higher energy prices was
insufficiently recognized at appraisal and makes the indicator less useful for
project monitoring
Indicator 3 : Non-oil tax revenue (as a percent of GDP)
Value
(quantitative or
Qualitative)
10.0 10.3 10.0
Date achieved 12/31/2008 12/31/2010 12/31/2010
Comments
(incl. %
achievement)
Nonoil tax income increased from 9.9 percent of GDP in 2008 to 10.0 in 2010
less than 10.3 percent expected in the DPL but an increase from the 9.5
percent observed in 2009.
Indicator 4 :
Adoption in the Federal Public Administration, 31 States and the Federal
District of a harmonized budget classification system as certified by the
Council of Accounting Harmonization.
Value
(quantitative or
Qualitative)
iv
Date achieved
Comments
(incl. %
achievement)
The Government Accounting Law is being implemented according to schedule.
Federal and State governments will integrate their 2012 budget and operate
their accounting systems in line with the Governmental Accounting Manual as
of December 31, 2011
Indicator 5 : Average quality of information provided by financial intermediaries to users of
credit cards
Value
(quantitative or
Qualitative)
8.0 9.0 9.2
Date achieved 06/30/2009 12/31/2010 12/31/2010
Comments
(incl. %
achievement)
The indicator exceeded the program target.
Indicator 6 : Average quality of information provided by financial intermediaries to users of
checking accounts
Value
(quantitative or
Qualitative)
7.8 8.5 not available
Date achieved 06/30/2009 12/31/2010 12/31/2010
Comments
(incl. %
achievement)
An August 2010 regulation by CONDUSEF included new information
requirements on checking accounts that came into effect in December 2010,
delaying publishing of ratings to mid-2011.
Indicator 7 : Average quality of information provided by financial intermediaries to users of
mortgage loans
Value
(quantitative or
Qualitative)
7.7 8.5 8.4
Date achieved 06/30/2009 12/31/2010 12/31/2010
Comments
(incl. %
achievement)
The indicator missed the program target by 0.1 point.
Indicator 8 : Number of total outlets (including bank branches) that provide banking
services
Value
(quantitative or
Qualitative)
10,354 Increase by 35
percent 20,287
Date achieved 12/31/2008 12/31/2010 12/31/2010
Comments
(incl. %
achievement)
The number of outlets providing banking services increased by 95 percent, and
may reach 30,000 by the end of 2011.
Indicator 9 : Two independent evaluations on strategic program of development banks
conducted
Value
(quantitative or
Qualitative)
SHCP published
independent
evaluations of
BANOBRAS and
BANSEFI on its
v
website
Date achieved 06/30/2010
Comments
(incl. %
achievement)
SHCP conducted independent evaluations of Bansefi and Banobras. Though
both banks are targeting their intended populations, the report raised some
issues to be addressed in order to improve their impact and performance.
Indicator 10 : Publication of impact indicators of development banks in reaching target
population
Value
(quantitative or
Qualitative)
Date achieved
Comments
(incl. %
achievement)
Indicators published by SHCP indicate that between 2007 and 2010 the number
of micro enterprises and SME's reached by development banks increased 63
percent, low income rural producers 40 percent and marginalized
municipalities 34 percent.
Indicator 11 : Number of beneficiaries hired through PET
Value
(quantitative or
Qualitative)
365 thousand 650 thousand 897.1 thousand
Date achieved 12/31/2008 12/31/2010 12/31/2010
Comments
(incl. %
achievement)
The expansion of the number of beneficiaries exceeded the program target by
38 percent.
Indicator 12 : Number of work-shifts contracted through PET
Value
(quantitative or
Qualitative)
11.9 million 35.1 million 39.9 million
Date achieved 12/31/2008 12/31/2010 12/31/2010
Comments
(incl. %
achievement)
The indicator exceeded the program target by 14 percent.
Indicator 13 : Average general tariff rates for manufacturing imports
Value
(quantitative or
Qualitative)
10.4 percent 5.2 percent 5.3 percent
Date achieved 12/31/2008 12/31/2010 12/31/2010
Comments
(incl. %
achievement)
Average tariffs were slightly above the target value at the end of 2010 and
since have been reduced further according to plan.
Indicator 14 : Share of general tariff rate for manufactured imports that can be imported duty
free
Value
(quantitative or
Qualitative)
20 percent 61 percent 61 percent
Date achieved 12/31/2008 12/31/2010 12/31/2010
Comments
(incl. %
achievement)
The indicator met the program target.
vi
(b) Intermediate Outcome Indicator(s)
Indicator Baseline Value
Original Target
Values (from
approval
documents)
Formally
Revised
Target Values
Actual Value
Achieved at
Completion or
Target Years
Indicator 1 : Public Sector Borrowing Requirements (PSBR, a percent of GDP)
Value
(quantitative or
Qualitative)
2.1 2.7 2.6
Date achieved 12/31/2008 12/31/2009 12/31/2009
Comments
(incl. %
achievement)
Throughout program implementation, the fiscal program stayed on course as
indicated by the evolution of the PSBR.
G. Ratings of Program Performance in ISRs
No. Date ISR
Archived DO IP
Actual
Disbursements
(USD millions)
1 02/27/2011 Satisfactory Satisfactory 1499.99
H. Restructuring (if any)
Not Applicable
1
1. Program Context, Development Objectives and Design 1.1 Context at Appraisal
1. Despite stable economic conditions over the previous years, the Mexican
economy was severely impacted by the global economic downturn and by the April
2009 outbreak of the A(H1N1) influenza.1 It confronted the impact of a sharp aggregate
demand contraction in its major trading partners and continued strain in global financial
conditions in addition to the effects of the influenza outbreak. Annual economic growth
decelerated substantially as the economy entered into a recession towards the second half
of 2008, leading to a more limited GDP growth of 1.2 percent that year and a sharp
contraction of 6.2 percent in 2009.
2. In response to these challenges, the Mexican authorities implemented
counter-cyclical fiscal stimulus policies to mitigate the impact of the external
demand shock on the domestic economy. Fiscal discipline and strong fiscal policy
frameworks, including the establishment of stabilization funds and the acquisition of oil
price hedges, provided the authorities with some fiscal space to conduct countercyclical
policy without jeopardizing long-term sustainability. The fiscal stimulus policies adopted
include additional public investment in infrastructure incorporated in the 2009 budget as
well as employment programs, and an expansion of development banks‘ credit programs.
In addition, monetary policy started to ease in January 2009 in order to support other
efforts to reduce the downturn in economic activity.2
3. The authorities also took several actions to maintain orderly conditions on
foreign exchange and domestic financial markets in view of the unprecedented
global financial shocks. The central bank intervened in foreign exchange markets
providing foreign currency liquidity to the private sector. Bilateral and multilateral
support, through a US$30 billion currency swap arrangement with the U.S. Federal
Reserve and a US$47 billion Flexible Credit Line (FCL) with the IMF, provided for
additional precautionary sources of external funds.3
4. The strained external financial market conditions led the Government to
request for a substantially higher volume of lending from the multilateral
development banks. In response, the Bank stepped up financial assistance to $9.8
billion during fiscal year 2009-10. The ability of the Bank to prepare and approve such a
large program of operations was enhanced by the countercyclical reduction in Mexico‘s
outstanding debt to the Bank, which declined from about $9 billion in 2004 to less than
1 Mexico‘s GDP growth averaged 3.9 percent during 2004-2007 and the economy enjoyed a stable currency, inflation
of 4.0 percent in 2007, low levels of external indebtedness as a share of GDP, declining public debt ratios and a
sovereign credit rating two steps above the lowest investment grade. 2 Monetary policy has remained accommodative since the loosening cycle. 3 The FCL was renewed in March 2010 for another twelve months. In January 2011, the IMF approved the extension of
the credit line for US$72 billion for a period of two years.
2
$5 billion in 2007.4 The Government also increased its borrowing from the IDB during
the crisis, as it had previously reduced its outstanding debt with the institution.
5. The Economic Policies in Response to the Economic Crisis DPL responded to
the country’s needs. The policies supported were implemented under a difficult
economic panorama and were consistent with the financial and economic policies that
had been put in place to mitigate the effects of the Mexican economy‘s slowdown.
Despite the significant challenges posed by the global economic downturn and the
strained financial conditions, the Bank‘s view of Mexico‘s macroeconomic framework
was considered adequate for meeting the policy requirements of OP8.60.
1.2 Original Program Development Objectives (PDO) and Key Indicators
6. The Program Development Objective of the operation was to support economic
policies to mitigate the impact of the global crisis and strengthen the structural medium-
term framework for sustainable economic recovery and growth. This objective remained
unchanged and was supported by further developing the regulatory, monitoring and
financial framework for fiscal and financial sustainability, labor market efficiency and
trade integration. The key indicators for each of the policy areas of the DPL were:
Increase non oil tax revenue;
Contain the Public Sector Borrowing Requirement;
Increase the number of outlets that provide banking services and improve the
quality of information provided to consumers by financial intermediaries;
Increase the annual average of beneficiaries and work shifts hired under the
temporary employment program; and
Reduce average MFN tariffs and increase the number of tariff lines with a zero
rate import duty.
1.3 Revised PDO and Key Indicators, and Reasons/Justification
7. The program objectives remained unchanged.
1.4 Original Policy Areas Supported by the Program
8. The four policy areas supported in the DPL were:
4 IEG, The World Bank Group‘s Response to the Global Economic Crisis, p. 47.
3
Fiscal Policy and Public Expenditure Management: Implementation of
countercyclical fiscal policies during 2009 while adopting structural measures to
enhance medium-term fiscal sustainability for 2010 and beyond, including an
increase in non-oil tax revenue and improvements to public expenditure
management;
Financial Sector Policies: Improvement of the regulatory framework to foster
financial sector access, consumer protection and financial system stability;
Labor Policy: Enhancement of short-term employment support programs while
developing additional medium-term reforms for labor market efficiency and labor
productivity; and
Trade Policy: Competitiveness improvement by lowering international trade
costs via reduction of Most Favored Nations (MFN) tariffs and simplification of
the trade tariff regime and customs processes.
1.5 Revised Policy Areas
9. The Government‘s policy program remained unchanged.
1.6 Other significant changes
10. There were no other significant changes in the program.
2. Key Factors Affecting Implementation and Outcomes
2.1 Program Performance
11. Program performance was satisfactory as indicated in the following sections.
The DPL proved to be a flexible instrument that helped the Government mitigate the
effects of the crisis and implement a number of policies included in its medium-term
reform program. The program has made substantial progress in short term policy
objectives despite an initially difficult and uncertain global economic environment and,
largely achieved key outcome indicators. The short period that has elapsed between
program design and implementation makes it harder to measure and evaluate medium
term developments.
12. Program performance was favorably influenced by developments in the
global and country-specific environment since loan disbursement. Market concerns
about Mexico‘s long run fiscal position, focused on sharply falling oil production, and
limited the ability to maintain the 2009 fiscal stimulus. Fiscal sustainability concerns
were eased by the 2009 fiscal reform, and by the gradual withdrawal of the stimulus,
initiated in 2010, as the economy recovered and the output gap started to close. This was
fully consistent with the multi-year public finance strategy that was presented as part of
4
the 2010 budget. The impact on aggregate demand of this fiscal tightening was mitigated
by the stronger than projected rebound in the Mexican economy and in external demand.
A robust recovery in global economic activity boosted international commodity prices, in
particular oil, to higher levels than originally projected. As a net oil exporter the price
increase had a favorable effect on Mexico‘s public finances.
The following section provides a summary of prior actions and a brief description of
the policy measures supported by the DPL.
Policy Matrix
Prior Action Status
Policy Area 1: Fiscal Policy and Public Expenditure Management
Implementation of countercyclical fiscal stimulus measures during
the first semester of 2009 as demonstrated by (i) an increase, in
real terms, of current spending by 5.4 percent and, (ii) an increase,
in real terms, of public sector physical capital investment spending
by 27.7 percent year-on-year.
Met
Submission to Congress of an Economic Program for 2010
outlining a multiannual fiscal policy strategy including: (i) the
creation of new taxes and modification of existing taxes to enhance
non-oil revenue; and (ii) a temporary deficit and the use of non-
recurrent revenues to compensate for a provisional, cyclical
shortfall in public sector revenue.
Met
Issuance of a General Governmental Accounting Law to harmonize
accounting standards among the federal, state and municipal levels
of the executive branch of government as published in the Official
Gazette on December 31, 2008.
Met
Policy Area 2: Financial sector policies
Enhancement of consumer protection, access to finance and
market transparency by (a) amending the Law Protecting Users of
Financial Services to expand the regulatory and supervisory
capacities of CONDUSEF as published in the Official Gazette on
June 25, 2009; (b) amending Article 46 Bis 1 of the Law of Credit
Institutions to facilitate banking through agents as published in the
Official Gazette on June 25, 2009; and (c) amending fraction VI
Bis of article 104 of the Capital Markets Law requiring issuers to
provide information to the CNBV and to relevant stock exchanges
about derivative positions and possible contingencies that said
derivative positions imply for the relevant issuer‘s financial
situation as published in the Official Gazette on May 6, 2009.
Met
Enhancement of the transparency and impact of state owned
development financial institutions (DFIs) by amending the Credit
Institutions Law as published in the Official Gazette on May 6,
2009 and establishing that: a) DFIs shall publish monitoring
indicators that evaluate the services provided by the relevant
Met
5
institution (art 31), and b) SHCP shall annually carry out and
publish two evaluations (in which at least two academic
institutions need to participate) of DFIs (art 55 Bis 2).
Policy Area 3: Labor policies
Strengthening and enhancement of active labor market policies by
(a) improving the institutional setup of the Temporary Employment
Program (PET) by including the Sub-secretariat of Employment
and Labor Productivity in the technical committee that coordinates
the PET and (b) allowing the PET to be implemented in urban in
addition to rural areas.
Met
Policy Area 4: Trade policies
Reducing the Most Favored Nation tariffs on manufactured imports
and increasing the number of duty-free tariff lines in a staged
manner over a five year period, starting January 1st, 2009 in order
to enhance trade competitiveness and simplify the external trade
tariff structure by amending the Tariff Law for General taxes on
Imports and Exports as per Decree published in the Official
Gazette on December 24, 2008.
Met
2.2 Major Factors Affecting Implementation
13. The program was closely aligned to the Government’s development policy
agenda, resulting in strong country ownership. The program responded to the
Government‘s request to support specific priority programs and policies. Furthermore,
the Government‘s program, and in turn the policies supported under the DPL, were
subject to consultations with major stakeholders and legislative debate and approval,
resulting in significant involvement/buy-in from various government ministries and
sectors of the population. The intensity of the crisis helped convince the various
stakeholders of the critical importance of the reforms, and support certain fiscal, tax and
trade policies that would have been harder to adopt if not for the strong alignment of
interest generated by the challenging environment.
14. The Bank’s ongoing engagement with Mexico provided robust background
analysis on the Mexican economy, knowledge of borrower needs, and enhanced the
quality of program design. The Bank has maintained a strategy of strong programmatic
engagement that includes substantial knowledge services to support the preparation and
implementation of economic policies. Ongoing interaction with the borrower allowed for
a timely mobilization of financial assistance in recognition and support of strong and
responsible policies.
15. The Inter-American Development Bank (IDB) approved a US$ 1 billion
single tranche policy-based loan in September 2010, complementing the objectives
of the Bank’s DPL and further supporting medium-term fiscal sustainability. The
IDB‘s Program to Support the Consolidation of Fiscal Sustainability (ME-L1090)
supports Mexican policies that strengthen macroeconomic and financial stability, increase
fiscal income, reduce fiscal vulnerability and improve the quality of fiscal and financial
6
management. The exchange of views and sharing of documents enhanced the quality of
project implementation, supervision and achievement of development objectives of both
operations.
2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization
16. The design of the monitoring and evaluation framework was satisfactory. Key outcome indicators were directly aligned with individual policy actions and linked
well into the overall policy areas supported by the loan. Outcome indicators for each
policy area were readily available from Government public sources and provided a clear
metric for assessing progress toward policy objectives. These indicators are also
extensively used by the Government in assessing and communicating policy progress.
17. Monitoring of the DPL was based on continuous dialogue with Government
counterparts, which was facilitated through broad programmatic engagement on
economic policies (in the areas of fiscal, financial sector, labor and trade) between the
Bank and the borrower. Supervision missions, including an ICR mission that provided a
detailed assessment of the progress attained in each of the policy areas (see Annex 7), the
preparation of another DPL in support of economic growth enhancing policies,5 and
continued programmatic engagement, provided opportunities to meet with relevant
Government stakeholders, and discuss policy progress.
18. Though nearly all indicators reached the desired outcome, a limitation in
program design is the short time frame allowed for impact evaluation. Designed as a
single-tranche operation that fully disbursed within a month of Board approval, loan
closure was programmed a year after approval. Outcome indicators were formulated up
to the date of loan closure, only one or two years after initial policy implementation, to
allow for an assessment at the time of the ICR. A full analysis of the impact of adopted
policies will require more time and in some cases, additional detailed evaluations. Since
the DPL is part of an ongoing dialogue with the borrower and involves engagement on
the four policy areas, the Bank will have the opportunity to monitor the impact beyond
2010.
2.4 Expected Next Phase/Follow-up Operation
19. Although not a programmatic operation, the DPL is part of a broader and
ongoing multi-sector dialogue between the Bank and the Government. In January
2011 the Board approved the Strengthening the Business Environment for Enhanced
Economic Growth DPL (Report No: 58431-MX), which reflects the Bank‘s continued
support of Mexico‘s structural reform agenda. The program will seek to build on the
reform agenda of this DPL and support economic policies that strengthen Mexico‘s
business environment and the micro-economic foundations for enhanced economic
growth and employment generation. The Bank is also continuing its support of Mexico‘s
5 Strengthening the Business Environment for Enhanced Economic Growth Development Policy Loan (Report No:
58431-MX).
7
trade policy with the Mexico Customs Institutional Strengthening Project (Report No.
47396-MX), aimed at reducing trade costs, facilitating trade and improving customs
administration. Policy dialogue and technical assistance in several areas of fiscal risk
management, including fiscal stabilization mechanisms, public debt management,
pension liabilities and natural disasters may soon be enhanced by a DPL highlighting and
supporting some of the Government‘s recent innovative policies to mitigate and manage
risks in support of fiscal sustainability. A two-part study entitled "Temporary
Employment Programs: International Evidence and Mexico's Experience during the
2008-2009 crisis" is part of the current NLTA for SEDESOL, which is one of the
dependencies that runs PET in Mexico. The first part of the study, with results at the state
level, will be submitted in June 2011. The second part, which analyzes allocations at the
municipal level, will be submitted by November 2011.
3. Assessment of Outcomes
3.1 Relevance of Objectives, Design and Implementation
20. Mexico’s successful economic recovery following the global crisis was
supported by the program’s objectives. Counter-cyclical fiscal stimulus may enhance
medium-term economic growth and fiscal sustainability if implemented in a timely and
temporary fashion. The moderate size of the fiscal stimulus and the definition of a clear
exit strategy early on in the process turned out to be particularly helpful in light of the
stronger global recovery and quick V-shaped rebound of the Mexican economy. A clear
commitment to fiscal consolidation and long-term debt reduction, featured in the
balanced budget rule, allowed Mexico to avoid fiscal sustainability concerns that plagued
many other economies following the crisis.
21. In contrast with previous downturns, the sharp fall in public sector revenue
due to a slowdown in economic activity and a fall in oil revenue was not met by a
sharp reduction in overall public expenditure. The ability to implement counter-
cyclical fiscal policies, for the first time in recent history, has shown both the
effectiveness and some limitations of the Fiscal Responsibility Law (FRL). Automatic
fiscal stabilizers in Mexico are weak and high output volatility can have large costs for
individuals and for long-term economic growth. The Fiscal Responsibility Law allowed
the Government to save part of its excess oil revenue and an exceptional circumstance
clause, for instances of large adverse shocks, allowed it to run a budget deficit. The
hedging of oil revenue enhanced the ability of the Government to conduct counter-
cyclical fiscal stimulus in 2009, though a more robust counter-cyclical response could
have been implemented if larger fiscal buffers would have been available. Nevertheless,
the initial response was significant and comparable with that observed in other emerging
and industrial countries.6
6 See for example IMF Fiscal Monitor.
8
22. Lessons learned from the implementation of counter-cyclical fiscal policy
within the framework of the current FRL have strengthened the ability of the
Government to deal with future adverse shocks. For example, in an effort to address a
weakness in the FRL, the limit on the accumulation of excess revenue into the
stabilization funds has been lifted, on an annual basis, at least for 2010 and 2011.
Eventually, the limits should be lifted on a more permanent basis by modifying the FRL.
23. The DPL supported not only policies to mitigate the impact of the crisis, but
also sustained the momentum behind a number of policies with medium-term
implications (financial inclusion, trade liberalization, etc). While the latter were already
part of the Government‘s agenda, the reduced fiscal space generated by the sharp
downturn in domestic and global aggregate demand, could have delayed or derailed their
implementation had it not been for the support provided by the DPL.
24. Mexico’s longer term economic growth performance has not been as
dynamic as in other emerging market economies. Growth decomposition studies
reveal that low labor and total factor productivity are responsible for weak economic
growth. Specifically, relative weakness in education, infrastructure, financial
development, the rule of law as well as a lack of competition arising from overly
restrictive product market regulation are key factors cited in numerous studies as
explaining why Mexico has not grown as fast as other emerging markets. The financial
and trade policies supported in the DPL focus on a number of these structural constraints
to growth. The crisis provided a unique opportunity to unite the Government and other
stakeholders behind a number of growth enhancing reforms, which are often blocked by
vested interests.
3.2 Achievement of Program Development Objectives
Included below is a brief discussion of the achievement of program development
objectives in each of the four program policy areas.
Policy Area 1: Fiscal Policy and Public Expenditure Management
25. The economic recovery has been stronger than envisaged at the time of
project preparation and approval. A stronger rebound of global economic activity
boosted commodity prices, in particular oil, which had a favorable effect on public
finances and the Mexican 2010 budget outturn.
26. The DPL’s fiscal policy and public expenditure management prior action
supported the Government’s September 2009 submission to Congress of its budget
proposal. The proposal focused on managing budget execution during the global
economic crisis, as well as implementing a multiannual fiscal policy strategy. This
included a de facto fiscal stimulus in 2009 as revenue shortfalls would not be completely
offset by expenditure cuts (in contrast to prior crises) and projected fiscal deficits for
2010 and 2011. In addition, a fiscal consolidation strategy was to be achieved through
9
the enhancement of non-oil tax revenue and containment of public spending in response
to a permanent oil production reduction and a gradual exit strategy from the fiscal
stimulus.
27. As indicated in Table 1, the expected outcomes were partially met. Despite
the crisis, non-oil tax income increased from 9.9 percent of GDP in 2008 to 10.0 percent
in 2010 (less than the 10.3 percent expected in the DPL, partly due to higher than
expected growth, but an increase from the 9.5 percent observed in 2009); programmable
spending increased from 18.2 percent of GDP in 2008 to 19.9 percent in 2010 (more than
the 18.7 percent anticipated in the DPL, but down from 20.5 percent observed in 2009,
also partly explained by the strong recovery in 2010); and the public sector borrowing
requirements increased from 1.6 percent of GDP in 2008 to 3.4 percent in 2010 (slightly
more than the 3.1 percent expected in the DPL).7
28. Modifications introduced by Congress to the 2010 budget proposal at the
time of approval of the DPL as well as differences in the macroeconomic
environment from the scenario envisaged at the time of budget preparation led to
much of the difference in policy outcome indicators. However, the major trends
supported by the DPL and outlined in the government‘s multiannual fiscal policy strategy
remain on track. The originally proposed 2 percent consumption tax was substituted by a
1 percent increase in the general Value Added Tax (VAT) rate. Minor modifications
were also introduced to the proposal for the enhancement of the income tax regime, while
the excise tax on beer increase and the newly introduced excise tax on
telecommunications were adjusted downward. The modifications contributed to
moderating the increase in non-oil tax revenue as a percent of GDP from 9.5 percent in
2009 to 10.0 percent in 2010, instead of 10.8 percent under the administration‘s initial
proposal. Despite a more modest outcome, the non-oil tax revenue has continued to
increase from an average of 8.7 percent of GDP during the previous administration
(2001-2006) to 9.5 percent during the first half of the current administration (2007-2009)
and is expected to reach 10.4 percent in 2011, a historical maximum. Congress did not
adjust the total expenditure envelope and made up for the lower non-oil tax revenue by
updating the calculation of the reference budget oil price according to the FRL formula
and projecting a wider deficit. The expansion of social protection programs, in particular
Oportunidades and Seguro Popular, continued to take place as planned.
29. The program document made reference to these anticipated modifications in
the main text and an adjustment to the outcome indicator on non-oil tax revenue for
2010 to 10.3 percent of GDP. However, the higher budget deficit for 2010 was not
reflected in a similar increase of the PSBR that was included as an outcome
7 The target value of the PSBR reflected in the Program document for 2010 (September 2009) was 3.1 percent of GDP,
however, with the modifications introduced by Congress to the budget for 2010 (November 2009
www.hacienda.gob.mx/SALAPRENSA/doc_comunicados_prensa/2009/noviembre/comunicado_068_2009.pdf page 6),
the target value of the PSBR was 3.3 percent.
10
indicator/deficit measure with a target value of 3.1 percent of GDP for 2010 in line with
the original government budget proposal.
30. Table 1 provides an overview of the main indicators of public finance in
Mexico. The outcome indicators used in the DPL, are highlighted. The table provides the
final outcome for 2008-2010, including: 2008 baseline data, government projections and
actual outturn (observed) for 2009-2010, and the 2009 and 2010 outcome indicator
program values used in the DPL.
Table 1. Mexico Public Finance 2008-2010 (as percent of GDP)
2008 2009 2010
Baseline Observed
DPL
outcome
indicator
Govt.
Prog. Observed
DPL
outcome
indicator
Govt.
Prog. Observed
Total Revenues 23.5 22.4 23.7 21.9 22.5
1)Oil related 8.7 6.6 7.4 7.1 7.4
2)Non-oil related 14.8 15.8 16.3 14.7 15.1
2.1) Federal government 11.2 12.4 12.7 11.3 11.4
Tax 10.0 9.9 9.3 9.3 9.5 10.3 10.3 10.0
Non-tax 1.2 3.2 3.2 0.9 1.4
2.2)Public entities 3.7 3.3 3.7 3.5 3.8
Total Spending 23.6 24.6 26.0 24.6 25.4
Programmable 18.4 18.2 19.1 19.1 20.5 18.7 18.7 19.9
Non Programmable 5.4 5.7 5.5 6.1 5.4
Budgetary Deficit -0.1 -2.1 -2.3 -2.8 -2.8
Budget Balance w.o.
PEMEX Investment Na 0.0 -0.2 -0.7 -0.8
Public Sector Borrowing
Requirements -2.1 -1.6 -2.7 -2.7 -2.6 -3.1 -3.4 -3.4
PSBR w.o. non recurrent
revenues -2.3 -5.6 -5.3 Nd -4.1
Source: SHCP Criterios Generales de Política Económica 2010 y Estadísticas de Finanzas Públicas
31. In comparison to the target values, the Government has been quite successful
in attaining the projected increase in non-oil tax revenue in 2010 as well as the
deficit measure of the PSBR.8 The target values for programmable spending were
overshot by slightly over a full percent of GDP, which can be attributed inter alia to a
higher level of oil prices. This impact was insufficiently recognized at the time of project
preparation and makes the indicator less useful for the monitoring of the policy objective.
8 The DPL was based on the Government‘s initial budget proposal that was later modified at the time of Congressional
approval. Modifications introduced by Congress to the proposed revenue law were reflected in the DPL project
document (Report No 51219-MX, page 6, footnote 11) ―At the time of writing, the lower House of Congress had
substituted the proposed new consumption tax for an increase in the general Value Added Tax (VAT) rate. The
Revenue Act as adopted by the House requires ratification by the Senate.‖ Similarly, the outcome indicator for non-oil
tax collection for 2010 was adjusted to 10.3 percent of GDP instead of 10.8 percent under the administration‘s original
proposal.
11
32. Government projections include a further improvement in non-oil tax
revenue to 10.4 percent of GDP for 2011 and 10.5 percent for 2012. The increase is
attributed to the continued recovery of economic activity (and closure of the output gap)
and further progress in the effectiveness of tax collection as no further tax rate or base
increases have been adopted since the program supported by the DPL.9 Further efforts to
strengthen tax revenues will be needed in the medium term to reduce fiscal dependence
on oil, which has been subject to uncertainty about production levels, and to sustainably
finance plans to enhance growth, reduce poverty and ensure broader coverage of social
security and health insurance.10
33. In addition, during the 2011 budget discussions, Congress decided to
marginally increase the budget deficit that can be incurred under the FRL for 2011 (i.e. the budget balance without investment by PEMEX) from 0.3 percent to 0.5 percent
of GDP. Despite this adjustment, the Government maintains a strong commitment to the
process of fiscal consolidation, raising non-oil tax revenue and containing expenditure
growth and deficit financing. For 2012 the Government is still proposing a return to
budget balance in terms of the FRL on the assumption of a closing of the output gap.
34. The Government Accounting Law, that aims to establish a harmonized
accounting system among the three levels of government, is being implemented
according to schedule. The implementation schedule implies that the Federal
government and all State governments will integrate their 2012 budget according to the
harmonized budget classification system and operate their budgetary accounting systems
in line with the Governmental Accounting Manual in real time as of December 31, 2011.
Policy Area 2: Financial Sector Policies
35. Expected outcomes in the area of financial sector policies were exceeded. New measures to protect consumers of financial services and the expansion of
CONDUSEF‘s authority, contributed to improvements in the quality of information
provided by financial intermediaries to users. The Law Protecting and Defending Users
of Financial Services was amended in June 2009 to strengthen CONDUSEF. In 2010,
CONDUSEF issued a regulation that builds on the law, and with CNBV began yearly on-
site supervision programs. These changes improved how financial institutions provide
information on commissions, account balances, transaction receipts, and financial
contracts, and as a result boosted average CONDUSEF ratings regarding the quality of
information provision. The average ratings for financial intermediaries providing credit
cards increased from 8.0 in June 2009 to 9.2 in December 2010 (above the program target
of 9.0), and for mortgage loans from 7.7 in June 2009 to 8.4 in August 2010 (nearly the
program‘s target of 8.5). An August 2010 regulation by CONDUSEF included new
information requirements on checking accounts that came into effect in December 2010,
delaying the publishing of ratings to mid-2011 for the third outcome indicator under this
section. However, in addition to the ratings included in the DPL, CONDUSEF has
9 Except for a marginal increase of excise tax on tobacco and the introduction of an excise tax on energy drinks. 10 See OECD Economic Surveys - Mexico 2011
12
expanded the number of financial products that are subject to a systematic evaluation and
rating of quality information provision to car loans, personal loans, payroll related loans,
non-basic payroll accounts, deposit accounts with debit card, and internet banking. The
largest market institutions demonstrated the best performance.
36. Rural areas benefitted the most from the June 2009 amendment to the Law
on Credit Institutions, which facilitated the extension of financial services to
underserved markets. The legal reform allows banking institutions to contract third
parties (e.g., retail chains and retail stores) in order to provide services on behalf of the
bank. In rural areas, the number of outlets offering financial services rose nearly
threefold to 1.45 per 10,000 adults. For Mexico as a whole, by September 2010, 6,050
banking agents were operational, almost doubling the number of total outlets providing
financial services to 20,287 compared to 10,354 in 2008 (and surpassing the program
policy outcome indicator). The CNBV expects that the number could reach almost 30,000
by the end of 2011, based on the number of requests submitted by banking institutions.
37. Amendments to the Law of Credit Institutions in 2009 resulted in the
implementation of two independent evaluations of development finance institutions,
specifically Bansefi and Banobras. The Bansefi study revealed that the institution is
focused on its target population, which is the ―popular‖ savings and credit institutions
sector. However, since Bansefi provides services as a first and second tier institution,
concerns have arisen since some of Bansefi‘s potential second tier members perceive that
the bank‘s first tier services compete with their own services. This implies that Bansefi‘s
first tier services merit a reevaluation, while its social services may require an explicit
public transfer in the future.
38. Banobras’ evaluation also indicated that the institution is focused on its key
target sector (states, municipalities and infrastructure finance). Over the last few
years, it has provided credit and technical assistance to an increasing number of
municipalities, especially municipalities with limited access to finance. Banobras has
also improved its products to promote private financing in infrastructure through inter
alia its participation in syndicated lending and acting as a trustee of the National
Infrastructure Finance fund. The Banobras‘ evaluation highlighted several issues that
need to be addressed in order to improve the institution‘s performance, inter alia (i)
excessive regulation which reduces responsiveness in strategic decision-making; (ii) need
to update information systems to improve risk management; and (iii) greater interaction
with field offices and closer coordination across departments. In light of growing
pension costs, the institution also carried out an important reform of its employees'
pension plan in 2009, transforming its Defined Benefit plan into a Defined Contribution
system financed with employees' and employer's contributions.
39. As envisaged in the program supported by the DPL, the SHCP published a
variety of impact indicators regarding development bank’s ability to reach targeted
sectors. Development banks made significant progress in reaching their targeted
populations between 2007 and 2010, with the number of micro enterprises and SME‘s
13
reached increasing 63 percent, low income rural producers 40 percent and marginalized
municipalities 34 percent.
Policy Area 3: Labor Policies
40. During the second half of 2008 and the first half of 2009, the Mexican labor
market experienced a severe crisis. However, since the second half of 2009 it has
exhibited some signs of recovery. The unemployment rate has stabilized, although two
percentage points above pre-crisis levels, while informal employment rates have declined
slowly since peaking in the second half of 2009.
41. Key expected outcomes were largely met and in some cases exceeded. The
main policies adopted by the Mexican government to cope with the effects of the
international crisis were achieved. The expansion of the Temporary Employment
Program (PET) was fully implemented in both 2009 and 2010. The expansion of both
the number of beneficiaries and work-shifts through PET went beyond the target values
set at the time of project preparation. In 2009 the number of beneficiaries hired through
PET was 682.8 thousand for a total number of 34.6 million work-shifts. In 2010, the
numbers were even larger, reaching 897.1 thousand beneficiaries and nearly 40 million
work-shifts. Actual results outstrip the outcome indicators by 13.4 and 38 percent in
2009 and 2010, respectively, for number of beneficiaries; and by 18.2 and 13.7 percent
for number of work-shifts.
42. The program was not as successful in reaching urban unemployed. Existing
institutions that were responsible for the program, in particular SCT, did not have
sufficient capacity to identify and service urban beneficiaries. Preliminary evidence
seems to show that only SEDESOL was able to reach the urban unemployed. Additional
monitoring and evaluating data for the program is necessary for a more accurate picture,
but it is clear that further expansion of the PET needs to take into consideration larger
coverage and better targeting for increasing its effectiveness among the urban
unemployed.
43. The expansion of passive labor market policies during the DPL helped
maintain the standard of living of some of the unemployed during the crisis. The
coverage extension of health and maternity benefits and increase in permissible
withdrawals from retirement accounts served to shield some workers from the crisis. The
facility to withdraw funds from individual pension accounts was fully instrumented, with
the number and average amount of monthly withdrawals almost doubling pre-crisis
levels.
44. Labor Market policies in Mexico are still limited and insufficient for dealing
with the current crisis or preparing for future ones. Total unemployment withdrawals
from pension funds represented 0.14 percent of nominal GDP in 2009, compared to
passive labor market policy allocations of 0.5 to 2 percent of GDP in the EU and other
OECD countries. Nevertheless, formal sector employees receive significant
compensation when laid-off, which is not captured in unemployment benefit withdrawals.
14
The budgets of temporary employment programs, training and intermediation services
represent less than 0.3 percent of Mexican GDP whereas these active labor market
policies account for between 0.5 to 1 percent of GDP in the EU and OECD countries. In
order to have better mechanisms for dealing with the aftermath of the current crisis and,
more important, with future crises, Mexico needs to encourage a shift towards formal
sector employment and enhance the funding and design of its labor market policies.
Policy Area 4: Trade Policy
45. In contrast to other countries, Mexico did not actively use protectionist
measures as a response to the crisis. On the contrary, in December 2008 the Mexican
Government adopted an ambitious unilateral reduction of its (MFN) tariff rates for non-
agricultural products. The reduction in rates and increase in the number of duty free tariff
lines has resulted in a simpler tariff structure. Mexico‘s unilateral tariff reduction has
progressed according to schedule; as it has lowered the average general MFN tariff rate
from 10.4 percent in 2008 to 5.3 percent in 2010. The average tariff rate is currently 4.7
percent, and will be further reduced to 4.3 percent by 2013. The number of duty free
tariff lines was increased from 20 percent in 2008 to 58.7 percent in 2010, and to 61
percent currently. A further increase to 63.5 percent is scheduled for 2013. The tariff
reduction progressed as scheduled for all tariff lines, except for some steel and aluminum
products. The period to adopt duty free tariff lines for steel and aluminum products was
extended and a 3 percent tariff rate adopted to moderate the impact of liberalization.
46. Trade reform expected outcomes were achieved. The reforms supported in the
DPL rationalized the borrower‘s tariff structure, reduced distortions, and simplified
Mexico‘s trade regime. The emphasis on bilateral trade agreements had created a gap
between the average bound tariff rate at the WTO (36.1 percent), the applied average
MFN rates for imports from countries without trade agreements, and the effective
average tariff rate resulting from tariff preferences negotiated by Mexico. Because of
multiple tariff rates for the same goods depending on their country of origin, the trade
environment had become complex. The simplification of Mexico‘s trade regime should
increase transparency and deepen integration into the world economy.
47. Although it is still early to assess the effect of the tariff reduction, especially
given the economic context when the measures were adopted, preliminary data
seems to confirm some of the expected results. One of the objectives of the tariff
reduction is to lower transaction costs for importers by increasing the share of duty free
imports and reducing imports using FTA preferential access. Two years after the first
tariff reduction, the share of imports accessing the Mexican market using FTA preference
decreased from 32 to 25 percent, while the share of duty free imports increased from 40
percent in 2008 to 62 percent in 2010. The tariff reduction has resulted in direct cost
savings to importers of US $675 million in 2009, and an additional US $1,060 million in
2010.
3.3 Justification of Overall Outcome Rating
Rating: Satisfactory
15
48. The overall DPL is rated satisfactory. The operation‘s objectives, design,
implementation, and outcomes were highly relevant to Mexico‘s development priorities
and country circumstances at the time of the global financial crisis. The operation was
fully consistent with the Government‘s development policy agenda, resulting in strong
country ownership. The DPL was also fully consistent with the Bank‘s assistance
strategy in Mexico and ongoing multi-sector engagement. Despite some shortcomings in
the fiscal policy outcome indicators, partly due to higher growth than envisaged, all other
outcome indicators were reached. More importantly, progress in all policy areas trended
in accordance with program objectives.
3.4 Overarching Themes, Other Outcomes and Impacts
(a) Poverty Impacts, Gender Aspects, and Social Development
49. The DPL is likely to have had a positive impact on poverty incidence.
Poverty rates trended up between 2006 and 2008 and according to indicative sources
probably increased further as a result of the financial crisis (see Annex 7e). The
economic policies supported in the DPL, likely moderated the increase in poverty
incidence aggravated by the sharp 2009 downturn. Among the crisis impact mitigating
policies with an explicit social protection objective are a number of the fiscal and labor
policy reforms. The employment programs, in particular the PET, are considered
appropriate mechanisms for dealing with cyclical downturns in the labor market. Studies
have demonstrated that PET is a very progressive program, concentrating its resources
among the poor. Recent evidence shows that though the expansion of the PET remains
concentrated on the rural poor, in 2010 the program began to address the situation of the
urban poor and unemployed.
50. The expansion of social transfers—in terms of both the number of program
beneficiaries and amount of transfer per beneficiary—played a key role in
moderating poverty. Estimates suggest that had there been no expansion in public safety
nets, the poverty rate would have increased by up to 1.4 percent more. Econometric
simulations suggest that expanding the coverage of Oportunidades and PAL programs by
a total of 1 million households in 2010—as planned by the Government—could reduce
the poverty headcount rate by 1.7 percent, or the poverty gap by 1.4 percent, compared to
a scenario with no expansion, depending on whether the expansion targets the poorest of
the poor (chronic poor) or those closer to the poverty line (transitorily poor).
(b) Institutional Change/Strengthening
51. The Bank commissioned a Poverty and Social Impact Analysis to examine
the distributional impact of some of the policies supported by the DPL in relation to
some of the elements of both the approved 2010 Mexican tax reforms and the
originally proposed 2009 reforms.11
The main data source used was the 2008 Encuesta
11 Abramovsky, L., O. Attansio, C. Emerson and D. Phillips (2011) ―The distributional impact of reforms to direct and
indirect tax in Mexico. Analytical Report and Results‖ Background paper to the Poverty and Social Impact Analysis
―Micro-simulation of Distributional Impacts of Tax Reforms in Mexico‖ (forthcoming).
16
Nacional de Ingresos y Gastos (ENIGH). The study builds on previous efforts to assess
the distributional impact of these reforms by other researchers that have used the same
data source; and it expands upon existing work by considering a more flexible simulator
written in STATA (MEXTAX).
52. The study shows progressivity of the approved reform overall and for each of
the tax changes, when living standards are measured either by total expenditure or
income. It also shows progressivity of the proposed reform overall and for each of the
tax changes, only when living standards are measured by total expenditure. Finally, if
considering absolute incidence, both the proposed and the approved reform are
progressive, but the reduced fiscal pressure implied in the approved reform implies
savings in untaxed incomes that are mostly regressive. It should be noted, however, that
revenue changes are under‐estimated due to missing income and expenditure and the fact
that the models do not consider taxation on non‐labor income. Efforts to collect better
data are necessary to improve the distributional analysis of fiscal policies in Mexico.
53. The outcomes of the study were discussed with SHCP and presented in a
seminar with academics and other interested stakeholders. The Bank is in the
process of scheduling training sessions with the SHCP on further tax incidence analysis
with these models.
3.5 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops
Not applicable
4. Assessment of Risk to Development Outcome Rating: Moderate
54. Looking ahead, the risks facing the development outcome of the program are
moderate, though mitigated by the Government’s ongoing commitment and
ownership to the implemented reforms. A sharp weakening in the economic recovery
of the United States would pose downside risks to Mexico‘s growth due to the high
degree of integration, and could affect some program progress. Likewise, fiscal pressures
in Europe, debt sustainability concerns in other countries, or geopolitical instability could
increase global risk aversion, and lead to higher volatility in Mexico‘s financial markets.
However, the Government‘s record of sound and predictable macroeconomic
management, reflected in their successful response to the 2009 global crisis, and the
increased insurance provided by the successor IMF Flexible Credit Line mitigate some of
these tail risks. The Government‘s solid track record is a testament to their strong
commitment to prudent fiscal policies and therefore, reduces the likelihood of
backtracking. The 2011 budget reflects this commitment as it is broadly in line with the
fiscal strategy presented in the DPL, with fiscal policy guided by the balanced budget
rule and medium-term budgetary framework.
55. The financial sector policy reforms supported by this operation are part of a
broader financial sector reform agenda implemented during the last decade, and
meant to promote access to finance and increase financial stability, minimizing the
17
risks of policy reversals. Likewise, the Government‘s ownership over labor policies
included in the program decrease the risks to that policy development outcome. However,
sustaining the Government‘s commitment to the recently implemented trade policies may
prove difficult due to the strength of entrenched interest groups. As a result, continued
multilateral support to Mexico‘s open trade agenda remains an important item.
56. A deterioration in Mexico’s security situation and upcoming elections could
lead to some backtracking in program outcomes. If the security situation worsens it
could impact fiscal consolidation, investment and economic growth. The political cycle
could also have a moderate impact on Mexico‘s fiscal accounts and lead to some
backtracking in program outcomes. Experience gained with the implementation of the
FRL in a situation of extreme external shocks has strengthened the commitment of mayor
stakeholders to the main elements of the fiscal policy and risk management strategy,
therefore diminishing the risk of policy reversal.
5. Assessment of Bank and Borrower Performance
5.1 Bank Performance
(a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory
57. The flexibility of the FY08-13 CPS was instrumental in helping Mexico
adjust to the large adverse shocks experienced in 2008-2009. The CPS was originally
designed to have a flexible partnership with a focus on knowledge services and a more
limited financing relationship. However, the global economic downturn and tightening in
financial conditions combined with the outbreak of the A (H1N1) influenza in April 2009
led much of the World Bank‘s assistance to Mexico to focus on financial services.
58. Project preparation relied on an active program of knowledge services and
programmatic engagement in the institutional and policy reform areas supported by
the loan. Existing technical assistance programs, knowledge services and policy
dialogue in areas such as results informed budgeting, fiscal responsibility laws and
revenue stabilization mechanisms, tax policy and administration, banking sector
competition, access to finance, housing finance, adjustments in the financial sector
regulatory framework, labor reform policies and institutional reform to facilitate trade
were very instrumental in the identification and assessment of relevant policies and
institutional reforms implemented to mitigate the impact of the crisis and provide a basis
for renewed economic growth.
59. The Bank showed its ability to respond quickly to borrower-specific
changing circumstances. The timing of the DPL coincided with an intensification of the
financial crisis and provided the Government with external financial support at a critical
moment of strained global financial market conditions. Project preparation was carried
out at a time of significant economic uncertainty and a reformulation of the fiscal policy
18
response to the crisis. The Government‘s budget proposal, including the tax revenue
enhancing measures, was subject to a highly contentious political debate and legislative
approval process. The Bank showed a good understanding of this political process and
close communication with government officials allowed for an acceptable balance
between timing of the operation and the assurance that policy measures would be adopted
to reach the expected outcomes and objectives.
(b) Quality of Supervision
Rating: Satisfactory
60. During the implementation of the DPL, the Bank maintained close dialogue
and engagement with the Government to assess progress in policy implementation
and outcome and impact analysis. The Bank conducted a supervision mission in
April/May 2010 and an ICR mission in May 2011, meeting on both occasions with all
Government counterparts to discuss and review progress on policy implementation and
outcomes. In addition, an active dialogue and engagement between the Government and
the Bank on the design and implementation of policy actions and reforms aimed at
increasing Mexico‘s competitiveness has continued to take place. This is reflected inter
alia in the Mexico Strengthening the Business Environment for Enhanced Economic
Growth DPL that was presented to the Board in January 2011 and prepared during project
implementation with similar government counterparts and agencies.
61. Collaboration with the IDB contributed to the approval of an IDB US$ 1
billion single tranche policy based loan in September 2010 complementing and
reinforcing the objectives of the Bank’s DPL. The exchange of views and sharing of
documents enhanced the quality of project implementation, supervision and the
achievement of development objectives of both operations.
(c) Justification of Rating for Overall Bank Performance
Rating: Satisfactory
62. With the operation, the Bank managed to deliver international recognition
and support for economic policies of the Mexican government at a critical time of
policy formulation and implementation. Broad programmatic engagement allowed for
the rapid identification and assessment of highly relevant policy actions, and finding a
suitable balance between timing of the operation and policy content. Diligent processing
of loan documentation permitted a well-timed disbursement of resources in response to
borrower needs. Continued policy dialogue, knowledge services and additional policy
based lending further advanced the agenda of strengthening Mexico‘s macroeconomic
policy framework for enhanced and sustained economic growth and poverty alleviation.
5.2 Borrower Performance
(a) Government Performance Rating: Satisfactory
19
63. The Government’s ownership and commitment to the policy objectives and
the implementation and monitoring of policy action outcomes has been strong from
the outset. Political and institutional constraints as well as a more favorable economic
outlook led to minor modifications in policy implementation and outcomes, though the
main thrust of the program remained on track.
64. Coordination on the overall Government program and among the Government‘s
implementing agencies and financial agent was thoroughly carried out by the Office of
the Chief Economist and the Unit of International Affairs of SHCP.
(b) Implementing Agency or Agencies Performance Rating: Satisfactory
65. Government counterparts in SHCP, SE, STPS, CNBV, CONDUSEF and
CONSAR all showed a strong commitment to working with the Bank in project
preparation, policy agenda implementation, identification and monitoring and
evaluation of outcome indicators and policy dialogue on further growth enhancing
policies. Working with so many different agencies does not always generate such a
strong sense of common purpose that clearly transpired in the preparation and supervision
of this operation.
66. BANSEFI operated as the financial agent for the loan and actively
participated in loan negotiations, supervision and follow-up on requests for
information. BANSEFI also diligently prepared and coordinated loan disbursement
within a tight time frame and carried out the financial management of the operation.
(c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory
67. Both the Government, the Government‘s implementing agencies and financial
agent performed satisfactorily, as described above.
6. Lessons Learned
68. A lesson from the DPL, particularly in the area of counter-cyclical labor
market assistance, is that while budget support loans can provide timely and
successful financial assistance to the Government in times of a crisis, existing
constraints can limit impact. For example, while the outcomes related to increasing the
number of shifts and beneficiaries hired through the Temporary Employment Program
were achieved, the expansion of benefits to the urban unemployed was less than expected
given its large jump in the share of unemployed. A major factor behind the
disproportionate response toward rural areas compared to the urban sectors was that
existing institutions that were responsible for the program, SEDESOL and, particularly,
SCT, had less capacity to identify and service urban beneficiaries. Consequently, in
20
times of a crisis existing institutional constraints are fixed and adapting policies to
manage these constraints are paramount to program success.
69. Second, the importance of coalition building and political economy
considerations are a key component for successful reform strategies. One of the
lessons that can be drawn from this operation is that considering the interests and political
strengths of various stakeholders and groups in the reform process may help in tailoring
successful reforms and provide more realistic expectations of reform outcomes.
Although the reform progress remains gradual in Mexico, the DPL supported reforms
have been successful. For example, while the Government is pursuing a substantive
trade-related regulatory reform agenda, these efforts have faced stiff resistance from
incumbent stakeholders. Recognizing these constraints, the DPL was able to support a
reduction in average tariff rates despite some exceptions for steel and aluminum products.
70. Third, success in the components of the DPL were not achieved simply
through the policies supported by the DPL, but rather as a result of longer term
consistent implementation and progress on policies. For example, the development of
financial sector policies benefited from Bank support to the Financial Sector Assessment
Program as well as non-lending technical support on financial sector competition, access
to credit and development banks. The trade policies have been supported through
analytical work on customs and institution strengthening. Development in these areas is
a long-term process reflecting the complex nature of reform in a dynamic political
environment. As highlighted in the CPS, complex institutional issues require support
across various instruments and over an extended period of time.
71. Fourth, ongoing engagement by the Bank in DPL supported policy areas is
crucial for measurement of the longer term developmental impact. This is
particularly significant in instances when outcome indicators are not reflective of the full
impact of reform, or when methodological changes in indicator measurement postpone
data release. Despite the ease in measurement of some quantitative indicators, such as
the expansion of outlets providing financial services, the true impact of the increase will
not be evident for some time. As the Bank remains engaged on financial sector issues
and other development areas, it can help assist with the construction indicators and
monitor policy impact, such as the ongoing financial inclusion survey conducted every
three years, to provide an informed basis to adjust policies to enhance development
outcomes.
72. The final lesson drawn from the implementation experience of the DPL stems
from the request to provide financing in order to address the demands of the
economic crisis. While budget support was anticipated in the Mexico CPS, the Bank‘s
flexible and quick response to increased client demand for financial support was critically
important to the country at the time of the global economic crisis. Although the pre-crisis
CPS had envisaged an average of $800 million in annual commitments, the Bank stepped
up financial assistance to $9.8 billion during fiscal 2009-10. The ability of the Bank to
prepare and approve such a large program of operations was enhanced by the
countercyclical reduction in Mexico‘s outstanding debt to the Bank, which declined from
21
about $9 billion in 2004 to less than $5 billion in 2007, and by the Bank‘s continuous
engagement in AAA in the years before the crisis. Bank‘s financial assistance allowed
the country to conduct counter-cyclical fiscal policies by providing the Government cost
effective financing and, at the same time, permitting it to protect and expand priority
spending. While the overall development results proved satisfactory, the quick response
also involved more initial risk in terms of greater uncertainty of policy outcomes,
particularly in fiscal areas. Whereas crisis financing is not a fundamental objective of
development policy lending—which by definition focuses on long-term structural
issues—it nevertheless was effective in this case by sustaining progress in the long-term
reform agenda in the face of negative external shocks. In future operations, quick
response to short-term financing needs may, in and of itself, be considered a valuable
development policy objective as a means to protect long-term development agendas.
7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing agencies
73. Between the last quarter of 2008 and end of 2009, the global economy faced an
economic contraction unprecedented in scale and not experienced since the first decades
of the last century. The Mexican economy was severely impacted by the global
economic downturn and by the outbreak of the A(H1N1) influenza. Financial conditions
prevailing in international markets at the time led to a more intense use of financial
services by the International Financial Institutions. The Mexican Government expresses
its appreciation for the World Bank‘s flexible and timely financial support and backing of
the country‘s policies through the ―Economic Policies in Response to the Global Crisis‖
DPL.
74. The rapid recovery of the Mexican economy was facilitated by the Government‘s
ability to implement a considerable counter-cyclical fiscal stimulus through the strategic
use of public resources. The fiscal policy strategy going into 2010 confronted both the
permanent reduction in oil revenue due to the decline in oil production and the temporary
fall in non-oil tax revenue associated with the drop in economic activity. Mexico‘s fiscal
outcomes were directly in line with the 2010 program and the Government plans to return
to a balanced budget by 2012, once the output gap is expected to be closed.
75. Non-oil tax revenue has been increased to 10 percent of GDP in 2010, a historical
maximum, as part of a longer term fiscal reform effort. The fiscal reform supported
under the program, in addition to the tax and fiscal reforms implemented in 2007 are
increasing the public sector‘s non-oil tax revenue by approximately 2 percent of GDP.
76. In addition to the adopted fiscal measures supported by the DPL, the Federal
Government implemented a structural reform agenda, intended to boost the Mexican
economy‘s competiveness, promote job creation and alleviate poverty. There has been
significant progress in the reform effort, in particular relating to the rationalization of
Mexico‘s trade regime, expansion of active and passive labor policies, the promotion of
greater financial intermediation, and broadening of access to finance. These and other
22
measures are strengthening Mexico‘s structural medium term framework for sustainable
economic recovery and growth.
(b) Co-financiers
Not applicable
(c) Other partners and stakeholders
Not applicable
23
Annex 1. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members
Names Title Unit Responsibility/
Specialty
Lending
David Rosenblatt Lead Economist LCSPR
Jozef Draaisma Senior Country Economist LCSPE TTL
Esperanza Lasagabaster Senior Financial Economist LCSPF Co-TTL
Samuel Freije-Rodriguez Senior Economist LCSPP
Juan Sebastian Saez Senior Trade Economist PRMTR
Edith Cortes Angeles Research Analyst (ETC) LCSPE
Rosa Maria Hernandez Team Assistant LC1
Mariangeles Sabela Senior Counsel LEGLA
Supervision
Jozef Draaisma Senior Country Economist LCSPE TTL
Esperanza Lasagabaster Senior Financial Economist LCSPF Co-TTL
Samuel Freije-Rodriguez Senior Economist LCSPP
Juan Sebastian Saez Senior Trade Economist PRMTR
Edith Cortes Angeles Research Analyst (ETC) LCSPE
Rosa Maria Hernandez Team Assistant LC1
(b) Staff Time and Cost
Stage
Staff Time and Cost (Bank Budget Only)
No. of staff weeks USD Thousands (including
travel and consultant costs)
Lending
Total: 36.3 158
Supervision/ICR
Total: 22.7 124
24
Annex 2. Beneficiary Survey Results
(not applicable)
25
Annex 3. Stakeholder Workshop Report and Results
(not applicable)
26
Annex 4. Summary of Borrower's ICR and/or Comments on Draft ICR
Programa de políticas del Gobierno de México apoyadas por el Banco Mundial a
través del Préstamo para Políticas de Desarrollo ―Políticas Económicas en
Respuesta a la Crisis Global‖: Comentarios al Informe de Cierre y Resultados
Entre el último trimestre de 2008 y finales de 2009, la economía mundial enfrentó una
recesión económica comparable con la experimentada en las primeras décadas del siglo
pasado. En México, el impacto de esta recesión se agravó por el brote de influenza A
H1N1 que causó un deterioro significativo del sector de servicios, particularmente el
turismo.
Para mitigar los efectos de este entorno, el Gobierno de México implementó una política
fiscal contracíclica, promoviendo el uso estratégico de los recursos públicos. Con el fin
de apoyar a la economía familiar y al empleo se realizaron diversas acciones, entre las
que destacan: el Programa de Preservación del Empleo; el fortalecimiento del Programa
de Empleo Temporal y del Servicio Nacional de Empleo; así como una mayor capacidad
para disponer de los recursos en las cuentas individuales de ahorro para el retiro en caso
de desempleo. Estas políticas contracíclicas mitigaron de manera importante el impacto
negativo de la crisis en el empleo y el ingreso familiar, salvaguardando en todo momento
la estabilidad económica.
La responsabilidad en el manejo de las finanzas públicas junto con las reformas y
acciones llevadas a cabo durante la presente Administración han permitido una rápida
recuperación de la que fue la peor recesión económica y crisis financiera internacional
desde la Gran Depresión. Cabe destacar que ello se logró sin incurrir en desbalances
fiscales, externos o financieros como los que hoy en día siguen aquejando a diversas
economías alrededor del mundo. De esta forma, la fortaleza de los fundamentales de la
economía mexicana permite anticipar que el proceso actual de elevado crecimiento
continuará de forma sostenida durante los próximos años en el actual contexto de
normalización gradual en la economía global y en los principales socios comerciales de
México.
Como resultado de la responsabilidad y disciplina en la conducción de las finanzas
públicas durante los últimos años, fue posible seguir con una política fiscal contracíclica
que contribuyó a la recuperación de la economía mexicana después de los choques
externos que se experimentaron a finales de 2008 y en 2009. El estímulo contracíclico se
llevó a cabo dentro de un marco fiscal que garantiza la sostenibilidad de las finanzas
públicas en el mediano plazo, contribuyendo a niveles moderados de tasas de interés y a
la recuperación en la confianza.
En 2009, las finanzas públicas se vieron afectadas por dos factores: uno estructural,
asociado a la declinación de la plataforma de producción de petróleo de 23.1 por ciento
entre 2004 y 2009 que, junto a un precio del petróleo menor en 28.5 por ciento a lo
previsto, llevó a ingresos petroleros significativamente menores a lo estimado; y otro
27
temporal, inducido por la parte negativa del ciclo económico que repercutió en un nivel
de actividad económica menor al anticipado y con ello en menores ingresos tributarios no
petroleros e ingresos propios de las empresas públicas. El faltante en los ingresos
presupuestarios que resultó de la caída de los ingresos petroleros, tributarios y de los
propios de organismos y empresas pudo cubrirse gracias a que se contó con ingresos no
tributarios extraordinarios, entre los cuales destacan el remanente de operación del Banco
de México, la recuperación de recursos del Fondo de Estabilización de los Ingresos
Petroleros y los ingresos derivados del programa de coberturas.
En el paquete económico para 2010 se definió la estrategia para enfrentar los retos
estructurales y coyunturales que enfrentaban las finanzas públicas en ese momento.
Dentro de los primeros se identificaba la caída en la plataforma de producción de petróleo
llevando a una disminución de carácter permanente en los ingresos petroleros. Entre los
segundos destacaba la caída temporal de los ingresos no petroleros asociada a la menor
actividad económica, en el contexto de la crisis financiera internacional. La estrategia de
finanzas públicas para enfrentar la caída de ingresos públicos fue la siguiente:
Para compensar el efecto del componente transitorio de la reducción en los
ingresos, se recurriría a un déficit fiscal temporal y moderado, así como al uso de
ingresos no recurrentes y de ahorros.
Con el fin de compensar la disminución permanente de los ingresos públicos se
recurrió a modificaciones al marco tributario, aumentando la recaudación de
ingresos no petroleros mediante una reforma fiscal y una fiscalización más
eficiente.
Adicionalmente, se realizaría un esfuerzo de contención del gasto público
mediante la generación de ahorros, reducción en el gasto administrativo, de
operación y de servicios personales; y la reorientación de los recursos hacia los
programas públicos con mayor impacto social.
Para 2010, como respuesta a la severa afectación que la actividad económica y las
finanzas públicas sufrieron a raíz de la crisis financiera internacional, por primera vez
desde que la Ley Federal de Presupuesto y Responsabilidad Hacendaria (LFPRH) entró
en vigor, se hizo uso de la cláusula de excepción incorporada en dicha ley, de acuerdo
con la cual la Iniciativa de Ley de Ingresos y el Decreto de Presupuesto de Egresos de la
Federación podrían prever un déficit presupuestario, excluyendo la inversión de Pemex,
en condiciones económicas y sociales excepcionales.
La trayectoria propuesta de déficit público fue consistente con la obligación de
compensar la disminución en los ingresos no petroleros debido al menor nivel de
actividad económica. De esta forma, se daría un impulso fiscal permitiendo un balance
deficitario cuando la economía pasaba por un momento de debilidad. El balance regresará
al equilibrio cuando la economía recupere su nivel potencial.
28
En la determinación del monto del déficit se consideró que éste debe ser moderado y
temporal, de forma que sólo esté asociado a la disminución cíclica en los ingresos y no
conduzca a una situación de deuda pública insostenible. Así, se aprobó un déficit
presupuestario, sin considerar el gasto de inversión de Pemex, de 90 mil millones de
pesos durante 2010, y se estableció que se reducirá gradualmente hasta alcanzar el
equilibrio presupuestario en 2012.
En 2010 los resultados alcanzados en materia de finanzas públicas fueron plenamente
congruentes con lo aprobado por el Congreso de la Unión. Al cierre de 2010 se registró
un déficit público de 2.8 por ciento del PIB. Si se excluye la inversión de Pemex el déficit
del sector público es de 0.8 por ciento del PIB.12
Como se mencionó, con objeto de compensar la disminución permanente en los ingresos
asociada a la menor plataforma de petróleo, la estrategia de finanzas públicas contempló
medidas para incrementar los ingresos públicos no petroleros, incluyendo modificaciones
al marco tributario y mejoras en la administración tributaria para facilitar el cumplimiento
de las obligaciones de los contribuyentes y fortalecer la capacidad recaudatoria de la
autoridad.
En particular, la política de ingresos definida en el paquete económico para 2010 se
dirigió a la obtención de mayores ingresos no petroleros del sector público de manera
permanente y sobre bases sólidas. Con el fin de minimizar cualquier efecto distorsionante
de los cambios al marco tributario, se realizaron ajustes a todas las fuentes de ingresos
tributarios. Es importante destacar que derivado de estos ajustes, el nivel de los ingresos
tributarios no petroleros como proporción del PIB en 2010 fue igual a 10.0 por ciento del
PIB, el nivel más elevado desde que se tienen registros.
Se estima que en el mediano plazo, la Reforma Hacendaria de 2009, en conjunto con la
aprobada en 2007, elevará los ingresos no petroleros del sector público en alrededor de 2
puntos porcentuales del PIB, al considerar el efecto del ciclo económico. Con ello, se
genera un clima de mayor certidumbre económica, al garantizar la viabilidad y reducir la
volatilidad de los ingresos públicos, y se incrementa la certeza sobre la capacidad del
Estado de satisfacer las necesidades de la población en materia de servicios públicos
prioritarios.
En medio de la recesión económica, el Gobierno Federal anunció una agenda de reformas
estructurales a ser implementadas en el periodo 2010-2012 orientadas a incrementar el
crecimiento económico, la creación de empleos y el abatimiento de la pobreza. En ese
contexto, durante el último trimestre de 2009 y en 2010 se lograron importantes avances
12 La Ley Federal de Presupuesto y Responsabilidad Hacendaria y su reglamento establecen que para que el gasto
contribuya al equilibrio se evaluará la meta del balance público excluyendo la inversión de PEMEX y considerando un
margen transaccional del 1 por ciento del gasto neto.
29
en diversos frentes de la agenda de reformas anunciada, a la vez que se han presentado
importantes iniciativas para reformar diversos ordenamientos, las cuales se encuentran en
discusión en el Congreso de la Unión.
En este sentido cabe destacar el avance en las políticas estructurales apoyadas en el
contexto del Préstamo para Políticas de Desarrollo ―Políticas Económicas en Respuesta a
la Crisis Global‖ en adición a la política contracíclica y la Reforma Hacendaria antes
referida.
A lo largo de los últimos dos años y medio, se ha continuado avanzando en el proceso de
simplificación arancelaria para facilitar el comercio entre México y el resto del mundo.
En el futuro se prevé continuar con el programa de simplificación y reducción de barreras
arancelarias para economías con las que México no tiene tratados de libre comercio. A
través de estas medidas se busca incrementar la competitividad del aparato productivo
nacional en los mercados internacionales y promover la apertura y la competitividad
comercial con el exterior como elementos fundamentales de una economía dinámica y
progresista.
Asimismo, la política financiera instrumentada por la actual administración se ha
orientado, entre otros aspectos, a fomentar una mayor captación e intermediación del
ahorro a través del sistema financiero, a promover un acceso de la población a los
productos financieros en condiciones de transparencia y seguridad, así como a garantizar
la solidez y estabilidad del sistema financiero.
Entre las acciones más destacadas que ha realizado el Gobierno Federal para impulsar la
eficiencia y el desarrollo incluyente del Sistema Financiero Mexicano se encuentran las
nuevas regulaciones para Corresponsales Bancarios, la regulación de servicios
financieros móviles, la apertura de cuentas simplificadas, la Banca de Nicho, los micro-
créditos y las micro-sucursales.
Los Corresponsales Bancarios o comisionistas son una figura que permite incrementar el
acceso a los servicios financieros básicos para la población en general y, en especial, para
los sectores de menores ingresos. Al cierre de septiembre de 2010, 11 instituciones
bancarias establecieron contratos de corresponsalía con 660 comercios, sumando 6050
puntos de acceso a la oferta de servicios financieros en el país. Asimismo, cabe destacar
el impacto de los corresponsales potenciales, algunos de los cuales ya están en proceso de
autorización. Incluyendo el potencial que presenta las utilización de las redes del Estado
(Servicio Postal Mexicano, Distribuidora Conasupo, las gasolineras y
Telecomunicaciones de México-Telégrafos se podría alcanzar una cobertura del 89% de
los municipios.
La estrategia de financiamiento externo está diseñada para aportar mayor flexibilidad en
el financiamiento de las necesidades del Gobierno Federal. Por ello, tanto la deuda
externa de mercado como la deuda con Organismos Financieros Internacionales son
consideradas como un elemento estratégico en el manejo de la deuda pública y sirven
como una valiosa fuente de financiamiento complementaria a las fuentes internas. Las
30
condiciones de financiamiento prevaleciente en los mercados internacionales durante la
crisis financiera global condujeron a un uso más intenso de productos de financiamiento
del Banco Mundial y del Banco Interamericano de Desarrollo, aprovechando los términos
y condiciones favorables de sus créditos. En este sentido, el Gobierno de México expresa
su apreciación por la gestión ágil y oportuna del apoyo financiero, del diálogo sobre las
reformas políticas e institucionales de largo plazo y del reconocimiento a sus acciones de
política que otorgó el Banco Mundial a través del préstamo de la referencia.
31
Translation of the Mexican Government’s Comments:
The Mexican Government’s Economic Program supported by the World Bank’s
―Economic Policies in Response to the Global Crisis‖ Development Policy Loan
(DPL); comments by the Ministry of Finance and Public Credit on the DPL’s
Implementation Completion Report Document.
Between the last quarter of 2008 and end of 2009, the global economy faced an economic
contraction unprecedented in scale and not experienced since the first decades of the last
century. In Mexico, the impact of the recession was exacerbated by the outbreak of the
A(H1N1) influenza, which led to a marked deterioration of the service sector, in
particular related to tourism.
To mitigate the impact of these challenges, the Mexican authorities implemented a
considerable counter-cyclical fiscal stimulus through the strategic use of public resources.
In order to support the domestic labor market and economy, the Government adopted a
number of policy actions, including: the launch of the Employment Preservation
Program; the strengthening of the Temporary Employment Program; and, the expansion
of withdrawals from retirement accounts for unemployed workers. These countercyclical
policies contributed to moderating the negative impact of the crisis on labor and income,
and served to safeguard domestic economic stability.
Fiscal responsibility in the years prior to the global crisis, in conjunction with the policies
and reforms implemented during the current administration facilitated Mexico‘s rapid
recovery from the worst economic recession and international financial crisis experienced
since the Great Depression. Furthermore, Mexico‘s economic rebound was achieved
without incurring external and/or fiscal imbalances, which continue to plague many other
economies following the crisis. Mexico‘s strong economic fundamentals should support
above average levels of growth over the next two years as the country‘s main trading
partners stabilize and the global economy recovers.
A commitment to fiscal consolidation over previous years and a saving of part of its
excess oil revenue, allowed for the implementation of counter-cyclical fiscal policies that
contributed to the recovery of the Mexican economy following the shocks experienced at
the end of 2008 and 2009. The fiscal stimulus was implemented within the limitations of
the FRL, which guaranteed the sustainability of medium term fiscal policies, and
contributed to moderating of interest rates and the recovery of investor confidence.
In 2009, Mexico‘s public finances were affected by two factors: one structural and
associated with a 23.1 percent decline in oil production between 2004 and 2009 that, with
a 28.5 percent fall in the price of oil in 2009, led to a significant reduction in oil revenues,
and another temporary, resulting from the drop in economic activity and associated
decrease in non-oil tax revenue and state owned enterprise income. The deficit resulting
from the fall in oil and non-oil tax revenue was covered through the use of non-recurring
revenue, such as profits from the Central Bank, receipts from an oil price hedge and
withdrawals from the Government‘s oil revenue stabilization fund.
32
The 2010 economic program defined a strategy to confront the structural problems facing
the country‘s public finances. One of the most pressing issues identified resulted from
the permanent reduction in oil revenue related to the decline in oil production. The
program also addressed the temporary fall in non-oil tax revenue associated with the drop
in economic activity, within the context of the global financial crisis. The economic
program proposed the following policies to manage the decline in public revenue:
Assumption of a higher level of public debt by resorting to a temporary, moderate
fiscal deficit linked to the economic cycle. This would be complemented by non-
recurrent revenue and the use of savings.
An increase in the permanent collection of non-oil revenue through modifications
to the tax regime and more efficient tax enforcement.
In addition, there would be an attempt to contain programmable spending through
the generation of savings, streamlining of the public administration and a
reduction in operational and payroll expenditures, and a reorientation of resources
towards programs that are better aligned to national development priorities.
In 2010, in response to the sharp deceleration in economic activity and fall in public
sector revenue, the Government used the exceptional circumstance clause of the Fiscal
Responsibility Law, which for instances of large adverse shocks, allowed it to run a
budget deficit, excluding investment by PEMEX.
The proposed fiscal deficit was consistent with the need to compensate for the decrease in
non-oil tax revenue due to the fall in economic activity, and to provide a stimulus during
a period of economic weakness. The Government would return to a balanced budget
once the output gap was closed.
When determining the size of the deficit, it was considered that it should be temporary,
moderate, and associated with the cyclical decline in revenue and therefore not lead to a
situation of unsustainable public debt. A budget deficit was approved, without including
PEMEX investments, of 90 million pesos for 2010, which is to be gradually reduced until
reaching a balanced budget by 2012.
In 2010, Mexico‘s fiscal outcomes were directly in line with the program approved by
Congress. The public deficit reached 2.8 percent of GDP in 2010. If investments by
PEMEX are omitted, the deficit falls to .8 percent of GDP.
As mentioned, in an effort to compensate for the permanent reduction in revenue
associated with the lower oil production platform, the fiscal reform aimed to implement
policies to increase the non-oil tax intake, by improving the efficiency, transparency and
accountability of the tax regime, in order to broaden the tax base and strengthen the
authority‘s tax collection capabilities.
33
In particular, the public revenue enhancing measures in the 2010 economic program
aimed at permanently and efficiently increasing non-oil tax revenue. In an effort to
minimize distortions to the tax regime, adjustments were made to all tax revenue sources.
As a result of these adjustments, the level of non-oil tax revenue rose to 10 percent of
GDP in 2010, a historical maximum.
Over the medium term, the 2009 fiscal reform, in addition to the tax and fiscal reforms
implemented in 2007 will increase the public sector‘s non-oil tax revenue by
approximately 2 percent of GDP. This will create a more stable economic environment,
guarantee fiscal sustainability, reduce public revenue volatility, and improve the
Government‘s ability to meet the needs of the population.
In the middle of the economic downturn, the Federal government announced a structural
reform agenda to be implemented between 2010-2012, in order to boost the Mexican
economy‘s competiveness, promote job creation and alleviate poverty. Since the last
trimester of 2009 there has been significant progress in the reform process, while a
number of initiatives have been presented to reform diverse laws and regulations, which
are in discussion in Congress.
In this context, it is important to note the progress made in the structural reforms
supported by the DPL ―Economic Policies in Response to the Global Crisis‖ in addition
to the counter cyclical fiscal policy implemented and the tax reform previously discussed.
During the last two and a half years, there has been ongoing progress in the
rationalization of Mexico‘s tariff regime in an effort to expand trade between Mexico and
the rest of the world. The program of tariff simplification and reduction for countries
without free trade agreements with Mexico will continue until 2013. A rationalization of
Mexico‘s trade regime should encourage trade and enhance competitiveness in
international markets, while supporting a progressive and dynamic economy.
Within the simplification of the trade regime, 795 final goods tariff lines were modified,
generating a 10 percent reduction in the average MFN tariff rate between 2008 and 2010.
In addition, 7,585 intermediate goods tariff lines were modified, generating a 7 percent
reduction in the average MFN tariff rate over the same period.
The unilateral reduction of tariffs and elimination of commercial duties will continue
with the simplification of the trade regime over the next few years. As a result, by 2013
the MFN tariff for final goods will be reduced by an additional 7 percent, while the MFN
tariff for intermediated goods will experience an additional one percent reduction.
Likewise, the financial sector policies implemented by the current Administration have
sought to guarantee financial system stability, promote greater financial intermediation,
expand access to finance and improve measures to protect consumers of financial
services by enhancing the quality of information provided by financial intermediaries to
users.
34
Amongst the most noted measures implemented by the Federal government to promote
the efficient development of the Mexican financial system include new regulations for:
correspondent banks, mobile financial services, the opening of simplified accounts, niche
banks, micro-credits and micro-branches.
An amendment to the Law on Credit Institutions facilitated the extension of financial
services to the population, and in particular to underserved markets. By the end of
September 2010, 11 banking institutions had established correspondent relationships with
600 businesses, adding 6050 financial service access points in the country. Furthermore,
it is important to note the impact of potential correspondent banks, some of which are
already in the process of being authorized. Including the potential use of the public
service chains (Mexican Postal Service, Conasupo distribution network, gasoline stations
and Telecommunications of Mexico – Telegraph) coverage could expand to 89 percent of
Mexico‘s municipalities.
External financing alternatives are designed to provide greater flexibility to the financial
needs of the Government. As a result, both external private debt as well as debt incurred
through International Financial Institutions (IFI) are considered a strategic element in the
management of Mexico‘s public debt profile and serve as a useful means to complement
domestic financing channels. The financial conditions prevailing in international markets
during the global financial crisis led to a more intense use of financial services by the
World Bank and Inter American Development Bank, making use of the IFI‘s favorable
loan terms and conditions. The Mexican government expresses its appreciation for the
World Bank‘s flexible and timely financial support of the country‘s political and
institutional reforms and backing of the country‘s policies throughout the period of the
loan in question.
35
Annex 5. Comments of Co-financiers and Other Partners/Stakeholders
(not applicable)
36
Annex 6. List of Supporting Documents
SHCP, Criterios Generales de Politica Economica 2010,
http://www.shcp.gob.mx/POLITICAFINANCIERA/FINANZASPUBLICAS/finanzas_pu
blicas_criterios/cgpe_2010.pdf
SHCP, Criterios Generales de Politica Economica 2011,
http://www.shcp.gob.mx/POLITICAFINANCIERA/FINANZASPUBLICAS/finanzas_pu
blicas_criterios/cgpe_2011.pdf
SHCP, Documento relativo al cumplimiento de las dispociones contenidas en el artículo
42, fracción I de la Ley Federal de Presupuesto y Responsabilidad Hacendaria, 2010
http://www.shcp.gob.mx/POLITICAFINANCIERA/FINANZASPUBLICAS/info_relativ
a_2/Precriterios_2010_300310_VF2.pdf
SHCP, Documento relativo al cumplimiento de las dispociones contenidas en el artículo
42, fracción I de la Ley Federal de Presupuesto y Responsabilidad Hacendaria, 2011
http://www.shcp.gob.mx/POLITICAFINANCIERA/FINANZASPUBLICAS/info_relativ
a_2/doc_art_%2042_LFPRH.pdf
SHCP, Informes Sobre la Situación Económica, las Finanzas Públicas y la Deuda Pública,
cuarto trimestre de 2009
http://www.shcp.gob.mx/POLITICAFINANCIERA/FINANZASPUBLICAS/ITSSEFPD
P/2009/Cuarto%20Trimestre%20de%202009/Informe%20Cuarto%20Trimestre%20de%
202009.pdf
SHCP, Informes Sobre la Situación Económica, las Finanzas Públicas y la Deuda Pública,
cuarto trimestre de 2010
http://www.shcp.gob.mx/POLITICAFINANCIERA/FINANZASPUBLICAS/ITSSEFPD
P/2010/Cuarto%20Trimestre%20de%202010/Informe%204o.%20Trimestre%20de%202
010.pdf
37
Annex 7a. Fiscal Policy and Expenditure Management
Macroeconomic context
1. The Mexican economy bottomed in mid-2009 after a brief but deep recession
following the global financial crisis and economic downturn, and the outbreak of
A(H1N1) influenza. The collapse of external demand, particularly in durable consumer
goods, in the last quarter of 2008 and the first half of 2009 led to an almost immediate
and severe downturn in the manufacturing industry and economic activity. The ensuing
loss of employment and income generation opportunities as well as the higher level of
uncertainty and risk created by the global financial and economic crisis contributed to a
fall in private consumption and investment, which was intensified by the influenza
outbreak.
2. A subsequent rebound in external demand as of the second half of 2009 gave
rise to an economic recovery, even though private consumption and investment
trailed behind. Figure 1 provides a graphical presentation of the levels of economic
activity and main components of aggregate demand, showing that by the end of 2010,
GDP had recovered its pre-crisis level. Private consumption and investment are still
below pre-crisis levels, while exports have rebounded, and public expenditure never
dropped.
3. The economic recovery was stronger than envisaged at the time of project
preparation and approval. The recovery in the second half of 2009 moderated the
contraction of GDP for the year to 6.2 percent compared to an expected downturn of 6.8
percent, whereas growth in 2010 reached 5.4 percent of GDP, versus a projected 3
percent expansion (see Table 1). Going forward economic growth is expected to
70
75
80
85
90
95
100
105
110
115
120
20
08
:II
20
08
:III
20
08
:IV
20
09
:I
20
09
:II
20
09
:III
20
09
:IV
20
10
:I
20
10
:II
20
10
:III
20
10
:IV
Figure 1 - Mexico: GDP and Aggregate demand (s.a., Q2 2008=100)
GDP Private Investment
Private Consumption Public Expenditure
Exports
38
moderate to approximately 4.5 percent in 2011, and according to Government projections
4.2 percent for 2012.
Table 1
2008 2009 2010
Observed Government
Program Observed
Government
Program Observed
GDP growth rate 1.2 -6.8 -6.2 3.0 5.4
Oil price (US$ per
barrel) 84.4 51.0 57.4 59.0 72.3
Exchange rate
(average,
MXN/US$) 11.1 13.6 13.5 13.8 12.6 Source: SHCP Criterios Generales de Politica Economica 2010
4. A stronger rebound of global economic activity boosted commodity prices, in
particular oil. Even though the reduction in the volume of oil production moderates the
impact of oil prices on public finance, as a net oil exporter an increase in the international
oil price has a favorable effect on public finances. Oil prices increased during the second
half of 2009 and were significantly higher than projected for the remainder of 2009 and
for 2010.
5. Similarly, a normalization of global financial markets contributed to a
nominal appreciation of the peso versus the U.S. dollar leading to a significant
difference in the exchange rate used for the budget preparation compared to the final
outcome. As a net recipient of foreign exchange, this had a (modest) negative impact on
the public sector balance.
Fiscal Policy
6. The Mexican government conducted a counter-cyclical fiscal stimulus to
withstand the sharp contraction in private aggregate demand. Contrary to previous
cyclical downturns, the sharp downturn in economic activity, associated fall in public
sector revenue and in particular oil revenue, was not met by a sharp reduction in overall
public expenditure. The 2009 fiscal stimulus was financed with non-recurrent revenue
from savings accumulated in the oil stabilization fund, an oil price hedge and the transfer
of profits from the central bank.
7. For the 2010 budget, the Government divided the projected revenue shortfall
into a transitory part attributed to a level of economic activity below potential
output and a more permanent component due to a reduction in the volume of oil
production. The Government strategy allowed for partial deficit financing of the
transitory share of the 2010 and 2011 revenue shortfall and committed to a return to
budget balance by 2012 under the Fiscal Responsibility Law. The permanent part of the
revenue shortfall was to be covered by tax revenue enhancing measures and containment
of expenditure growth.
39
8. Fiscal policies supported by the DPL included budget implementation during
the first semester of 2009, which implied a de facto fiscal stimulus as revenue
shortfalls did not prompt expenditure cuts, and a multiannual fiscal policy strategy outlined in the September 2009 submission to Congress of the Government‘s 2010
budget proposal. Modifications introduced by Congress to the 2010 budget proposal as
well as differences in the macroeconomic environment from the scenario envisaged at the
time of budget preparation led to some variation in policy outcome indicators, though the
main trends outlined in the Government‘s multiannual fiscal policy strategy are being
attained.
9. Fiscal policy outcome indicators supported by the DPL include: public sector
borrowing requirements (PSBR), programmable expenditure and non-oil tax
revenue, all as a percentage of GDP with a 2008 baseline and 2009 and 2010 program
target values. Though the indicators identify critical aspects of the public sector budget
in Mexico, in the subsequent discussion these indicators will be placed in the context of
the broader budget outcome to give a clearer picture of the evolution of revenue,
expenditure, deficit and their interrelations.
10. The fiscal policy area of the DPL was based on the Government’s fiscal
policy strategy. Modifications introduced by Congress to the 2010 budget proposal were
partly reflected in the program document, dated October 22, 2009. These modifications
affected the proposed revenue law, passed by the lower house of Congress on October 20,
2009 and, subsequently ratified by the Senate. A proposed 2 percent consumption tax
was substituted by a one percent increase in the general Value Added Tax (VAT) rate.
Minor modifications were also introduced to the proposal for the enhancement of the
income tax regime, the increase of the excise tax on beer and the newly introduced excise
tax on telecommunications. While in the DPL and under the original government
program non-oil taxes collected were projected to increase from 9.3 percent of GDP in
2009 to 10.3 percent in 2010, the actual outcomes were 9.5 in 2009 and 10 percent in
2010. Though an improvement, the increase in the non-oil tax revenue for 2010 was
significantly less than the 10.8 submitted under the administration‘s original proposal.
11. Congress did not adjust the total expenditure envelope and made up for the
lower non-oil tax revenue by assuming a higher budget reference oil price and a
wider deficit. The reference price for the Mexican mix of oil exports was raised from
US$53.9 to US$59.0. This price adjustment took place within the framework of the oil
reference price formula as established in the Fiscal Responsibility Law, taking into
account a month-and-a-half of additional price data available between budget proposal
and adoption by Congress. The adjustment in the deficit implied an increase in the
budget deficit in terms of the budget balance rule of the FRL from a temporary deficit of
0.47 percent of GDP to 0.70 percent.
40
12. The program document made reference to these modifications through a footnote
in the main text13
and an adjustment to the outcome indicator on non-oil tax revenue for
2010 to 10.3 percent of GDP. However, the higher budget deficit for 2010 was not
reflected in a similar increase of the PSBR that was included as an outcome
indicator/deficit measure with a target value of 3.1 percent of GDP for 2010 in line with
the original government budget proposal, the outturn, however, was 3.4 percent.
Fiscal policy outcomes for 2009 and 2010
13. Fiscal policies supported under the DPL included a countercyclical fiscal
stimulus implemented as of early 2009 and a multiannual fiscal policy strategy
implemented as of the 2010 budget. The latter included a fiscal consolidation strategy
of enhancing non-oil tax revenue and containing public spending in response due to the
permanent reduction in oil production volume as well as a gradual exit strategy from the
fiscal stimulus.
Table 2. Mexico Public Finance 2008-2010 (as percent of GDP)
2008 2009 2010
Baseline Observed
DPL
outcome
indicator
Govt.
Prog. Observed
DPL
outcome
indicator
Govt.
Prog. Observed
Total Revenues 23.5 22.4 23.7 21.9 22.5
1)Oil related 8.7 6.6 7.4 7.1 7.4
2)Non-oil related 14.8 15.8 16.3 14.7 15.1
2.1) Federal Government 11.2 12.4 12.7 11.3 11.4
Tax 10.0 9.9 9.3 9.3 9.5 10.3 10.3 10.0
Non-tax 1.2 3.2 3.2 0.9 1.4
2.2)Public entities 3.7 3.3 3.7 3.5 3.8
Total Spending 23.6 24.6 26.0 24.6 25.4
Programmable 18.4 18.2 19.1 19.1 20.5 18.7 18.7 19.9
Non Programmable 5.4 5.7 5.5 6.1 5.4
Budgetary Deficit -0.1 -2.1 -2.3 -2.8 -2.8
Budget Balance w.o.
PEMEX Investment Na 0.0 -0.2 -0.7 -0.8
Public Sector Borrowing
Requirements -2.1 -1.6 -2.7 -2.7 -2.6 -3.1 -3.4 -3.4
PSBR w.o. non recurrent
revenues -2.3 -5.6 -5.3 Nd -4.1
Source: SHCP Criterios Generales de Politica Economica 2010 y Estadisticas de Finanzas Públicas
14. As mentioned, the outcome indicators utilized in the fiscal policy area include
the public sector borrowing requirement (PSBR), programmable expenditure and
non-oil tax revenue, all as a percentage of GDP with a baseline for 2008 and
program target values for 2009 and 2010. The numerical values for the indicators
13 Report No 51219-MX, page 6 footnote 11 ―At the time of writing, the lower House of Congress had substituted the
proposed new consumption tax for an increase in the general Value Added Tax (VAT) rate. The Revenue Act as adopted by the House requires ratification by the Senate.‖
41
were obtained from the Government program presented in the Criterios General de
Politica Economica that accompanied the government‘s budget proposal sent to Congress
in September 2009.
15. Table 2 provides an overview of the main indicators of public finance in
Mexico. The outcome indicators used in the DPL, are highlighted. The table provides the
final outcome for 2008-2010, including: 2008 baseline data, government projections and
actual outturn (observed) for 2009-2010, and the 2009 and 2010 outcome indicator
program values used in the DPL.
16. In comparison to the target values, the government has been moderately
successful in attaining the projected increase in non-oil tax revenue in 2010 as well
as the deficit measure of the PSBR.14
The target values for programmable spending
were overshot by slightly over a full percent of GDP, which can be attributed inter alia to
a higher level of oil prices. This impact was insufficiently recognized at the time of
project preparation and makes the indicator less useful for the monitoring of the policy
objective.
17. The evolution of the bottom-line PSBR, and even more so the PSBR without
non-recurrent revenue provides for an indication of the stimulus generated from the
public sector on aggregate demand and economic activity. In this respect, a sizeable
stimulus was generated in 2009 as the PSBR significantly increased. However, deficit
financing was contained through the use of non-recurrent revenue. For 2010, the size of
the PSBR was limited by the lack of non-recurrent sources of finance.
Fiscal policy program for 2011 and 2012
18. Looking forward, the Government maintains a strong commitment to the
process of fiscal consolidation, raising non-oil tax revenue and containing
expenditure growth and deficit financing. Government projections for the main public
finance variable were updated in March 2011 in a document provided to Congress to lay
out the framework for the 2012 budget preparation (Table 3).
19. Compared to the original government proposal, Congress decided to increase
for 2011 the budget deficit that can be incurred under the fiscal responsibility law
(i.e. the budget balance without investment by PEMEX) from 0.3 percent to 0.5 percent
of GDP. For 2012 the Government is still proposing a return to budget balance in terms
of the fiscal responsibility law on the assumption of a closing of the output gap.
14 The target value of the PSBR reflected in the Program document for 2010 (September 2009) was 3.1 percent of GDP,
however, with the modifications introduced by Congress to the budget for 2010 (November 2009
www.hacienda.gob.mx/SALAPRENSA/doc_comunicados_prensa/2009/noviembre/comunicado_068_2009.pdf page 6), the target value of the PSBR was 3.3 percent.
42
Table 3. Mexico Public Finance Program 2011-2012
2011 2012
Government
Program
Government
Program
Total Revenues 21.5 21.6
1)Oil related 7.1 7.1
2)Non-oil related 14.4 14.4
2.1) Federal government 11.0 10.9
Tax 10.4 10.5
Non-tax 0.6 0.4
2.2)Public entities 3.4 3.5
Total Spending 24.0 23.6
Programmable 18.3 17.9
Non Programmable 5.7 5.7
Budgetary Deficit -2.5 -2.0
Budget Balance w.o. PEMEX
Investment -0.5 0.0
Public Sector Borrowing
Requirements -2.9 -2.5
Source: SHCP
20. Government projections include a further increase in non-oil tax revenue for
2011 to 10.4 percent of GDP and 10.5 percent for 2012. The increase is attributed to
the continued recovery of economic activity (and closure of the output gap) and further
increases in the effectiveness of tax collection as no further tax rate or base increases
have been adopted after the DPL supported program supported.15
21. Efforts to increase non-oil tax revenue in Mexico are gradually bearing fruit. The current administration adopted a fiscal reform in 2007 which included the
introduction of a minimum income tax on business at a flat rate (IETU) and an
informality tax on cash deposits (IDE). Changes to tax rates and an additional excise tax
on telecommunication were introduced as part of the 2010 reform program supported by
the DPL. These changes are leading to an average collection of non-oil taxes of 9.9
percent of GDP throughout the term of this administration (2007-2012), compared to 8.7
percent over the preceding six years (2001-2006) and 7.6 percent in the period of 1995-
2000.
22. The Government Accounting Law, that aims to establish a harmonized
accounting system among the three levels of government, is being implemented
according to schedule. Norms, methodologies, classifications and guidelines have been
issued by the National Council for Accounting Harmonization and published by all
states.16
The implementation schedule implies that the Federal government and all State
15 Except for a marginal increase of excise tax on tobacco and the introduction of an excise tax on energy drinks. 16 As of May 26, 2011 all States have published the accounting norms, methodologies, classifications and guidelines
issued by CONAC. Only in the case of one State, publication of the Methodological Framework, Functional Spending
Classification and the Main Rules to Register and Value Public Goods are still pending (www.conac.gob.mx).
43
governments will integrate their 2012 budget according to the harmonized budget
classification system and operate their budgetary accounting systems in line with the
Governmental Accounting Manual in real time as of December 31, 2011.
44
Annex 7b. Financial Sector Policies
1. During the last decade, Mexico put in place a modern financial regulatory
and supervisory framework, which helped the financial system weather the global
crisis relatively well. Strong capitalization levels provided a significant buffer during the
crisis, while portfolio quality has improved following a deterioration in 2008-2009 (Table
1).
2. Despite progress on regulatory and supervisory frameworks Mexico’s
indicators on financial access and depth compare unfavorably to both global and
regional indicators. Domestic credit to the private sector as percent of GDP was 21
percent in 2008, well below that of other high-middle income countries such as Brazil,
Chile, Malaysia, Thailand, and Turkey. Access to basic financial services remains low,
ranging from 45 percent to 60 percent depending on the survey. Many small and medium
enterprises (SMEs) remain excluded from the domestic banking sector, and medium- to
long-term financing remains a challenge.
Figure 1: Domestic Private Sector Credit
(percent of GDP) Figure 2: Domestic Deposits
(percent of GDP)
Source: World Bank Development Data Platform, 2010
Table 1: Soundness Indicators of the Mexican Banking System* (percent)
2005 2006 2007 2008 2009 2010
(Dec)
2011
(March)
Non-performing loans
(NPLs)
1.8 1.99 2.54 3.21 3.08 2.3 2.3
Provisions/NPLs 242.2 210.3 168
9
161.2 173.9 200.7 207.1
Return on Assets 1.7 2.2 2.0 1.2 1.3 1.5 1.4
Return on Equity 20.2 24.3 20 .9 13.0 12.8 13.5 12.7
Capital Adequacy Ratio 16.2 14.3 16.0 15.3 15.1 16.9 Source: CNBV Boletin Estadistica Banca Multiple, Septiembre 2010
*End of the year unless otherwise indicated.
3. In the wake of the global crisis, the Central Bank eased monetary policy, and
the Government moved quickly to mitigate risks while sustaining the overall
21.1
0
20
40
60
80
100
120
140
160
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Mexico
Brazil
Chile
Malaysia
Thailand
Turkey
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Domestic Bank Deposits / GDP (%) MEX
BRA
CHL
MYS
THA
TUR
45
direction of financial sector policy.17
In particular, it enacted regulatory changes and
promoted a more active role by Development Financial Institutions (DFIs) to prevent a
sharp credit contraction that would have aggravated the economic downturn. The most
important regulatory reforms implemented in 2009 sought to address (i) the protection of
financial service consumers, (ii) the expansion of basic financial services to underserved
markets; (iii) transparency of derivatives markets, and (iv) the transparency and impact of
DFIs. These reforms and their impact are further discussed below.
4. The Law Protecting and Defending Users of Financial Services was amended
in June 2009 to strengthen the authority of the Comisión Nacional para la Protección
y Defensa de los Usuarios de los Servicios Financieros (CONDUSEF). The institution
is now responsible for (i) educating users of financial services; (ii) promoting an equal
and fair relationship between financial institutions and its users; (iii) informing the public
on services provided by financial institutions (including costs and quality of services, and
level of claims raised by consumers against financial institutions); (iv) facilitating
arbitration services between financial institutions and users; (v) requiring financial
institutions to take adequate measures to prevent or address business practices that impair
consumers´ rights; and (vi) regulating marketing practices and financial contracts of
credit institutions in order to ensure that consumers are aware of their rights and
responsibilities. CONDUSEF was already responsible for items (i) to (iv) prior to 2008,
and the legal reform expanded its power to regulate, supervise and issue penalties. On-
site supervision, except in the case of non-regulated Sofoles, is mainly being conducted
through the CNBV.
5. In August 2010, CONDUSEF issued a regulation that builds on the law and
stipulates inter alia how financial institutions must present information on
commissions, account balances, transaction receipts, and financial contracts; prohibits
selling financial products to minors; and, provides guidelines on marketing and activities
that detract from good business practice by financial institutions.18
CONDUSEF is
supervising compliance regulation through on-site analysis of information provided by
financial institutions, follow-up of complaints submitted by users of financial services,
and on-site visits conducted through the CNBV. Starting in 2010, CONDUSEF and
CNBV have agreed on yearly on-site supervision programs that the latter conducts on
behalf of the former. The 2011 on-site supervision programs appear more complete on
the basis of lessons learned during 2010. The 2011 program, for example, includes
supervision of good business practices.
6. CONDUSEF’s expanded authorities have contributed to improvements in
the quality of information provided by financial intermediaries to users. In
17 Throughout the last decade, financial sector policy featured prominently in Mexico‘s development agenda with the
dual objective of promoting stability and access. Overall the Government has supported these objectives through a
multi-pronged strategy that encompasses improvements to the regulatory framework, a strengthening of institutions
responsible for financial market oversight, and pro-active market access policies through development finance
institutions (DFIs). DFIs have undergone substantial improvements in their governance and institutional structure. 18 Disposición Unica de la Condusef Aplicable a las Entidades Financieras published in the Official Gazette on August
19, 2010.
46
particular, the average rating on credit card information provided by commercial banks
rose from 8.0 in June 2009 to 9.2 in December 2010 (slightly above the program target of
9.0). Although performance varies widely across institutions, ranging from 6.3 to 10.0, all
of them recorded some improvement. The largest market institutions experienced the best
performance. On mortgages, the average commercial bank rating increased from 7.7 in
June 2009 to 8.4 in August 2010 (nearly the program‘s target of 8.5). Non-bank financial
institutions such as non-regulated Sofoles and Sofomes recorded lower ratings but also
showed improvements. An August 2010 regulation by CONDUSEF included new
information requirements on checking accounts that came into effect in December 2010.
Given the new regulation, CONDUSEF delayed the publishing of ratings for the third
outcome indicator under this section to mid-2011. CONDUSEF‘s August 2010
regulation also expanded the number of financial products that are subject to ratings.
7. The Law on Credit Institutions was amended in June 2009 to facilitate the
development of new and cost-effective channels to extend financial services to
underserved markets. The legal reform allows banking institutions to contract third
parties (e.g., retail chains and retail stores) to provide services on behalf of the bank. The
bank retains responsibility over the transactions conducted by the agents, minimizing
risks to the population. The following transactions can be conducted through the banking
agents: payments of utilities and loans, deposits using checks or cash, cash withdrawals
and cashing checks drawn at the same bank, inquiry on balances and transactions, and
transfer of funds for payment at another agent or branch of the financial institution.
8. The market responded swiftly to these new opportunities. By September 2010,
6,050 banking agents were operational, almost doubling the number of total outlets
providing financial services to 20,287 compared to 10,354 in 2008. The expansion
surpassed by a large margin the program target of a 35 percent increase. The CNBV
expects that the number could reach almost 30,000 by the end of 2011, on the basis of
requests submitted by banking institutions. The impact has been most important in rural
areas where the access gap was most acute. Branches of banks, cooperatives and
microfinance institutions in rural areas amount to 0.51 per 10,000 adults compared to
2.91 and 2.31 per 10,000 adults in the Federal District and other metropolitan areas,
respectively. Including banking agents, the number of total outlets offering financial
services in rural areas has risen to 1.45 per 10,000 adults (almost a threefold increase).
The rapid expansion is likely due to the Government‘s active promotion and the use of
existing and ubiquitous public networks. For example, Telecom, which had been offering
remittance payments through its network for years, is now also providing banking agent
services.
47
Number of Outlets Offering Financial Services (per 10,000 adults)*
September 2010
Rural* In
Transition*
Semi-
urban*
Urban Semi-
Metropolitan
Metropolitan Federal
District
Branches* 0.51 0.73 1.08 1.81 2.01 2.31 2.91
Banking
agents
0.94 0.85 0.76 0.72 0.75 0.77 0.90
*Rural, in transition, and semi-urban refer to municipalities with population between 0-5,000, 5,001-15,000, 15,001-
50,000, respectively.
**The figure covers branches from commercial banks, development banks, cooperatives, and microfinance institutions.
Source: CNBV
9. In 2010, the CNBV issued a new regulation allowing banks to contract mobile
phone companies for low value payment transactions. To further facilitate the use of
these and other banking agents, the Central Bank is planning to simplify documentation
requirements for the opening and operation of low value bank accounts.
10. The Government is preparing a new financial inclusion survey that will be
conducted every 3 years to monitor how financial services evolve as a result of financial
inclusion policies, inter alia due to the expansion of financial infrastructure to more
marginal areas. It also plans to expand its financial education strategy. To better inform
this strategy, it is implementing a survey and focus groups to measure current financial
capabilities with support from the Bank.
11. The Securities Market Law (Article 104) was amended in May 2009 to
enhance the transparency of the derivative market. Speculative derivative positions
by several large Mexican corporations generated commercial paper defaults in October
2008 that nearly brought to a halt the commercial paper market. To restore market
confidence, the reform to the Securities Markets Law requires market issuers to provide
information on their derivative positions, including payment conditions and the possible
contingencies that such positions imply on the issuer‘s financial position. The CNBV
started to conduct quarterly analyses to assess compliance with the reform. These
quarterly ratings have been public since late 2010. About 65 and 75 percent of market
issuers comply with the qualitative and quantitative components of these assessments,
respectively. According to the CNBV, issuers have reacted by making revisions to ensure
compliance, and reducing the use of complex exchange rate derivates (unless linked to
their operations).
12. In parallel to the above regulatory measures, development finance
institutions (DFIs) expanded financing activities during the global crisis to prevent a
sharp credit crunch in light of deleveraging and increased risk aversion by the
private sector. Total direct credit by development banks increased by more than 30
percent (in real terms) between December 2007 and December 2009 and moderated to 5
percent in 2010 as private markets recovered (Figure 3 below). Development banks also
increased their guarantees by more than 25 percent (in real terms) between October 2008
and end 2009 contributing to a sharp rise in induced lending during the same period.
Development banks‘ guarantees contracted on aggregate in 2010. Banobras, the
development bank responsible for supporting infrastructure finance, recorded the largest
48
increase in lending (including direct lending and guarantees) during the global crisis.
This is partly due to the Government‘s plan to increase the country‘s investment in
infrastructure, which has traditionally lagged levels registered by other high middle
income countries. Financing (including guarantees) by Bancomext, which is responsible
for facilitating financing for exporting companies, rose by more than 60 percent in late
2008 as several large corporations experienced severe financing problems.
13. Non-performing loan
ratios of development banks,
which had been on a
declining trend until 2008,
rose for some of the DFI‘s,
such as SHF and Bancomext
as a result of their
interventions during the
global crisis (Table 3). The
delinquency ratios of SHF
and Bancomext rose from
less than 1 percent and 1.7
percent in 2008 to 14.7
percent and 3.5 percent in
March 2010, respectively.
Table 3: Non-performing Loans and Coverage Ratio by Development Bank
Non-performing Loans
(NPLs)
Provisions/NPLs
Development
Bank 2006 2008
2009 2010
March
2011
March
2011
Natin 0.8 0.25 0.11 0.12 0.13 1446
Banobras 1.9 0.52 0.7 0.31 0.32 949
Bancomext 22.4 1.69 2.9 3.3 3.5 202
SHF* 2.4 0.63 11.3 14.2 14.7 112
Banejercito 1.0 0.33 0.38 0.4 0.4 235
Bansefi 0 0 0 0 0 n.a. *Figures for December 2010 and March 2011 are based on the consolidated portfolio including credit portfolio under
trusts
Source: CNBV
Figure 3. Direct and Induced Lending of Development
Banks
(Millions of pesos of December 2010)
Source: SHCP
0
200000
400000
600000
800000
2006 2007 2008 2009 2010
Induced lending Direct lending
49
Figure 4. Capitalization Ratios of Development Banks
Source: CNBV
14. In light of the expanded role of development banks during the global crisis,
Congress enacted several amendments to the Law of Credit Institutions in May 2009
with the purpose of further enhancing the transparency and accountability of
development banks and trust funds. These amendments build on a decade of reforms
aimed at strengthening the governance and performance of development banks (see
FSAP 2002 and FSAP Update 2006). The main changes in 2009 require (i) development
banks and trust funds to publish indicators measuring their services to their target
population and (ii) the SHCP to conduct and publish annually two independent
evaluations on development banks or trust funds.
15. Table 4 shows the progress achieved by DFI‘s between 2007 and 2010 in
reaching their target beneficiaries. In particular, the number of microenterprises, SMEs
and small rural producers reached in 2010 surpassed 1.3 million and 1.6 million
beneficiaries, respectively. During the same period, Banobras expanded infrastructure
finance to marginalized municipalities by 34 percent and SHF‘s interventions facilitated
the expansion of mortgages to low income households by 89 percent.
0
5
10
15
20
25
30
35
40
45
Nafin Bancomext Banobras SHF Banjercito BansefiDecember 2006 March 2011
Table 4. Progress by Development Banks in Reaching Target Population
Target group 2007 2010 Progress Micro and SMEs 810,429 1,321,50
8 63% increase
Rural producers with income below 3,000 SMD
1,152,906
1,614,279
40% increase
Municipalities with high degree of marginalization
158 212 34% increase
Share of mortgages to households with income below 6 smd
53% 89% 36% increase
Number of financial intermediaries working with Development Banks
319 488 53% increase
Source: SHCP
50
16. In agreement with the aforementioned legal amendments, the SHCP carried
out two independent evaluations of development finance institutions, specifically
Bansefi and Banobras, in 2010. The study on Bansefi shows that the institution is
focused on its target population, which is the ―popular‖ savings and credit institutions
sector. Bansefi provides services to this sector through associations as well as directly to
individuals and microenterprises. As a first tier institution, it offers inter alia demand
deposits and savings accounts, debit and prepaid cards, and promissory notes, but it does
not provide credit products. The institution also works with credit unions and
microfinance institutions to reach its target population. Its most important services as a
second tier institution are (i) technical assistance to help savings and credit institutions
become financially viable and compliant with the Popular Savings and Credit Law, and
(ii) a technology platform.
17. The evaluation, however, identified that there is a tension between the first
and second tier roles since some potential second tier members perceive Bansefi‘s first
tier services to compete with their own services. The institutions‘ first tier services
subsidize its second tier services. This cross-subsidy implies that, if it were to concentrate
on its second tier role in the future, it would need to find alternative financing sources to
support its first activities. Bansefi‘s social services may require an explicit public
transfer, and its first tier role may need to be reevaluated in the future.
18. Banobras’ evaluation also indicated that the institution is focused on its key
target sector (states, municipalities and infrastructure finance). Over the last few years, it
has provided credit and technical assistance to an increasing number of municipalities,
especially municipalities with no access to finance. Banobras has also improved its
products to promote private financing in infrastructure through inter alia its participation
in syndicated lending and acting as a trustee of the National Infrastructure Finance fund,
which offers a variety of instruments to catalyze private funding. 19
In light of growing
pension costs, the institution also carried out an important reform of its employees'
pension plan in 2009, transforming its Defined Benefit plan into a Defined Contribution
system financed with employees' and employer's contributions.
19. The evaluation, however, highlighted several issues that need to be addressed
in order to improve the institution’s performance, inter alia (i) excessive regulation
which reduces responsiveness in strategic decision-making; (ii) need to update
information systems to improve risk management; and (iii) greater interaction with field
offices and closer coordination across departments. The evaluations conducted are
informing the on-going debate on development banks.
19 The portfolio of instruments covers inter alia equity, guarantees and subordinated debt, and partial grant financing in
selected cases.
51
Annex 7c. Labor Markets
1. The Mexican labor market has shown signs of recovery since the second half
of 2009. Formal sector employment is now above pre-crisis levels, however the
unemployment rate has not recovered to the level observed before the crisis. The
unemployment rate, which reached a near record high of 6.41 percent in September 2009,
declined every month (with the exception of the seasonal peak of January) to 4.81 percent
in March 2010. For most of 2010 the unemployment rate hovered above 5 percent, until
falling once again in March 2011 to 4.61 percent (see Figure 1), indicating that that
unemployment may be on a downward trend. The twelve-month average unemployment
rate has flattened out but remains nearly two percent above the average in early 2008. It
is possible that lower migration to the United States associated with still high
unemployment rates there, together with more stringent border controls explains part of
the upward stickiness in the unemployment rate in spite of the recovery in formal sector
employment.
Figure 1
2. Informal
employment increased
during all quarters of 2009,
but declined quarter-on-
quarter in 2010. All different
informal employment
classifications regularly used
in Mexican labor market
studies trended upward in
2009 and downward in 2010.
Informality rates that measure
lack of access to health or
social security show an
increase of nearly 2 percent
between the fourth quarter of
2008 and 2009. Informality
rates that include self-
employment or informal
home-firms also show a similar increase.20
Preliminary data for the share of self-
employed and family workers and non IMSS contributors within total employment
display a measurable dip in the fourth quarter of 2010 (see Figure 2).
20 INEGI‘s definition of informal employment is the percentage of employed workers who have a job in home-firms
which have no accounting or fiscal registry.
6.41
4.61
0
1
2
3
4
5
6
7
2007
2008
2009
2010
2011
pe
rce
nta
ge
of a
ctive
la
bo
r fo
rce
month
unemployment rate
unemployment rate
12 per. Mov. Avg. (unemployment rate)
52
Figure 2
Source: Own calculations using INEGI, BIE and ENOE 4th quarter 2010
3. Despite the fact that unemployment and informality rates remain above pre-
crisis levels; the Mexican labor market shows some clear signs of recovery since late
2009. After three consecutive quarters of net job destruction (the last quarter of 2008 and
the first two of 2009) the Mexican economy has had five consecutive quarters of positive
job creation. Between October 2008 and June 2009, Mexico lost almost a million jobs,
while between June 2009 and June 2010, the Mexican economy created more than 1.3
million jobs. Between October 2008 and June 2009, formal employment (defined by
employees registered al the IMSS) fell by 561 thousand persons (3.9 percent) in
seasonally adjusted data, while between June 2009 and June 2010 621 thousand formal
jobs were created (4.5 percent).
4. The composition of job creation in recent quarters shows a clear
improvement in terms of job quality. On average, more than half a million salaried
jobs were created in the first three quarters of 2010 (see Figure 3, top-left graph).
Similarly, the number of workers with access to health insurance grew in the second
quarter of 2010 after five consecutive quarters of decline or stagnation (see bottom-left
graph in Figure 3). However, most of the employment created in 2009 and 2010 had no
access to health insurance (indicating perhaps, also incomplete access to other social and
economic protection mechanisms).
63.2%
65.1%
67.5%
68.8%
27.8%
30.2%
27.0%
28.3%
25%
29%
33%
37%
41%
45%
50%
54%
58%
62%
66%
70%
20
07
/01
20
07
/02
20
07
/03
20
07
/04
20
08
/01
20
08
/02
20
08
/03
20
08
/04
20
09
/01
20
09
/02
20
09
/03
20
09
/04
20
10
/01
20
10
/02
20
10
/03
Shar
e o
f se
lf e
mp
loye
d w
ork
ers
/ w
ork
ers
in in
form
al f
irm
s (I
NEG
I d
efi
nit
ion
)
Shar
e o
f w
ork
ers
wit
ho
ut
acce
ss t
o h
eal
th/n
on
-IM
SS c
on
trib
uto
rs
Informality rates
without access to health non_IMSS contributors
self employed and others informaility as defined by ENOE
53
Figure 3
Source: INEGI, Banco de Información Económica
5. The first quarter of 2010 recorded the first year-to-year increase in
manufacturing jobs after six consecutive quarters of reduction. Most of the new jobs
created during 2009 and 2010 are in the services sector but a non-negligible share comes
from agricultural activities (see top-right graph in Figure 3).
6. High salary jobs have not recovered yet. Most of the employment created
during 2009 and the first three quarters of 2010 constitute low salary jobs (defined
as workers earning less than 3 times the minimum wage per month). There has been no
net job creation of high salary jobs for the ten quarters under study (see bottom-right
graph in Figure 3). This reflects the low-quality employment character of the economic
recovery in the Mexican labor market. Notwithstanding this, there are some positive signs
regarding the evolution of wages. Average wages in retail commerce (the economic
activity with the largest share of total employment in Mexico) have stopped declining;
though remain in real terms 10 percent below pre-crisis levels. Average wages among
blue-collar workers in manufacturing (where most of the Mexican exporting firms
concentrate) showed resilience to the crisis. This is consistent with other episodes of
massive job destruction, in which real manufacturing wages remained stable, while
wages in the retail sector experienced a fall to sustain employment levels.
-1500.0
-1000.0
-500.0
0.0
500.0
1000.0
1500.0
2000.0
-1500.0
-1000.0
-500.0
0.0
500.0
1000.0
1500.0
2000.0
20
08
/01
20
08
/02
20
08
/03
20
08
/04
20
09
/01
20
09
/02
20
09
/03
20
09
/04
20
10
/01
20
10
/02
20
10
/03
Net job creation by employment position (year-to-year)
Salaried Non-salaried Total
-1000
-500
0
500
1000
1500
2000
20
08
/01
20
08
/02
20
08
/03
20
08
/04
20
09
/01
20
09
/02
20
09
/03
20
09
/04
20
10
/01
20
10
/02
20
10
/03
Net job creation by economic sector (year-to-year)
Primary Secondary Tertiary TOTAL
-1000
-500
0
500
1000
1500
2000
20
08
/01
20
08
/02
20
08
/03
20
08
/04
20
09
/01
20
09
/02
20
09
/03
20
09
/04
20
10
/01
20
10
/02
20
10
/03
Net job creation by access to health insurance (year-to-year)
Con acceso Sin acceso total-1500.0
-1000.0
-500.0
0.0
500.0
1000.0
1500.0
2000.0
2500.0
20
08
/01
20
08
/02
20
08
/03
20
08
/04
20
09
/01
20
09
/02
20
09
/03
20
09
/04
20
10
/01
20
10
/02
20
10
/03
Net job creation by wage level (year-to-year)
hasta 3 mas de tres otros Total
54
Figure 4
Source: INEGI, Banco de Información Económica
Advances in outcome indicators
Temporary Employment Program (PET)
7. Outcome indicators were fully attained in 2009 and 2010. The expansion of
both the number of beneficiaries and work-shifts through the PET went beyond
what was defined in the Operation Policy Matrix. In fact, the number of beneficiaries
hired through PET was 682.8 thousand for a total number of 34.6 million work-shifts in
2009. In 2010, the numbers were even larger, reaching 897.1 thousand beneficiaries and
nearly 40 million work-shifts. These results outstrip the outcome indicators by 13.4 and
38 percent in 2009 and 2010, respectively, for number of beneficiaries; and by 18.2 and
13.7 percent for number of work-shifts (see Table 1).
Table 1
Source: SEDESOL, Centro de Información del Programa de Empleo Temporal (http://cipet.gob.mx). Web visit on May 25th, 2011
Source: Own calculation using CIPET
8. In response to the rise in unemployment in manufacturing and services, the
Mexican Government decided to expand PET to urban areas. Preliminary evidence
seems to show that only SEDESOL has been able to reach the unemployed in the urban
areas (the ability to reach the urban unemployed depends on the organization of each
Secretaria), perhaps because of its experience in the expansion of other social programs
70
80
90
100
110
2007
2008
2009
2010
2011
ind
ex (2
00
8=
10
0 /
20
03
=1
00
)
month
Wage Index for selected workers
earnings in retail commerce (seasonally adjusted)
wages for blue collar workers in manufacturing (seasonally adjusted)
12 per. Mov. Avg. (earnings in retail commerce (seasonally adjusted))
12 per. Mov. Avg. (wages for blue collar workers in manufacturing (seasonally adjusted))
55
in urban areas (e.g. Oportunidades, Estancias Infantiles). Additional data for monitoring
and evaluating the program is necessary for a more accurate picture, but it is clear that
further expansion of PET needs to take into consideration larger coverage and better
targeting for increasing its effectiveness among the urban unemployed.
Labor Market Policies
9. Recent changes in Labor Market Policies in Mexico are a result of the
National Agreement for the Economy and Employment (Acuerdo Nacional en Favor
de la Economía Familiar y el Empleo), announced by President Felipe Calderón in
early January 2009. The agreement included 25 activities grouped into five pillars. The
activities directly related to labor markets were the following: i) a $2.2 billion peso
expansion for the PET (Programa de Empleo Temporal); ii) $2 billion pesos for
employment subsidies for exporting firms; iii) $1.25 billion pesos for enhancing the
employment intermediation services of the Labor Secretary; iv) extension of the ability to
withdraw funds from retirement accounts for unemployed individuals; and v) extension
of health insurance coverage for up to six months after dismissal for unemployed workers
and their families.
10. The Servicio Nacional de Empleo (SNE) recorded a fast increase in labor
intermediation policies during 2009 and 2010. The number of beneficiaries rose by
nearly 700 thousand (a 23 percent increase) in both years with respect to 2008. However,
the number of job placements reached only 577 thousand in 2009 (559 thousand in 2010),
which means a 2.3 (5.5) percent fall with respect to 2008. The fall in the effectiveness of
the placement services is likely due to the severity of the crisis which by mid 2009 had
destroyed nearly half a million jobs with respect to the same period in 2008.
11. Job training policies, another important component of the SNE, declined
only slightly during 2009 and 2010. The number of beneficiaries in BECATE (the most
important training service of the Federal Government) declined 6.6 percent in 2009 (3.3
percent in 2010) with respect to 2008 levels. However, program job placement increased
in 2010 with respect to 2008 and 2009. This result, when compared with the decline in
the effectiveness of intermediation services, seems to indicate the importance of job
training in particular (and human capital accumulation in general) to find employment in
the Mexican labor market after the crisis (see Figure 5).
56
Figure 5
Source: STPS, Labor Sector Statistics (http://www.stps.gob.mx/DGIET)
12. Finally, the expansion of the unemployment withdrawal facility had a rapid
response by potential beneficiaries. The number of withdrawals in 2009 nearly doubled
the number in 2008, while average withdrawal amounts grew by 39 percent. In 2010 the
number of withdrawals was 60 percent higher than in 2008, and the average amount 73
percent higher. This is partly a consequence of the increase in the maximum withdrawal
allowed (now up to 90 days of salary, instead of 75) and the reduction in eligibility
restrictions (only three years of contributions, instead of five). These figures highlight
the relevance and usefulness of the instrument in a period of growing unemployment.
There are, however, concerns about the adequacy of this instrument as unemployment
protection and its impact on pension savings.
Figure 6
Source: INEGI, Banco de Información Económica SEDESOL and data provided by CONSAR
2,775,180
3,424,515 3,356,137
590,986 577,545 559,107
-
1,000,000
2,000,000
3,000,000
4,000,000
2006 2007 2008 2009 2010 (*)
National Employment Services in Mexico (SNE)
number of benificiaries job placements
(*) By November, 2010
225,848
210,554 217,464
130,327
120,464
140,379
-
50,000
100,000
150,000
200,000
250,000
2006 2007 2008 2009 2010 (*)
Job Training Services (BECATE)
number of beneficiaries
number job placements
(*) By November, 2010
0
1
2
3
4
5
6
7
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
Jan-
08
Mar
-08
May
-08
Jul-0
8
Sep-
08
Nov
-08
Jan-
09
Mar
-09
May
-09
Jul-0
9
Sep-
09
Nov
-09
Jan-
10
Mar
-10
May
-10
Jul-1
0
Sep-
10
Nov
-10
Jan-
11
Mar
-11
unem
ploy
men
t rat
e (in
per
cent
age)
num
ber o
f wit
hdra
wal
s
Unemployment withdrawals from pension accounts and unemployment rate
57
13. The secretaries of Finance (SHCP), Labor (STPS) and other Mexican institutions,
have been holding regular technical meetings, sometimes with national and international
experts, about the creation of an unemployment protection mechanism (e.g.
unemployment insurance, unemployment individual savings). Technical experts from the
World Bank, as well as from unemployment programs in Chile and Brazil, have been
invited to present the characteristics of these programs to several government
representatives. This indicates the interest along some quarters of the Mexican
government in considering the introduction of a more developed unemployment
protection mechanism.
14. Labor Market policies in Mexico are still limited and underfunded, and
therefore the coverage of existing programs insufficient for dealing with the current
crisis or preparing for future ones. Total unemployment withdrawals from pension
funds represent 0.14 percent of nominal GDP in 2009, compared with passive labor
market policy allocations of 0.5 to 2 percent of GDP in the EU and other OECD countries
(see Figure 7). The budgets of temporary employment programs, training and
intermediation services represent less than 0.3 percent of the Mexican GDP whereas
these active labor market policies account for between 0.5 to one percent of GDP in the
EU and OECD countries. In order to have better mechanisms for dealing with the
aftermath of the current crisis and, more important, with future crisis, Mexico needs to
enhance the funding and design of its labor market policies.
Figure 7
Source: OECD, Social, Employment and Migration Papers, No. 93 (November 2008)
Reform of the Labor Law
15. On March 18th
, 2010, the government party, Partido de Accion Nacional
(PAN), submitted to Congress a reform proposal to the Federal Labor Law. The
proposal includes modifications to 303 out of 1010 existing articles. It is presented as a
58
synthesis of 264 different initiatives developed during the last eleven years and as an
effort to find common ground between employers and employees. In addition, the reform
seeks to keep all the provisions of article 123 of the Constitution. The reform proposal
was characterized as a ―labor reform for productivity and social protection‖ and is
justified in terms of increasing the competitiveness of the Mexican economy,
modernizing the procedures and provisions of the legislation and improving the
conditions of those searching for better jobs, in particular youth, women and the disabled.
16. The proposed labor reform bill attempts to address some important issues
that hinder the performance of labor markets in Mexico in three general areas: i)
employment conditions of specific social groups; ii) transparency in union activities
and collective agreements and iii) productivity and social protection of the labor
force. Although the reform bill moves in the right direction on some key aspects of
legislation, it leaves untouched some of the structural aspects identified in various
analyses of Mexican labor markets, such as the low social protection associated with high
informality and low labor productivity.
17. Congress has not yet discussed the PAN proposal, nor a recently submitted
initiative by the Partido Revolucionario Institucional, PRI. The proximity of the
presidential election campaign, due to start in December 2011, makes unlikely the
consideration of these proposals by the legislative branch in the forthcoming ordinary
sessions.
Conclusion
18. During the second half of 2008 and the first half of 2009, the Mexican Labor
market experienced a severe crisis, though this was less pronounced than what
would have been expected given the evolution of GDP. It has shown some signs of
recovery since the second half of 2009. The unemployment rate has stabilized 2 percent
above pre-crisis levels, while informal employment rates have declined slowly since
peaking in the second half of 2009. These trends are the result of consecutive year-to-
year net job creation since the third quarter of 2009.
19. The main policies adopted by the Mexican government to cope with the
international crisis were achieved. Despite its good design and rapid
implementation, these policies were insufficient compared to the size of the crisis
that the Mexican labor market endured. Mexico needs to develop a stronger set of
policies and deeper funding to address these types of shocks in the future. Reform
proposals to the Labor Law have been submitted to Congress recently, although their
scope is limited and could be improved.
59
Annex 7d. Trade Policy
1. Mexico’s economy was severely affected by the recent financial crisis. A sharp
GDP contraction was largely the result of a collapse in external demand and international
trade. Exports and imports fell 13.7 percent and 18.6 percent, respectively, in 2009. In
2010, these trends were reversed and exports and imports grew 24.3 percent and 22.1
percent, respectively.
2. The Mexican government seized the crisis as an opportunity to advance
structural reforms. In contrast to other countries, Mexico did not actively use
protectionist measures as a response to the crisis. On the contrary, in December 2008 the
Mexican government adopted an ambitious unilateral reduction of its (MFN) tariff rates
for non-agricultural products. The reduction in rates and increase in number of duty free
lines has resulted in a simpler tariff structure. The staged reduction program
implemented in January 2009 lowered the tariff rate from an average of 10.4 percent in
2008 to an average of 4.7 percent in 2011, and will further reduce it to 4.3 percent in
2013 (figure 1). 21
World Bank support of Mexico‘s trade policy response to the crisis is
acknowledged as important for the long term sustainability of the tariff reform.22
3. The reform rationalized the previous tariff structure, reduced distortions,
and simplified the trade regime. The emphasis on bilateral trade agreements had
created a gap between the average bound tariff rate at the WTO (36.1 percent), the
applied average MFN rates for imports from countries without trade agreements, and the
effective average tariff rate resulting from tariff preferences negotiated by Mexico. In
addition, because of multiple tariff rates for the same goods depending on their country of
origin, the trade environment had become complex.23
Furthermore, in some cases higher
tariffs applied to inputs rather than to final products created inconsistencies and resulted
in negative effective protection, particularly when producers in countries with which
Mexico had preferential agreements imported these inputs at lower rates and used them to
produce goods that were subsequently exported to Mexico.
UNILATERAL TARIFF LIBERALIZATION
4. The comprehensive tariff reform adopted on December 24, 2008 aimed at: (a)
minimizing the impact of the contraction in international markets; (b) strengthening
national competitiveness in order to encourage investment; (c) contributing to balanced
industrial development and preserving jobs; and (d) providing more transparency to
foreign trade transactions through the rationalization of the tariff structure.24
21 Decreto por el que se modifica la Tarifa de la Ley de los Impuestos Generales de Importación y de Exportación, de la
Secretaria de Economía, Diario Oficial de la Federación, 24 de diciembre de 2008. 22 Information provided during interviews with Mexican officials. 23 ―Mexican unilateral trade liberalization in the middle of the economic crisis‖, IQOM, Inteligencia Comercial and
Ernesto Lopez Cordova, not published. 24 Informe sobre el uso de la facultad conferida al Ejecutivo Federal en el artículo 131 de la Constitución Política de los
Estados Unidos Mexicanos, durante el periodo comprendido de septiembre de 2008 a agosto de 2009.
60
5. Mexico’s unilateral tariff reduction has progressed as planned and is
consistent with the outcome indicators. The current average MFN rate is 4.7 percent
and the reduction of the tariff has progressed as scheduled for all tariff lines, except for
some steel and aluminum products. In the former case, in early 2010 it was agreed that
some adjustments to the MFN rates at their January 2009 level would be introduced. The
changes reduced the number of duty free tariff lines for 2010 and 2011 and created a
tariff rate of 3 percent to moderate the impact of liberalization. It is expected that duty
free tariff lines will increase from around 46 percent for steel in 2010-11 to 84-85 percent
in 2012.
Figure 1: Average Tariff Reduction and Duty Free Lines (Percentage)
Source: Author‘s elaboration on the basis of information from IQOM Inteligencia Comercial for 2008, and the Ministry of Economy
for the rest.
6. The tariff reduction was more pronounced in the three first years of
implementation. The reduction in MFN tariffs will moderate in the last 2 years of
implementation (figure 1 and annex tables A.1 and A.2). In 2011 the MFN average rate
was reduced to 4.7 percent. In the 2012 and 2013, the average rate will be 4.4 and 4.3
percent, respectively. At the end of the reduction period, 63.5 percent of tariff lines will
be duty free, up from only 20 percent in 2008. Currently, 61 percent of tariff lines are
duty free.
7. According to the Ministry of Economy, some inconsistencies have been detected
which may require further tariff adjustment. For instance, in the case of certain sectors
such as chemical products, plastics, and energy, the effective rate of protection in 2010
was negative. In other sectors, such as apparels and food products, the effective rate of
protection remains very high (above 30 percent).25
25 See presentation by the Undersecretary of Industry and Trade, Programa de Facilitacion de Comercio, February,
2011.
20.023.7
58.7 61.063.4 63.5
10.4
8.4
5.34.7 4.4 4.3
0.0
2.0
4.0
6.0
8.0
10.0
12.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
2008 2009 2010 2011 2012 2013
Percentage of duty free lines Average Tariff Rate
61
8. The full impact of the tariff reduction is still underway. Although it is still
early to assess the effect of the tariff reduction, especially given the domestic and
international economic context when the measure was adopted, preliminary data seems to
confirm some of the expected results.
9. The impact depends mainly on the effect that the tariff reduction will have
on changes on the origin of imported goods. For those products in which imports come
mainly from trade agreement partners and in which MFN tariffs are high, a reduction in
the tariff may ―divert‖ imports to more efficient suppliers that have no trade agreements
with Mexico, such as East Asian trading partners.26
Also, because one of the objectives of
the tariff reduction was to reduce transaction costs for importers, it is expected that the
share of duty free imports will increase, while imports using free trade agreement (FTA)
preferential access will decline.
Table 1: Imports by Trading Partners
2007 2008 2009 2010 Change
2007/2010
100% 100% 100% 100% ---
United States 49% 49% 48% 48% -1%
European
Union
12% 13% 12% 11% -1%
China 11% 11% 14% 15% 5%
Japan 6% 5% 5% 5% -1%
Korea, Rep. of 4% 4% 5% 4% 0%
South America 4% 4% 3% 3% -1%
Canada 3% 3% 3% 3% 0%
Chinese Taipei 2% 2% 2% 2% 0%
Malaysia 2% 2% 2% 2% 0%
Other
European
Countries
1% 1% 1% 1% 0%
Thailand 1% 1% 1% 1% 0%
Rest 5% 5% 5% 5% 0%
Source: Author´s calculations on the basis of data from Banco de Mexico
10. Two years after the first tariff reduction took place, preliminary data
appears to confirm the expected changes. First, the share of imports accessing the
Mexican market using FTA preference decreased from 32 to 25 percent, while the share
of duty free imports increased from 40 to 62 percent between 2008 and 2010,
respectively. Because the share of Mexico´s trading partners remained stable during this
period, this implies that many imports coming from FTA partners are now entering
26 Standard trade theory identifies two effects of free trade agreements (FTAs): trade creation and trade diversion. The
former provides welfare gains and the latter generates welfare losses due to changes in trade flow to less efficient
providers. By reducing MFN tariffs it would be expected that the diversion effects that Mexican FTAs network may
have created will be reduced, improving overall welfare.
62
Mexico duty free. Table 1 shows that the share of trading partners in total imports is
relatively stable. The only change is that the share of Chinese imports increased from 11
to 15 percent while the share of U.S., EU, Japan and South American imports decreased
by about one percent in each case. Second, this reduction fulfilled the objectives of
simplifying the Mexican trade regime and reducing the gap between the MFN rate and
the effective rate. In 2008, the total average MFN rate –including agriculture and non-
agriculture products--was 10.4 percent and the effective tariff rate was 0.95 percent while
in 2010 the average MFN rate and the effective rate are 6.9 percent and 0.66 percent,
respectively. Third, the share of imports that used the PROSEC program has decreased,
from 13.7 percent in 2008 to 5 percent in 2010. The PROSEC program, as well as the
―Regla Octava‖ program, is being phased out. Finally, the tariff reduction has resulted in
a direct costs saving to importers of US$ 675 million in 2009, and an additional US$
1,060 million in 2010.27
11. The main challenges ahead are to maintain the reduction program beyond
2013 and, after 2011, the commitment to eliminate the transitional measures agreed
in the context of China’s WTO accession. In late 2011, the special tariffs that affect
imports from China will be phased out in accordance with the Protocol of accession of
China to the WTO and an agreement between China and Mexico reached in 2008. The
Government‘s aim is to fulfill the commitment agreed in the context of China‘s
accession, but at the same time monitor import prices for Chinese products that currently
have special duties. The Government has told the private sector that any concerns should
be addressed through the instruments provided by the WTO, i.e. antidumping measures.
Although the phase out was agreed in 2008 and a staged reduction had taken place, the
additional tariff paid by certain Chinese products (209 tariff lines) will fall from their
current level of 70 or 80 percent (plus the MFN tariff) to their MFN-only level. In some
cases this one time reduction may raise concerns from the industries that benefit from the
additional tariff (textiles, shoes and toys, and others).
TRADE FACILITATION AND REGULATORY REFORM
12. A number of concerns regarding the Mexican trade regime were identified
before the tariff changes. The most important were related to: (a) customs procedures,
including barriers to entry to customs-related service providers; (b) technical barriers to
trade, including conformity assessment procedures; and (c) a lack of adequate resources
in the customs agency for performing verifications.
13. In December 2010, the Government initiated the Zero Base Regulation
Approach, aimed at a comprehensive review of all business regulations and identified
those that need to be reformed or eliminated. The simplification process is underway and
involves eight ministries, with the implementation process expected to be concluded in
late 2011. In addition, the Government has streamlined procedures for foreign investment
and patent registration, eliminating unnecessary costs for investors. Finally, the
Government has expanded the online services that business‘s can perform to comply with
27 See presentation by the Undersecretary of Industry and Trade, Programa de Facilitacion de Comercio, February, 2011.
63
government regulations. According to the Government all these changes are expected to
save approximately US$ 1.6 billion.28
14. The Government’s aim to reduce trade costs and improve trade facilitation
has proved difficult to achieve. For instance, initiatives to modernize customs
administration, simplifying IMMEX29 to reduce fiscal risks, and reduce the cost of
conformity assessment procedures have only partially moved forward. No changes in
IMMEX have been introduced.
15. In Mexico‘s trade regime, clearance of imported goods can only be performed by
customs brokers and apoderados aduanales. Increase in the number of custom brokers is
determined by the customs authorities, with the number remaining relatively constant
since 2002 although trade transactions have continued to grow. In order to introduce
more competition the scope of services provided by the apoderados was modified, but
these changes had a moderate impact.
16. Together with customs, the CFC has identified other areas where
competition would reduce trade costs..30 For example, two problems were identified
regarding technical barriers to trade: i) the sheer number of agencies responsible for
control and verification increases complexity and costs, in particular in the sanitary and
phytosanitary area, and ii) barriers to entry regarding conformity assessment procedures
reduce competition among service providers.
17. Mindful of these problems, the Government launched a reform process in
August 2010 whereby the technical regulations and product standards from NAFTA
partners, as well as the results of conformity assessment procedures, were accepted
in Mexico provided that the imported goods comply with Mexican technical
regulations. Initially, this unilateral recognition –which is an indirect and fast means of
increasing competition-- focused on electric and electronic appliances for domestic use,
electronic devices for office use, and data processing equipment. U.S. and Canadian
certificates issued by recognized conformity assessment bodies are valid for entry into the
Mexican market without requiring further compliance tests. According to the Ministry of
Economy, the reduction of transaction costs resulting from the elimination of tests would
save the industry approximately US $155 million. In November 2010, a new category
focusing on health products was added to this unilateral recognition process. However,
both initiatives faced opposition from Mexican certification industry which presented an
―amparo‖ –a judicial review—that has not yet been ruled by the Mexican Judicial system.
28 Mexico Strengthening the Business Environment for Enhanced Economic Growth DPL (Report 58431-MX
December, 2010). 29 The authorities planned to introduce changes to this instrument to reduce fiscal risks, but until now no changes have
been implemented. The IMMEX program provides for the deferment of tariff payment for temporary import of raw
materials, parts and components. The tariff is not paid as long as the inputs are incorporated into a product for export.
In addition, the VAT rate on these imports as well as on service exports is zero. Finally, the IMMEX retains the
streamlined administrative scheme for payment of income tax and other benefits concerning the fixed assets tax
available to enterprises under the Maquila program (Mexico, WTO Secretariat Trade Policy Review, 2008). 30 Comision Federal de Competencia (CFC), issued an opinion on 19 may 2008, ―Opinion in order to promote the
implementation of the principles of free competition for the design and implementation of policies and regulations of
foreign trade in goods‖.
64
18. The Government also initiated the development of a Single Trade Window
project, which is expected to be operational by September 2011. The aim of the single
window is to allow all agents to perform import, export, and transit procedures in a single
electronic point.
CONCLUSION
19. During the financial crisis Mexico reduced its MFN tariff rate for non-
agricultural products from an average rate of 10.4 percent in 2008 to 4.7 percent in
2011. In 2013 it is expected that this rate will be 4.3 percent. Although this reduction has
faced some opposition, the program was implemented as expected by the authorities with
some changes for steel and aluminum products.
20. The Government moved forward with its trade-related regulatory reform
agenda. Important measures were adopted in order to facilitate trade and reduce costs,
tough some efforts have faced resistance from incumbent stakeholders. The Government
is assessing whether to strengthen trade institutions such as the Trade Commission
(Comision de Comercio Exterior), introduce a regulatory impact assessment of tariff
changes and prepare a review of the scope of its mandate.
21. The World Bank continues to support the Government’s trade policy reform. The Government is implementing other reforms with the active support of the World
Bank Group aimed at reducing trade costs, facilitating trade, and improving customs
administration. In particular, the Mexico Customs Institutional Strengthening Project
(Report Number 47396-MX). More recently, in January 2011, the Bank supported the
Government efforts through a Strengthening the Business Environment for Enhanced
Economic Growth DPL (Report 58431-MX, December 15, 2010).
Figure A.1 Tariff Rates by Sector
Source: author‘s elaboration on the basis of ―Mexican unilateral trade liberalization in the middle of the economic
crisis‖, IQOM, Inteligencia Comercial and Ernesto Lopez Cordova, not published
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
Art
icle
s o
f ap
par
el a
nd
…
Leat
her
, man
ufa
ctu
res …
Text
ile
Oth
er A
rtic
les
of
app
arel
…
Mis
cella
neo
us …
Furn
itu
re
Veh
icle
s an
d p
arts
an
d …
Arm
s an
d a
mm
un
itio
n
Co
smet
ics
and
so
aps
Art
icle
s o
f St
on
e, c
eram
ic …
Oth
er m
etal
s
Ru
bb
er a
nd
art
icle
s …
Oth
er v
ehic
les
and
par
ts …
Wo
od
an
d p
aper
Mu
sica
l in
tru
men
ts
Op
tica
l, p
ho
togr
aph
ic, …
Toys
, gam
es a
nd
sp
ort
s …
Oth
er c
hem
ical
pro
du
cts …
stea
l an
d a
rtic
les
ther
eof
Mac
hin
ery,
ele
ctri
cal …
Min
eral
pro
du
cts
Ch
emic
al p
rod
uct
s5/
2008 2011 2013
65
Table A.2 Mexican Tariff Structure: 2008-2013: Number of Lines (HS chapters 25-98)
Tariff 2008
2009
2010
2011
2012
2013
0 2216 20% 2606 24% 6407 59% 6648 61% 6916 63% 6916 63%
3 0 0% 0 0% 19 0% 157 1% 1 0% 1 0%
5 95 1% 3981 36% 1400 13% 1028 9% 969 9% 969 9%
7 3433 32% 519 5% 202 2% 201 2% 150 1% 150 1%
9 45 0% 0 0% 0 0% 0 0% 0 0% 0 0%
10 2320 21% 1047 10% 418 4% 1033 9% 1040 10% 1040 10%
15 323 3% 952 9% 1921 18% 1316 12% 1307 12% 1307 12%
20 1314 12% 1277 12% 21 0% 5 0% 353 3% 518 5%
24 606 6% 0 0% 0 0% 0 0% 0 0% 0 0%
25 0 0% 0 0% 0 0% 334 3% 144 1% 0 0%
30 0 0% 475 4% 513 5% 179 2% 21 0% 0 0%
35 497 5% 0 0% 0 0% 0 0% 0 0% 0 0%
40 0 0% 38 0% 0 0% 0 0% 0 0% 0 0%
50 38 0% 17 0% 17 0% 17 0% 17 0% 17 0%
2 Dls
USA 1 0% 1 0% 1 0% 1 0% 1 0% 1 0%
7% +
0.36 2 0% 2 0% 2 0% 2 0% 2 0% 2 0%
10890 100% 10915 100% 10921 100% 10921 100% 10921 100% 10921 100% Source: ―Mexican unilateral trade liberalization in the middle of the economic crisis‖, IQOM,
Inteligencia Comercial and Ernesto Lopez Cordova, not published. Note: in 2010 a new tariff of 3% was added in to address concerns from the steel industry.
66
Annex 7e. Poverty and Distributional Impacts
1. The Mexican Economy had been characterized by slow but positive growth
and steady poverty reduction since the mid nineties. In fact, since 1996 when it
reached a peak of 69.0 (37.4) percent, moderate (extreme) poverty declined year after
year until 2006 when it reached a record low of 42.6 (13.8) percent. This coincided with
the Mexican economy‘s rebound from the 1994-1995 Tequila crisis and the expansion
and consolidation of several social programs. The favorable trend reversed after 2006
when, despite continued positive growth and expanded social programs, moderate
(extreme) poverty increased by 4.8 (4.4) percent.
2. Between 2006 and 2008, extreme and moderate poverty in Mexico rose by
around five million people. The increase in poverty was deeper in rural areas. In fact,
the headcount increase in rural extreme poverty (7.3 percent) was larger in absolute terms
than the increase in rural moderate poverty (6.1 percent). Urban poverty also increased,
though significantly less than rural poverty. Urban extreme poverty rose 3.1 percent
(from 7.5 percent in 2006 to 10.6 percent in 2008), while moderate poverty rose 4.2
percent, reaching nearly 40 percent in 2008.
3. Three main forces may be identified as drivers of the poverty rate increase in
Mexico between 2006 and 2008. First, food price inflation, due to the global increase in
commodity prices, and its impact on poverty explain at least half of the poverty rate hike
for the period. Second, expansion of social programs played a mitigating role and can be
credited with up to one percent less poverty than what would have been the case
otherwise. Nonetheless, one of the regions that contributed more to the poverty increase
(Mexico City), benefits less proportionately from federal anti-poverty programs. Third,
the labor status of household heads also shows some correlation with poverty incidence.
Households headed by non-salaried workers suffered a larger increase in poverty than
households headed by salaried workers, which indicates the vulnerability of this type of
household to economic shocks.
4. Official poverty figures in Mexico are released every second year by
CONEVAL. This is because its main source of data, the Income and Expenditure Survey
(ENIGH), is also published every two years. As the ENIGH 2010 has not been released
yet, 2010 official poverty figures are not available.31
Consequently, there are no official
estimates of how the 2008-2009 international crisis affected Mexicans. However, there
are some indicative sources of the impact of the sharp domestic economic contraction.
These sources are: i) the Labor Poverty Trend Index ( Índice de Tendencia de la Pobreza
Laboral, ITLP) produced by CONEVAL on a quarterly basis using the Mexican
Employment survey ENOE; and ii) poverty forecasts based on micro-simulation
exercises done by Bank staff.32
31 CONEVAL has announced that official poverty figures for year 2010 will be released on June 2011. 32 Poverty forecasts are taken from ―Recent Trends and Forecast of Poverty in Mexico‖. Mimeograph, The World Bank.
Washington D.C. October 2010.
67
5. The ITLP measures the share of the population that cannot afford the basic
food basket with earnings from labor market activities. It is measured with an index
base 100, and a base year of 2005. Although it is not a poverty measure because it fails to
take into consideration other sources of income, it serves as an indicator of the evolution
of poverty over the short term.
6. In 2008, the ITLP
grew 5.7 percent compared
with 2006, while the official
estimates of moderate poverty
grew 4.8 percent (see Figure
8). The ITLP increased by
11.4 percent in 2009 and
then leveled off in 2010. If
there is a strong correlation
between average ITLP and
moderate poverty, then one
can expect a significant
increase in moderate poverty
for 2009.
7. However, the ITLP,
as explained above, fails to
consider other sources of income, particularly those that can be of special importance
for poor families, such as remittances from migrant relatives and transfers from social
programs. These two are of special importance in Mexico which has a large migrant
population and extensive cash transfer programs such as Oportunidades, Programa
Alimentario (PAL) and others.
8. Another way to estimate future poverty rates given the crisis is through the
use of micro-simulation exercises. Using macroeconomic data and projections for the
period 2009-2011, this exercise predicts income distributions at the individual and
household level. The model focuses on labor markets and (international) remittances as
transmission mechanisms and allows for shocks to labor income – modeled as
employment shocks, earnings shocks or a combination of both – and shocks to non-labor
income, modeled as a shock to (international) remittances. The results from such a
simulation for Mexico capture the likely impact of the crisis (in 2009) and recovery from
the crisis (in 2010 and 2011) on household welfare.
9. Based on a 6.1 percent GDP contraction in 2009, and 5.5 percent rebound in
2010, moderate poverty headcount rate is expected to increase by 3.4 percent from
2008 to 2009 (an additional 3.6 million number of poor), and then decline by around
2 percent by 2011. The micro-simulation exercise also inflated the 2008 urban and rural
moderate poverty by the projected food and non-food CPI in 2010 and 2011. An
Figure 8
Source: CONEVAL
42.5
47.3
0
25
50
75
100
0.90
1.00
1.10
1.20
1.30
20
05
1
t
20
05
2
t
20
05
3
t
20
05
4
t
20
06
1
t
20
06
2
t
20
06
3
t
20
06
4
t
20
07
1
t
20
07
2
t
20
07
3
t
20
07
4
t
20
08
1
t
20
08
2
t
20
08
3
t
20
08
4
t
20
09
1
t
20
09
2
t
20
09
3
t
20
09
4
t
20
10
1
t
20
10
2
t
20
10
3
t
20
10
4
t
20
11
1
t
Ex
tre
me
Po
ve
rty
(p
erc
en
tag
e o
f th
e p
op
ula
tio
n)
ITLP
(b
ase
20
05
=1
00
)
Poverty: Official Estimates
68
alternative simulation, assuming higher food inflation, would increase the poverty impact
of the crisis and slow the decline. Assuming non-constant poverty lines (adjusted by
inflation forecasts), the poverty headcount rate is projected to rise by 3.8 percent as a
result of the crisis in 2009 and decline by around one percent between 2009 and 2011. As
a result, poverty headcount in 2011 could be expected to be 2.7 percent higher than in
2008, compared to a difference of 1.3 percentage points in the case with constant poverty
line.
10. As the crisis unraveled in 2009, the Mexican government put together a
broad policy
package including
labor policies to
protect
employment and
provide income
support for the
unemployed and an
expansion of
existing safety net
programs—
particularly
Oportunidades and
the Programa de
Apoyo Alimentario
(PAL).
11. A key finding of the micro-simulation exercise is that expansion in social
transfers – in terms of both the number of program beneficiaries and amount of
transfer per beneficiary – played a key role in moderating poverty. Estimates suggest
that had there been no expansion in public safety nets, the poverty rate would have
increased by 1 percent more between 2006 and 2008, which would have translated to an
additional 1.1 million people in poverty in 2008. Going forward, the simulation suggests
that expanding the coverage of Oportunidades and PAL programs by a total of 1 million
households in 2010 – as planned by the Government – could reduce the poverty
headcount rate by 1.7 percent, or the poverty gap by 1.4 percent, compared to a scenario
with no expansion, depending on whether the expansion targets the poorest of the poor
(chronic poor) or those closer to the poverty line (transitorily poor).
12. In summary, micro-simulation exercises suggest that the international
financial crisis may result in an up to 3.4 percent increase in moderate poverty rates
in Mexico in 2009. The economic recovery in 2010 and 2011, together with an expansion
of social programs, will induce a reduction of moderate poverty incidence by around one
percent above the mark in 2008. If poverty lines were to increase again due to food
inflation, the results for 2011 could be higher than in the reference period (i.e., 2008).
Table 2
Forecasts of Moderate Poverty Rates in Mexico
Source: ―Recent Trends and Forecast of Poverty in Mexico‖. Mimeograph, The World Bank.
Washington D.C. October 2010.
Notes: (A) Assuming GDP growth of -6.5%, 4.1% and 4.1% in 2009, 2010 and 2011, respectively; with food inflation equal to average consumption inflation.
(B) Assuming expansion of 1,000,000 beneficiaries in Oportunidades and PAL in year
2010, mostly among the chronically poor. (C) Assuming expansion of 1,000,000 beneficiaries in Oportunidades and PAL in year
2010, mostly among the transitorily poor.
69
Distributional Impact of the Fiscal Reform
13. The Mexican government approved a modest fiscal tightening starting in
2010 (from now on referred to as the 2010 tax reforms) through an increase in i) the VAT
rate of one percent; ii) some duties; iii) the financial deposit tax from 2 to 3 percent, and;
iv) a temporary increase in the top rate of income tax from 28 to 30 percent. The Mexican
Congress rejected more radical proposals for larger increases in duty rates, the
introduction of a comprehensive 2 percent VAT rate on all goods (including those
currently not covered), and increases in regulated prices. When assessing fiscal reforms
such as these, an important element of the appraisal is to ascertain the distributional
impact of the reforms.
14. At this stage it is worth noting that an analysis of tax policy alone cannot give
a complete picture of the extent of redistribution – such an undertaking requires the
modeling of spending on cash transfers and public services. Here we show the
distributional impact only of the tax system for several reasons. First, the structure of the
tax system can (and in general, should) be chosen without reference to the structure of
spending making an analysis of the distributional impact of taxation alone interesting and
important in its own right. Second, in Mexico, eligibility criteria for cash transfers are
generally not simple income‐based means tests but instead rely on complex formulae
assessing a household‘s assets and living standards which, makes modeling these
programs difficult. Third, information on benefit receipt and the use of public services
across the income or expenditure distributions is not readily available.
15. The World Bank commissioned a study to examine the distributional impact
of some of the elements of both the approved 2010 Mexican tax reforms and the
original proposals submitted by the Executive Power in 2009 but subsequently
rejected by Congress.33
The main data source for the study is the Encuesta Nacional de
Ingresos y Gastos (ENIGH) 2008. The study builds on previous efforts to assess the
distributional impact of these reforms by other researchers that have used the same data
source, and expands on the existing work by considering a more flexible simulator
written in STATA (MEXTAX).34
The study is comprehensive but not exhaustive of the
tax changes made in 2010 because it does not consider the impact of the increase in the
ISR tax rates levied on non‐employment and corporate income, nor the impact of the
increase in the tax on cash deposits from 2 to 3 percent.
16. The Fiscal reform adopted in 2010 shows progressivity of the approved
reform overall and for each of the tax changes (IEPS, IVA and ISR), when living
standards are measured either by total expenditure or income. It also shows progressivity
of the proposed reform overall and for each of the tax changes (IEPS, IVA and ISR), only
when living standards are measured either by total expenditure. Finally, if considering
33 Abramovsky, L., O. Attansio, C. Emerson and D. Phillips (2011) ―The distributional impact of reforms to direct and
indirect tax in Mexico. Analytical Report and Results‖ Background paper to the Poverty and Social Impact Analysis
―Microsimulation of Distributional Impacts of Tax Reforms in Mexico‖ (forthcoming). 34 Other analysis of the distributive impact of taxes in Mexico are by CEFP(2009) and Absalón and Urzúa (2009)
70
absolute incidence, both the proposed and the approved reform are progressive, but the
reduced fiscal pressure implied in the approved reform implies savings in untaxed
incomes that are mostly regressive. It should be noted, however, that revenue changes are
under‐estimated due to missing income and expenditure and the fact that our models do
not consider taxation on non‐labor income. Efforts to collect better data are necessary to
improve the distributional analysis of fiscal policies in Mexico.
Distributional Impact of the Labor Policies
17. Recent changes in Labor Market Policies in Mexico are the result of the
National Agreement for the Economy and Employment (Acuerdo Nacional en Favor
de la Economía Familiar y el Empleo), announced by President Felipe Calderón in early
January 2009 as a means to cope with the severity of the 2008-2009 international crisis.
The agreement included 25 activities grouped into five pillars. Several activities were
directly related to labor markets, in particular an expansion of $2.2 billion pesos of the
PET.
18. The PET was originally introduced in 1995 as part of a broader reform effort
focused on the creation of innovative and effectively targeted rural programs and a
general reallocation of social spending toward the rural sector. The program was
introduced as an immediate response to the 1995 ‗Tequila‘ crisis and as the first of this
generation of new programs (followed by PRONOSOL and then Progresa). Both the PET
and Progresa were the first programs to be effectively targeted in Mexico. PET was
originally conceived of as a traditional temporary employment program with a low wage
level designed to ensure exclusive participation of rural workers in conditions of extreme
poverty.
19. The PET is important in Mexico as social policy is dominated by programs
aimed at increasing human capital among the poor (e.g. Oportunidades), but no
comparable efforts have been taken to promote productive employment
opportunities for the newly endowed generations of poor workers. In general, CCTs
are not designed for protection against economic shocks or cycles. The employment
protection policies that do exist are aimed at formal sector workers. In the context of
Mexico‘s dual economy with just 40 percent social security coverage, this clearly
excludes the poor. The PET is one of the very few productive/employment instruments
available to the Government with an effective capacity to reach the poor. However, PET
is politically vulnerable due to its small scale and relative obscurity compared to
Progresa/Oportunidades.
20. In 2009 and 2010, as a response to the crisis, the PET budget was increased
by more than a 1,000 million pesos, though it was not equally distributed among
Mexican states. While some States received around 7 percent of the expanded budget
(Veracruz and Chiapas), others received close to one percent (Aguascalientes and
Querétaro). Moreover, the Distrito Federal, for example, went from not being part of the
program in 2008 to receiving around $20 million pesos in PET funds in 2009.
71
21. A performed econometric analysis shows unconditional associations between
PET budget allocations and poverty, unemployment and urbanization. However,
these variables are highly correlated so that conditional associations are needed to
ascertain if there has been a movement towards catering to the urban population and the
unemployed through PET. This is important because, despite being assigned new roles
during the crisis, PET is still a program for protecting the poor from seasonal shocks.
Econometric evidence shows that, indeed, PET has become more oriented towards the
unemployed. Table 3 shows the effects of unemployment and poverty rates upon the
allocation of PET budget, conditioning for other explanatory variables such as
urbanization rates, inertia, year and executing agency, in 2009 and 2010.35
These results
show that, in effect, PET has somehow reallocated resources towards states with higher
unemployment rates and to the poor in urban areas. However two points need to be
highlighted: i) this effect is still smaller than the effect of allocation of resources towards
states with high poverty rates and ii) the unemployment effect has a learning curve
because it is significant in 2010 but not in 2009.
Table 3
Source: Own calculations using CIPET data Note: Coefficients from linear regressions of budget share of PET by state on unemployment, poverty and urbanization rates and its
interactions. Poverty and urbanity are evaluated at the mean of the sample.
Conclusion
22. In summary, it is likely that the 2008-2009 international crisis had a
statistically relevant impact on poverty rates in Mexico. These are expected to rise
significantly in 2009 and decline in 2010 and 2011, although remain above pre-crisis
levels.
23. The expansion in social transfers – in terms of both the number of program
beneficiaries and amount of transfer per beneficiary – played a key role in
moderating poverty. Estimates suggest that had there been no expansion in public safety
nets, the poverty rate would have increased by up to 1.4 percent more than in an
alternative scenarios (that is, approximately, a third of the crisis impact).
35 This econometric analysis is included in ―Temporary Employment Programs. International Evidence and Mexico‘s
experience during the 2009-2010 crisis‖, an unpublished World Bank report.
Hypothesis: Unemployment Hypothesis: Poverty
Unemployment effect
Unemployment
effect, by poverty
Unemployment effect, by urbanity
Poverty effect
Poverty effect, by
unemployment
Poverty effect, by urbanity
2009 0.172
0.229
0.096
0.451 *** 0.546 *** 0.357 **
2010 0.624 ** -0.133 0.125 0.848 *** -0.418 * 1.015 ***
72
24. The Fiscal reform adopted in 2010 shows progressivity of the approved
reform overall and for each of the tax changes (IEPS, IVA and ISR), when living
standards are measured either by total expenditure or income. It also shows
progressivity of the proposed reform overall and for each of the tax changes (IEPS, IVA
and ISR), only when living standards are measured either by total expenditure.
25. Finally, among the labor policies adopted to cope with the crisis, the expansion
of the Temporary Employment Program has concentrated on the poor population in
rural areas, as usual, and has also started to address the situation of the urban poor and
the unemployed in 2009 (administratively) and in 2010 (effectively, according to
preliminary evidence on budget allocation).
Citlaltépetl (5,747 m) Citlaltépetl (5,747 m)
Si e r r a
Ma
dr e O
c c i d e n t a l
S ierra Madre del Sur
Si e
r r a M
ad
r e O
r i e nt a
l
CAMPECHECAMPECHE
CHIAPASCHIAPAS
TABASCOTABASCO
OAXACAOAXACA
GUERREROGUERRERO
COLIMACOLIMA
JALISCOJALISCO
NAYARITNAYARIT
ZACATECASZACATECAS
TAMAULIPASTAMAULIPAS
NUEVONUEVOLEONLEON
C O A H U I L AC O A H U I L A
C H I H U A H U AC H I H U A H U ASONORASONORA
D U R A N G OD U R A N G O
SAN LUISSAN LUISPOTOSIPOTOSI
MICHOACANMICHOACAN PUEBLAPUEBLA
VERACRUZVERACRUZ YUCATANYUCATAN
QUINTANAQUINTANAROOROO
S INA
LOA
S I NA
LOA
MazatlánMazatlán
TorreónTorreónMatamorosMatamoros
LaredoLaredo
OjinagaOjinaga
Los MochisLos Mochis
NavojoaNavojoa
NogalesNogalesSanSan
FelipeFelipe
LoretoLoreto
SonoitaSonoita
AguaAguaPrietaPrieta
GuaymasGuaymas
TehuantepecTehuantepec
FronteraFrontera
VillahermosaVillahermosa
TuxtlaTuxtlaGutierrezGutierrez
OaxacaOaxaca
ChilpancingoChilpancingo
ColimaColima
GuadalajaraGuadalajara
TepicTepic
DurangoDurango
SaltílloSaltíllo
ChihuahuaChihuahua
CuliacánCuliacán
HermosilloHermosillo
MexicaliMexicali
GuanajuatoGuanajuato
PachucaPachuca
AguascalientesAguascalientes
QuerétaroQuerétaro
MoreliaMoreliaTolucaToluca
CuernavacaCuernavaca PueblaPuebla
TlaxcalaTlaxcala
JalapaJalapa
San LuisSan LuisPotosíPotosí
CiudadCiudadVictóriaVictória
ZacatecasZacatecas
MonterreyMonterrey
MEXICOMEXICOCITYCITY
Yaqui
Rio Bravo
Fuerte
Salado
Lerma
Balsas
Conchos
BAJABAJACALIFORNIACALIFORNIA
BAJABAJACALIFORNIACALIFORNIA
SURSUR
MEXICOMEXICO
MORELOSMORELOS
DISTRITO FEDERALDISTRITO FEDERAL
HIDALGOHIDALGOGUANAJUATOGUANAJUATO
AGUASCALIENTESAGUASCALIENTES
TLAXCALATLAXCALA
QUERÉTAROQUERÉTARO
Usuummacinta Rio Grande
GUATEMALAGUATEMALATapachula
PuertoEscondido
Acapulco
Puerto Vallarta
Mazatlán
TorreónMatamoros
Laredo
Ojinaga
Los Mochis
Navojoa
Nogales
Ensanada
Tijuana
SanFelipe
SantaRosalia
Loreto
Cabo San Lucas
Sonoita
AguaPrieta
Ciudad Juárez
Guaymas
Veracruz
Tampico
Tehuantepec
Cozumel
Cancun
Frontera
Chetumal
Merida
Villahermosa
Campeche
TuxtlaGutierrez
Oaxaca
Chilpancingo
Colima
Guadalajara
Tepic
Durango
Saltíllo
Chihuahua
Culiacán
Hermosillo
Mexicali
La Paz
Guanajuato
Pachuca
Aguascalientes
Querétaro
MoreliaToluca
Cuernavaca Puebla
Tlaxcala
Jalapa
San LuisPotosí
CiudadVictória
Zacatecas
Monterrey
MEXICOCITY
CAMPECHE
CHIAPAS
TABASCO
OAXACA
GUERRERO
COLIMA
JALISCO
NAYARIT
ZACATECAS
TAMAULIPAS
NUEVOLEON
C O A H U I L A
C H I H U A H U A
BAJACALIFORNIA
BAJACALIFORNIA
SUR
SONORA
D U R A N G O
SAN LUISPOTOSI
MICHOACAN
MEXICO
MORELOS
DISTRITO FEDERAL
PUEBLA
HIDALGOVERACRUZ
GUANAJUATO
AGUASCALIENTES
TLAXCALA
YUCATAN
QUINTANAROO
S INA
LOA
QUERÉTARO
UNITED STATES OF AMERICA
GUATEMALA
BELIZE
HONDURAS
ELSALVADOR
Yaqui
Rio Grande
Rio Bravo
Fuerte
Salado
Lerma
Balsas
Usumacinta
Conchos
PACIFICOCEAN
Gulf of Mexico
Bay of Campeche
Gulf ofTehuantepec
Gulf of
Honduras
Gu
l f of C
al i f o
r ni a
To Los Angeles
To Gila Bend
To Albuquerque
To Alamogordo
To Midland
To San Antonio
To San Antonio
To Houston
To San Salvador
Si e r r a
Ma
dr e O
c c i d e n t a l
S ierra Madre del Sur
Si e
r r a M
ad
r e O
r i e nt a
l
Citlaltépetl (5,747 m)
115°W
30°N30°N
25°N
15°N
25°N
20°N
15°N
110°W
110°W
105°W 100°W 95°W 90°W
105°W 100°W 95°W
85°W
MEXICO
This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.
0 100 200
0 50 100 150 200 Miles
300 Kilometers IBRD 33447R
NO
VEM
BER 2008
MEXICOSELECTED CITIES AND TOWNS
STATE CAPITALS
NATIONAL CAPITAL
RIVERS
MAIN ROADS
RAILROADS
STATE BOUNDARIES
INTERNATIONAL BOUNDARIES