Countries of the World/COUNTRYS.BIN/dp/0241/02414.txt

Text File | 1991-06-25 | 30KB | 536 lines

$Unique_ID{COW02414}
$Pretitle{279}
$Title{Mexico
General Overview of the Government of Carlos Salinas de Gortari}
$Subtitle{}
$Author{Embassy of Mexico, Washington DC}
$Affiliation{Embassy of Mexico, Washington DC}
$Subject{mexico
president
policy
foreign
economic
mexican
political
public
government
international}
$Date{1990}
$Log{}
Country:     Mexico
Book:        Mexican Agenda
Author:      Embassy of Mexico, Washington DC
Affiliation: Embassy of Mexico, Washington DC
Date:        1990

General Overview of the Government of Carlos Salinas de Gortari

(December 1988 - April 1990)

     When Carlos Salinas de Gortari was sworn in as President of Mexico on
December 1st, 1988, Mexico was going through a particularly difficult time in
the economic and political fronts. After an intense and highly competitive
political campaign, the new Mexican President set in motion a comprehensive
and straightforward program to meet the challenges facing the nation.

     On the economic front, since President Salinas' foremost commitment was
to regain growth, his government immediately began negotiations to renegotiate
the external debt. In the meantime, a far reaching domestic effort was
undertaken to further reduce inflation.

     In political matters, a permanent consensus reaching process with the
different political forces began in order to agree upon an electoral reform
project.

     In social matters, a serious commitment was undertaken to alleviate the
economic burden that weighs upon those Mexicans who have the least, since
their most basic needs cannot wait until a suitable growth rate is recovered
by the economy as a whole.

     Finally, decisive steps were taken to strengthen the rule of law in
response to voters' demands for security.

The economy.

     Economic policy can be broadly summarized through the following actions:

     1) Harness price and wage volatility through a sensible agreement between
workers, businessmen and government;

     2) Renegotiate the foreign debt so as to eliminate the excessive burden
that smothers economic growth;

     3) Open up trade, thus making Mexican firms more efficient through
international competition, and demand reciprocity from world markets;

     4) Attract foreign investment to supplement domestic efforts, by putting
forth a clear and simple set of rules, and by creating the legal framework to
protect technology and intellectual property rights;

     5) Privatize public enterprises which are not of strategic nature and
that need large amounts of new investment;

     6) Revamp the tax system, significantly reducing evasion, broadening
sources of revenue at the same time that tax rates are lowered and streamlined
with international standards;

     7) Maintain a strict fiscal discipline to avoid inflationary pressures,
make government performance more efficient, and have a more rational policy on
subsidies; and

     8) Develop the most urgent public works that economic growth will need,
where possible through joint ventures with private investors.

     Nevertheless, if such a strategy is to render the expected results, care
has been taken to assure the coherence between all economic policy
instruments. Past experiences, like the oil boom, have shown that reaching
reasonably high growth rates will only benefit our country if they can by
sustained over a period of time without leading to a devastating combination
of recession and inflation.

     The Pact for Stability and Economic Growth (PECE), is an agreement signed
between workers, businessmen and government to achieve a significant reduction
in the inflation rate. Each one of the participants negotiates, under a Pact
evaluation board, the price and wage increases which are considered necessary.
This scheme has been able to avoid the harmful effects of an outright price
freeze, by allowing the structure of relative prices to be adjusted upon a
joint basis. This collective approach towards a common economic problem has
made it possible to reduce the 1989 inflation rate to 19.7%, down from 52% in
1988 and 159% in 1987.

     To service its debt, Mexico had been transferring abroad an amount
equivalent to 6% of its GDP, on average, for the past seven years. This
excessive burden nullified the effectiveness that any domestic measure, by
itself, could have had to regain growth. Through 1989, the Mexican authorities
reached several agreements with multilateral banking institutions, but it was
not until February 4, 1990, that the debt renegotiation was concluded.
International commercial banks, which held 48.5 billion dollars worth of
Mexican debt, chose between a 35% discount on the principle, a fixed interest
rate of 6.25%, and/or more credits equivalent to at least 25% of the former
debt. The overall effect of the renegotiation process is equivalent to a 20
billion dollar reduction on Mexico's debt. Mexico acknowledges that this
achievement will not solve all its economic problems, but not a single one
could be fully addressed without it.

     Mexico has continued opening to world trade flows. Tariffs have
substituted import permits, and their maximum rate is 20%, with an average of
10%. In 1982, 75% of Mexican exports were oil related; today, 65% of sales
abroad are made up of non-oil products. Therefore, Mexico demands reciprocity
from his trade partners and has repeatedly called for an end to protectionist
practices which unfairly harm its exports.

     Mexico has enacted new regulations to attract foreign investment, by
redefining the criteria and conditions that must be met to invest in the
country, according to economic sectors. Foreign ownership limitations have
been relaxed and simplified. Intellectual property rights are also fully
protected by new legislation. Mexico wants to bring up foreign investment
levels to 5 billion dollars a year, up from about 3 billion, and thus
adequately supplement domestic capital, creating jobs and introducing new
technologies.

     In the past, public enterprises had become an important economic policy
instrument of the Mexican State. Nevertheless, the original purpose of this
strategy was lost amid the growing financial and political burden that so many
of them placed in a context of increasing economic difficulties. The
fundamental responsibilities of the State could not be met in the education,
health and services areas, at the same time that new investment to modernize
or expand non strategic public enterprises could not be provided by
government. Therefore, the Administration of President Salinas de Gortari
readdressed the issue by establishing a clear privatization policy through
which the State will recover the necessary strength to solve pressing social
needs.

     The tax reform currently underway seeks to simplify existing laws and
strengthen tax recollection. By broadening the tax base, the government has
been able to lower tax rates while increasing overall revenue. Only with a
stable and balanced income, the government will be able to have the necessary
resources to satisfy social demands and create infrastructure without
generating inflationary pressures. On the other hand, the participation of
Mexico in the world economy will be enhanced by the streamlining of the tax
system to international standards.

     Public expenditures have to be consistent with the main economic and
social goals. While keeping a strict fiscal discipline to avoid waste,
inflationary pressures and inefficiency, the allocation of resources is being
improved. For example, subsidies, whose social benefits are diluted or lost
in the economic chains that are supposed to deliver them, are being eliminated
or reduced. Under the PECE, public sector prices have been periodically
adjusted so as to comply with inflation objectives, both from price and
government income perspectives.

     Since there are many public works which are needed to support economic
growth, public investment in infrastructure has been increased. Strategic
public enterprises, like