Mexico Stands Out: Implementing Reforms for a Historic Transformation

 

Keynote Address by Angel Gurría, OECD Secretary-General, delivered at LSE week


13 March 2014, London, England

(As prepared for delivery)


Ambassadors, Fellow Speakers of the LSE Mexico Week, Ladies and Gentlemen:


It is a pleasure for me to take part in the 15th anniversary of this seminar, the LSE Mexico Week 2014, which this year brings together an impressive number of Mexican scholars, practitioners and officials to “talk about politics and policies in Mexico”.


I find this topic fitting indeed: even the best policy would falter without the right politics and politics is sterile without good policies. This is a conviction that I have instilled in the work of the OECD since I became Secretary-General. It is also very much related to the wave of reforms that Mexico promoted in the past year. So I’m very happy to be here.


I want to start this keynote speech with one short but powerful statement: Mexico stands out (México se nota). Since the beginning of the year, I have been hammering this message in many different countries and fora. And I say this because at the OECD we really appreciate that Mexico is promoting one of the most important transformations of its recent history; certainly one of the most ambitious transformations among all OECD countries. It’s no coincidence that Ben Bernanke highlighted Mexico and China in his farewell speech as two countries where “things are happening”.


Let me tell you why we think Mexico stands out.


Setting the scenery: the global economic outlook

And I want to begin by setting the scenario where this is happening. The global economy is showing some important signs of improvement. In the OECD, recent indicators point to a continued strengthening of the pace of growth in the major advanced economies, helped by accommodative monetary policy and reduced fiscal drag.


The economic performance of the United States has improved considerably and we are expecting growth to reach 2.9% in 2014. Europe continues to face some headwinds, but it has left the risk of recession behind. In Japan, the measures taken by Prime Minister Shinzo Abe, known as "Abenomics", are beginning to produce results. China is foreseen to grow by about 7.5%. While growth forecasts for Latin America and sub-Saharan Africa for 2014 are looking much brighter than a year ago.


These are all very encouraging signs, but they are certainly no cause for complacency. The global economy still faces very complex challenges. First, the crisis has left us quite heavy legacies: weak and uneven growth; an employment and social crisis of alarming magnitudes; increasing levels of inequality; and eroding confidence in our governments. This explains why world economic growth has not regained the cruising speed it had before the crisis.


But there is a second set of factors: what I call the four cylinders of the engine of growth which are still running at half speed: In the first place, investment remains weak; secondly, credit growth is anaemic, and even falling. The third cylinder is trade, which is barely recovering. And the fourth cylinder, the dynamism in emerging economies, has also weakened in recent months. And now we have to add a new big element of uncertainty, the situation in Ukraine.


In this context, Mexico stands out

In this complex setting, Mexico emerges as one of the bright spots in the global economy. Even if growth slowed down in 2013, it should rebound in 2014 and reach 4%+ in 2015. But the allure of Mexico is mainly related to the profound transformation that it is pushing forward. In just one year, 2013, Mexico promoted and approved a wave of deep-ranging structural reforms that are updating the country’s legislative and institutional frameworks in line with some of the most advanced international best practices.


The OECD has accompanied this process from the very beginning, in each of the areas where reforms were pursued, and we know that these reforms, if they are properly implemented, can make a big difference.


The labour reform has equipped Mexico with a first-class framework to create more and better jobs, help formalise the economy, end child labour and incorporate women fully into economic activity. The constitutional reform of the education system is already promoting changes that will improve the quality of teaching, the transparency and accountability of the Mexican education system, and hopefully the performance of Mexican students; these are key factors to fully insert Mexico into the knowledge economy and promote inclusiveness.


Information infrastructure is another key element for boosting competitiveness and innovation. The telecommunications, broadcasting and competition reform could bring Mexico to the first division in this field. This reform is already bearing fruit. The recent announcement of IFETEL declaring Televisa and América Móvil predominant in the telecommunications sector, is a clear sign that the reform is serious about promoting competition and benefiting Mexican consumers with better prices and service. The same goes for energy, which is once again the backbone of global productivity.


The fiscal reform should also make a very important contribution, because it is what will make all the other reforms viable. Today, in Mexico very few people pay taxes, and many who do so pay less than they should. This undermines the capacity of the Mexican State to deliver high-quality public services and provide better social security schemes.


If the fiscal reform achieves its prime objective, which is to boost revenues and improve public spending, Mexico will be able to convert its tax system into a real instrument for development and social justice. At the same time, the financial reform, with the impact it will have on competition in the banking sector and improving access to credit, could transform Mexican SMEs into one of the main drivers of inclusive growth.


It is important to remember that these reforms are taking place on a solid foundation. Mexico has a stable and healthy macroeconomic position, with sound public finances, a moderate debt level (below 50% of GDP), and a low, temporary deficit of 1.5% of GDP. The country's financial authorities are also pursuing a prudent fiscal policy, one in which the markets are showing confidence. Mexico also has one of the world's most open external sectors and a strong banking system that is well capitalised and has good liquidity levels.


The approval of all these reforms was possible thanks to a major political strategy to build the necessary consensus for each bill, through an innovative consensus reaching mechanism, the so called Pacto por México.


This Pact is becoming a case study in itself, an international reference or benchmark. We are back to the relation between politics and policies, and Mexico is one of the most illustrative and recent examples of this crucial relationship. After years of stalemate, Mexico has surprised the world with a new capacity to forge consensus. This fact, and the reforms that have emanated from this effort, have changed the world’s perspectives and expectations about Mexico to a much more positive stance. We actually estimate that even in a hesitant global recovery, Mexico’s growth should rebound in 2014 and reach 4%+ growth in 2015.


These are very good news. But this is just the beginning. Mexico is coming from behind and is still facing very important challenges to make the most out of these reforms.


Still big challenges ahead

The first great challenge can be summed up in three words: implementation, implementation and implementation. The approval of the reforms has been a great success, but now we come to the complex part of the secondary laws and the implementation. The effective and timely implementation of reforms is crucial if we are to see results, and if the new laws are to translate into more opportunities for Mexicans, and greater productivity, competitiveness and social inclusion.


Even excellent decisions, such as the one to create a professional teaching body, can become sterile without the instruments that are needed to apply them rigorously, to monitor them closely, and to evaluate the outcomes systematically. This requires a joint effort. The government has updated the regulatory framework, and it has the obligation to enforce it, but now all stakeholders – state and local governments, judges, businessmen, academic institutions, and society as a whole – must all do their part to ensure that the reforms will improve the lives of Mexicans.


A key element for appropriate implementation of the reforms is the functioning of the rule of law, the justice system. Without a high-quality, modern and efficient legal and judicial system the benefits of the reforms will be disappointing. The reform of the legal and judicial system will also help to address the issue of insecurity, which is still a major source of worries and risks for the Mexican society.


Another crucial challenge is to improve the capacity of our institutions. If the reforms are to bear fruit, Mexico will have to improve its institutions and enhance the administrative capacity of the public sector, at both federal and state levels. A lot still has to be done to improve the judicial, regulatory, business promotion and external promotion capacities of states and municipalities.


The effective implementation of these reforms will boost Mexico's productivity and its competitiveness, but perhaps even more importantly, it will allow it to tackle the greatest challenge facing the country: to eradicate poverty and reduce inequality. More than half of Mexicans are still living in conditions of poverty and vulnerability, and the country still has some of the largest inequalities in the world. Therefore, the ultimate objective of these reforms is to generate the conditions and opportunities for a more inclusive, fairer and more dignifying type of growth.


Dear friends:

Mexico is upgrading itself, it is modernising its "operating system", generating a virtuous circle that places it amongst the most promising economies in the world. The structural reforms that the government of President Peña Nieto has promoted, together with a solid macroeconomic base, should in principle open up countless opportunities for the country's development – but only in principle. Now comes the tough part. During 2014, and over the course of the coming years, the key will lie in the quality of implementation, in the efficiency of implementation, and in the strength of implementation of all the reforms.


The OECD stands ready to continue working with Mexico in this new phase of implementation, and to do so with the same enthusiasm with which it supported the design and promotion of the reforms. We are certain that these efforts will make it possible to generate the inclusive and sustainable growth that all Mexicans deserve.


Thank you very much.

 

 

 

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