There was a time—perhaps not so long ago—that Mexico was not regarded to have a highly transparent fiscal system, in which the rule of law was at times undermined. The country’s less-than-transparent financial ecosystem was even abused by some multinational businesses of questionable repute for the purposes of money laundering and tax evasion. All that is over. It has been over for some years now—after the passing of two landmark pieces of fiscal legislation in 2012 and 2015. And, in a relatively short time, Mexico has successfully rebranded its finance sector.
In as early as 2018, Mexico was regarded as something of an exemplar for the rest of Latin America when it came to transparency. Over the last five years or so, the country has been doing well in complying with the International Monetary Fund’s fiscal transparency code (FTC). In a report published in October 2018, the IMF observed that “Mexico scores relatively well when compared to other Latin American countries and emerging market economies that have undergone a fiscal transparency evaluation.”
Fiscal transparency is not a single, one-dimensional variable. There are as many as two dozen indicators for fiscal transparency used by various international organizations such as the IMF, the World Bank, and the Financial Action Task Force (FATF). In Mexico, for instance, “Fiscal transparency practices are strongest in the areas of resource revenue management and fiscal forecasting and budgeting, while the scores on fiscal risks analysis and management are lower,” according to the IMF.
Speaking of the IMF and its views on transparency variables in Mexico’s financial ecosystem, let us start with a little background story. Toward the end of 2010s, senior officials were so determined about the importance of fiscal clarity, that the country’s Ministry of Finance and Public Credit (SHCP) voluntarily invited a mission from the Fiscal Affairs Department (FAD) of the IMF to fly to Mexico City and make a series of accurate analyses about Mexico’s compliance—or lack thereof—with the said fiscal transparency code.
This, in and of itself, was a clear indication that Mexico, under various recent governments, had made a real effort to achieve full fiscal transparency to eliminate all grounds for corruption—which, even with the best of intentions, cannot be said of all countries in the Latam region. The findings of the IMF’s mission to Mexico City in 2018 and various other reports which have been disclosed since, paint a very interesting picture of Mexico’s fiscal landscape.
In terms of periodical fiscal reporting, Mexico is one of the best-performing countries in the Latam region, if not in the world. Fiscal data and statistics pertaining to all publicly funded bodies are disclosed on a monthly basis since 2000, which eliminates almost all opportunities for embezzlement and suspicious financial activities in the government, especially as fiscal statistics are routinely monitored for compatibility with previous budget plans and forecasts. What is more, all expenditures from the taxpayers’ money are categorically published at the end of each fiscal year, so that the nation’s taxpayers can exactly know where their money goes every year.
The country’s overall fiscal transparency has attracted market players from across the world, especially companies that focus on digital solutions in banking and finance. Fernando Suárez, director general of NCR, a US-based provider of financial solutions that has been active in Mexico for around 85 years, told TBY that, “NCR carries out more than 100 million transactions per day. In Mexico, we have a 37% market share,” while noting that his company works with almost all of the main banks in Mexico that provide financial services and solutions.
The digitalization of financial services and fintech—especially if provided by impartial international market players—can make the financial landscape even more transparent and leave no space for informal economic activities of or wrongdoing. Digital financial transactions are very easy to monitor, and solutions employing artificial intelligence (AI) can detect suspicious activities with increasing ease and accuracy.
While the transparency of financial activities in the public sector is ensured by regular disclosure of statistics and data by the government officials, the clarity of transactions in the private sector will be raised by digitalization, employment of fintech solutions, and the presence of reputable international service providers in Mexico’s finance sector.
The digitalization of financial services in the private sector will come with an extra bonus. Despite notable social and economic developments, the socioeconomic makeup is still highly heterogeneous, meaning that people living across the 33 jurisdictions that form Mexico do not all enjoy the same level of financial inclusion. Building a robust fintech infrastructure across Mexico will not only raise the level of fiscal transparency in private transactions, but also lead to financial and economic equity across the nation in the near future.