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José Antonio Meade Kuribreña

MEXICO - Finance

A Steady Hand

State Secretary of Finance & Public Credit, Mexico

Bio

José Antonio Meade Kuribreña received a degree in economics from the Instituto Tecnológico Autónomo de México (ITAM), a law degree from the Universidad Nacional Autónoma de México (UNAM), and a PhD in Economics from Yale University. He has worked as a professor at ITAM and Yale University, and also served in various positions in the finance sector, as well as being a former Secretary of Energy. He is currently the Secretary of Finance and Public Credit.

"One of the main objectives of the current administration has been precisely to strengthen public finances."

How has your department contributed to the financial performance of the Mexican economy over the last five years?

The main contribution of the Secretariat to the Mexican economy has been its solid and prudent management of macroeconomic policy. As a result of the responsible management of fiscal policy in recent years, we were able to implement counter-cyclical policies in response to the global financial crisis, which attenuated the effect of the shock on the welfare of the population, without threatening the sustainability of public finances and the stability of the economy. This was the first time in the recent history of the country that a counter-cyclical fiscal policy was put in place in response to a crisis. In previous decades, the effects of a crisis on welfare were aggravated by the additional tightening of fiscal and monetary policy, in contrast to what was seen recently. The solid stance of our macroeconomic policy has also contributed to the vigorous recovery of the Mexican economy after the global crisis and to the fact that at present the fundamentals of the Mexican economy are very strong, without any sign of the economic imbalances that are currently prevalent in several countries around the world.

How could new fiscal reform reducing the federal budget’s reliance on oil and gas activities improve the diversification of the Mexican economy?

One of the main objectives of the current administration has been precisely to strengthen public finances by reducing their dependence on oil revenues, and in that context two fiscal reforms directed precisely at this objective have been approved in the last four years. The first was approved in 2007 and the second in 2009. The first reform, approved in 2007, was oriented toward broadening the tax base and included measures like the introduction of a minimum income tax and a tax on cash deposits that affected only agents operating in the informal sector of the economy. The second reform, passed by congress in 2009, sought to increase tax revenues by increasing the rates of all major taxes, including income and consumption taxes, in a way that minimized their distorting effects. As a result of these two reforms, non-oil tax revenues have increased by close to two percentage points of GDP once we adjust for the position of the economic cycle. While we should continue with measures along these lines, we think that the medium term trend of non-oil revenues is very encouraging and that substantial progress has recently been achieved.

“One of the main objectives of the current administration has been precisely to strengthen public finances.”

How could the new labor reform currently under discussion improve the performance of Mexico’s economy?

The labor reform proposal under discussion is essentially geared at reducing rigidities and increasing dynamism in the labor market, thereby accelerating the creation of new jobs and promoting productivity. It also seeks to increase employment opportunities for sectors of the population that have traditionally experienced difficulty of access, like women and youth. The reform includes measures such as the addition of new hiring modalities, including temporary and probation period contracts, an update of the current legislation to make it compatible with demographic, social, and cultural changes experienced by the country during the last decades, and a series of measures and changes to expedite the administration of justice over labor disputes. If approved, the reform would lead to stronger job creation and would also accelerate labor productivity growth, which is an essential determinant of an economy´s long-term growth potential.

What are the main pillars of the financial policy of the Secretariat of Finance and Public Credit (SHCP) since 2010, and what were its specific policy responses to the 2009 global downturn?

Over the last years one of the critical components of our economic policy has been financial policy. Its main objective has been to provide the financial system with a prudent, solid, and modern regulatory framework. Judging by the results, we can say that we have been fairly successful in this area, as Mexico’s financial system showed its strength during the global crisis and its aftermath, without any type of systemic problems. It is relevant to remember that for the last decade in Mexico we did not need to direct public resources to rescue or support financial institutions. Moreover, at present our sound financial sector contributes to the overall solid stance of the economy and to the absence of economic imbalances. We have also been working to apply the main lessons from the global crisis and from other recent events in terms of financial regulation. In line with this, we will adopt several components of Basel III in advance of the established timeline, and will comply with all of its components by the agreed dates. Finally, we made use of our development banks to make sure that credit-worthy companies were not affected given the decline in liquidity due to the international financial crisis.

One of your main priorities is managing the public deficit. The reduced figure currently stands at 2.7% of GDP, and you are targeting 2.3% for end-2011. What role is deficit reduction playing in Mexico’s economic performance?

The framework for fiscal policy in Mexico is established in the fiscal responsibility law, according to which in normal conditions public finances have to be balanced excluding investment by PEMEX. The law contains an escape clause for extraordinary economic or social circumstances. Given the magnitude of the global financial crisis, at the end of 2009 the federal government prepared a multi-annual fiscal policy strategy that contemplated temporary and moderate fiscal deficits to support economic activity while output was below its potential level. In this context, a deficit of 0.8% excluding investment by PEMEX (or 2.8% including it) was observed in 2010, a reduction in the deficit for 2011 to 0.5% (or 2.5% including investment by PEMEX) was approved for 2011, and a further reduction to a deficit of 0.4% (or 2.4% including investment by PEMEX) was recently approved for 2012. For 2013 we are projecting a return to a balanced budget. As I mentioned before, this multi-annual fiscal policy strategy has been oriented at providing a stimulus to the economy during the recessionary phase of the economic cycle while preserving the sustainability of public finances.

© The Business Year – January 2012

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