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Lloyd Mexico Economic Report October 2004

Table of Contents

State of the Nation report
Public resources
Economic policy
Economic growth
Fiscal policy
Debt reduction
Investor confidence
Financial strength
Trade
Tourism
Infrastructure investments
Energy policy
Rural economy
Sustainable development
Fighting poverty
Education
Housing
Indigenous rights
The future

State of the Nation report

On September 1, President Vicente Fox Quesada delivered his fourth State of the Nation address since taking office. His address highlighted the progress Mexico has made, as well as the challenges that lie ahead. Here, in the form of quotes, with emphasis on economic matters, is a summary of what he said:


Public resources

"Good government means quality services and savings in public resources... This year we start the professional career service. The act that made it possible promotes the exercise of a new ethic, based on merit and quality. The incorporation of information technologies has allowed us to offer citizens better service. This effort was acknowledged with the Stockholm Challenge Award. The quality of government is reflected in the large number of work centers that have been awarded international ISO-9000 certification.

In this government we have saved more than 55 billion pesos in administrative expenses. We have redirected them to social programs for development. We have eliminated 165,000 administrative positions."


Economic policy

"We have maintained a responsible economic policy with a long-range vision and faced with an adverse international situation. Thanks to this policy, inflation and interest rates are at their lowest levels for decades. In this way we have been able to defend and strengthen the buying power of Mexicans. Our country has firm foundations for the consolidation of growth and to take advantage of the world economy's new dynamism. Sustained and sustainable growth is the firmest foundation in the fight for equal opportunities."


Economic growth

"Today, thanks to the effort of all Mexicans, we are back on the path of economic growth. In the second quarter of this year, the Gross Domestic Product grew by 3.9% and we expect to close 2004 with growth at over 4%. This is less than what Mexico needs, what we want, and what we have worked for.

However, growth means new enterprises creating jobs. In the first seven months of the year, 281,000 workers joined the formal sector, with rights and benefits. Jobs were also created in the unstructured economy. We need to advance more quickly in the generation of new sources of employment and income. We are by no means satisfied by this year's expected 400,000 new formal jobs."


Fiscal policy

"Economic stability is the result of a responsible fiscal policy that strengthens public revenue and avoids waste. At the end of 2004, tax collection will rise by a percentage point as a proportion of GDP compared to 2000, to stand at 11.6%. The taxpayers' register has grown by 30% compared to 2000.

We have channeled ever greater resources to meet the demands of citizens. Between 2000 and 2004 the budget aimed at overcoming poverty grew in real terms by 45.2%; education, 8.8%; health, 14.3%, the countryside, 33.8%, and security, 24.3%. We also applied a criterion that encourages the harmonious development of the Federation, with a 17% increase in real terms in allocations to the states.

In contrast, there has been a real-terms 17.3% cut in operative spending for bureaucratic and administrative support activities. We have also cut the fiscal deficit from 1% (as a proportion of GDP) in 2000 to 0.3% this year. In 2006 our target is a balanced budget. As a government, we are doing our part to maintain a stable and sound economy."


Debt reduction

"In the matter of debt, we deactivated a conflict that could have had severe consequences. I'm talking about the maturity of most of the previous government's promissory notes signed during the 1995 financial crisis. We were able to cut 116 billion pesos from the cost of the obligations we inherited from the bank bailout. We also cut the foreign debt as a proportion of the domestic product.

In October, for the first time a fixed-rate, 20-year bond was issued in pesos, when eight years ago we could not get terms greater than a few months. During this administration, in real terms the Mexican Stock Market's index has risen by 52%, one of the highest rates in the world."


Investor confidence

"Mexico generates certainty and confidence. Today, the country risk is the lowest in decades. Our international reserves are becoming stronger. In recent days they amounted to 57.591 billion dollars. International confidence is also reflected in growing foreign direct investment, the highest in history in a four-year period. That means not only certainty in the development of our economy, but also greater growth, new jobs, and more exports."


Financial strength

"No growth is possible without sound and reliable financial institutions that support economic growth and promote domestic savings. Therefore, we have promoted initiatives and achieved the approval of new laws that have transformed the financial sector. We have also restructured development banking, making it an engine of productive activities. Development bank Nacional Financiera's support for enterprises has grown notably. Whereas in 2000 it supported 15,000 small and medium-sized enterprises, this year it supports 450,000. During this administration 1.3 million loans have been made, more than all those granted by NAFIN in seven decades. By democratizing and making credit accessible, industry grows and jobs are created."


Trade

"Foreign trade is one of the great levers in our growth. We are taking advantage of the opportunity offered by the expansion of the main economies, as may be seen in the 14.2% increase in our exports in the first half of 2004. This year we signed a free trade treaty with Uruguay and we concluded negotiations to enter another, with Japan. In August, we signed agreements with China to broaden our agricultural trade and tourism, and to neutralize the effects of unfair trade practices."


Tourism

"We also worked to strengthen tourism. The number of foreign visitors rose by 11.1% from January to June and by the end of the year we expect them to number 20 million. We expect to attract more than 11 billion dollars from tourism revenues in 2004, a record figure."


Infrastructure investments

"In addition to our economy's foreign engine, we are restarting the domestic engine. We have boosted competitiveness by supporting technological innovation and investing in infrastructure. Today, public investment is the highest for the last 20 years. This encourages private investment, thus consolidating economic recovery. We have modernized 70% of the country's highway links. In 2004 alone, public and private investment committed to highway construction and modernization is equal to the previous administration's entire investment. This year, it totals 55.946 billion pesos.

At the same time, we are extending and strengthening our airport network. We are improving Mexico City's airport to prolong its useful life by 25 years. Likewise, we are modernizing the airports of Cuernavaca, Puebla, Querétaro, León, Toluca, and those of Monterrey, Cancún, Ciudad del Carmen, and Ciudad Obregón."


Energy policy

"The start-up of 23 new power stations and three associated works guarantees the supply of the energy that will be needed in this decade. In four years, we have increased the country's generating capacity by 32.1%, equal to the consumption of the entire Mexico City metropolitan area. In the field of oil and gas, we are developing the most extensive investment program in decades. Thus, we are increasing production capacity and the reserve replacement rate. We have cut oil and gas imports by 47%.

As a result of exploration efforts, preliminary findings of major oilfields in the Gulf of Mexico that consolidate our country's energy future were recently announced. Early figures reveal that potential reserves are on the same scale as those we have already confirmed."


Rural economy

"In the last four years, the agricultural sector has grown faster than the rest of the economy. In the second quarter, it grew at a rate of more than 5%, whereas its exports did so at 15.9% compared to the same period in the previous year. With the National Agreement for the Countryside; the Procampo Ranching (Procampo Ganadero) and Target Prices (Precios-Objetivo) programs, and government purchases from campesinos of maize, beans, rice, sugar, coffee, and lentils, we are striving to guarantee decent incomes for Mexicans living on the land. We have channeled the greatest resources in decades to this sector, amounting to more than 120 billion pesos."


Sustainable development

"We want to achieve sustainable development. Recovering and preserving our ecological environment is a commitment to Mexico and to humanity. Coordinating with state governments, we are working in such strategic areas as the Burgos Basin and the Gulf of California.

In a federalist and republican spirit, the states of Guanajuato, Jalisco, Mexico, Michoacán, and Querétaro and the federal government are joining our efforts to reverse the environmental deterioration of the Lerma-Chapala Basin. We are also modernizing the irrigation districts of the Rio Grande Basin."


Fighting poverty

"Mexico's most pressing problem is poverty... With the Opportunities program, today we are improving the living conditions of 25 million Mexicans who are receiving supports in health, food, and education.

In the countryside, the Microregions strategy is providing the most marginalized places in 1,340 municipalities with social infrastructure. To face urban poverty, the Habitat program will be operating in 170 cities by the end of 2004, three times more than last year.

Assessment is essential to ascertain the impact of our programs to overcome poverty. The World Bank and the UN's Economic Commission for Latin America and the Caribbean have confirmed that we are progressing in the right direction. Extreme poverty fell by 16% between 2000 and 2002."


Education

"Compulsory pre-school education is already a fact for five-year-olds. Through more than five million scholarships, we are supporting children and youths so that they do not have to drop out of school for economic reasons.

We implemented the Encyclomedia program to build 21st century classrooms and transform the country's basic education system. Now, every state-run primary school will have electronic boards and digital text books to complement the free text books. This year, Encyclomedia will be operating in 22,000 5th and 6th grade classrooms. In 2006 all state-run primary schools will work with this new learning system."


Housing

"Equal opportunities also means access to decent housing. Therefore, we promoted as never before the development of housing. In less than four years, the National Workers' Housing Fund (INFONAVIT) has made 1 million loans, equal to half the number granted in its first 28 years in existence. Further, it has increased the number of loans for workers who earn less than three minimum wages. With the support of housing organizations, in this government, more than 1.5 million families have obtained a loan and now have their own home."


Indigenous rights

"We are replacing the paternalistic and discriminatory focus of policies aimed at indigenous people with respect expressed in their participation in the decisions that affect them. For this purpose we have the Indigenous Consultative Council. This year, more than 19.5 million pesos will be invested in the development of indigenous peoples, 80% more than in 2000. We are building roads and taking drinking water and electricity to the most remote communities with the Program of Investment in Basic Infrastructure."


The future

"Today our political life is more open, more plural, and more intense than ever. Democracy is not the absence of conflict; it is the freedom to debate problems and the best way to resolve them.

We are the first to acknowledge economic lags. However, we can say that Mexico is moving forward firmly and with a well-defined path. The achievements are obvious but insufficient. We must make greater and more efforts.

We are entering the third stage of our government. We have laid firm foundations. We have the soundness and energy to move forward. The best is yet to come.

The next two years are an opportunity to consolidate economic growth, to generate the jobs society demands; they are an opportunity to overcome poverty and to create new and better conditions that will promote social inclusion. This is the path. This is my commitment."





The text of this report was not submitted to any Federal Mexican Authorities or approved by them prior to publication. In preparing it, we have done our own research, using sources we believe to be reliable. However, we do not guarantee its accuracy. Neither the information contained herein nor the opinions expressed, constitute a solicitation by us of the purchase of any security.

Mirrored with permission from Lloyd S.A. de C.V.
See their Page on Mexico Connect.

2004 Operadora de Fondos Lloyd, S.A.
© 2004 Allen W. Lloyd, S.A. de C.V.

Published or Updated on: July 20, 2006
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