Three Keys to Understand the 2015 Budget Debate in Mexico

December 10, 2014

By Christopher Wilson and Pedro Valenzuela

mexican pesosEach fall, Mexico’s Congress debates the adminstration’s budget proposal. It was sent to Congress by the Peña Nieto administration in September, and a final version must be passed no later than the end of October to authorize revenue streams and by November 15 to detail expenditures. This is the first budget debate since Mexico’s 2013 fiscal reform was implemented, offering an important opportunity to analyze the impact of the tax policy changes on public income, and consequently, also on expenditures. The administration’s proposal represents a real increase of 1.2%, which, according to the government, will provide the funds to implement the structural reforms and fund new infrastructure and social programs. As a result of the increased spending and a dip in petroleum revenue, the government will continue to run a deficit, and Mexico’s public debt will continue to grow. Each of these three issues—tax collection, public expenditure, and the national debt—are explored in this article, all in context of Mexico’s structural reforms and brightening yet somewhat volatile economic prospects.

At the time of publication, the revenue proposal, which must be passed by both houses of congress, had been approved by the Chamber of Deputies and was in committee in the Senate. The Senate is expected to move the bill to the floor and approve the final version during the last week of October. The Chamber of Deputies made moderate changes to the executive proposal, including an increase in the expected exchange rate from 13 to 13.4 pesos per U.S. dollar and a drop in the expected reference price for oil from $82 to $81 dollars per barrel. After the ley de ingresos, or revenue law, is passed, attention will turn to the ley de egresos, the budget of expenditures, which only needs to be approved by simple majority in the lower house.

Read the article here.

This article was also published on Forbes.com. A shorter, Spanish version of this article is also available.


Op-Ed: Mexico’s security crisis and the role of the private sector

November 4, 2014

11/03/14 Financial Times

protests by Edu-TouristMexico has had several years of bad news on the security front. After decades of peace, the tide changed dramatically in about 2007. History will determine whether conditions at the time justified a decision of such magnitude; the reality is that the launching of an all-out war against drug cartels in that year sparked an upsurge in violence, murder and insecurity not seen since the post-Revolution years of the 1920s. The deterioration was, in many instances, concentrated in specific regions or states. But it also generated incidents that speak of a much more profound problem concerning the roots, scope and dimension of the criminal gangs and cartels. In particular, the incidents of September 26 in Iguala, Guerrero, when several people were killed and wounded and 43 students were kidnapped and remain missing, have brought worldwide visibility to the issues and put a cloud over the perceived success of structural reforms that were passed in many areas this year (including education, energy, telecommunications, antitrust and electoral reforms).

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Missing students and murders eclipse reforms push in Mexico

October 14, 2014

10/10/14 Reuters

Enrique Pena NietoFor nearly two years, President Enrique Pena Nieto has sought to direct the Mexican public’s gaze onto his efforts to open the economy and away from the brutal gang violence that blighted his predecessor’s government. But shocking abuses by security forces are overshadowing his economic reforms and threaten to ruin his efforts to recast Mexico as a country of progress and promise for investors. Two recent atrocities and a brace of political murders have torn the veneer of calm Pena Nieto had carefully built around his economic agenda since he took office in December 2012.

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Mexico’s reversal of fortune

January 17, 2014

Ancient Mayan pyramid, KukulcanReuters, 01/17/2014

In Latin America, this looks to be the year of Brazil — thanks to the impending World Cup and presidential elections. But with another lackluster year looming in emerging markets, fans of transformation, growth and investment potential should instead look to Mexico.

Brazil’s president, Dilma Rousseff, is expected to win a second term this year, and its soccer team stands a good shot at victory. But growth has slowed considerably. In the world’s seventh largest economy, reforms are stagnating and the country faces a possible ratings downgrade.

Mexico, by contrast, is in the throes of serious reforms. It will likely lead Latin America with at least 4 percent growth this year and an improving investment outlook. Standard & Poor’s recently boosted Mexico’s credit ratings because of energy reforms that the rating company trumpeted last month as a “watershed moment” for the country. It is becoming a story of inverted fortunes, as Michael Shifter and Cameron Combs of the Inter-American Dialogue recently wrote.

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Has Mexico’s moment finally arrived?

January 9, 2014

Enrique PeñaNieto 2The Guardian, 01/09/2014

Mexico begins the new year bathed in predictions that its “moment” has finally arrived thanks, primarily, to a frenzy of reforms since President Enrique Peña Nieto took office in December 2012.

But beneath the glow, question marks hang over the country because of its longstanding security crisis, rampant poverty, inequality – and even the reforms themselves.

“If things go well, Peña Nieto could go down in history as one of the great reformers of the past 100 years,” says political analyst Raymundo Riva Palacio. “If it does not, the failure will be monumental.”

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A few more pesos, a lot more stress

January 9, 2014

Photo by Flickr user Aleiex

The Economist, 01/04/2014

The Central de Abastos wholesale market is the largest of its kind in the world, sprawling over an area half the size of Mexico City’s airport. Yet on New Year’s Eve, it was still hard to move for the shoppers clogging up the 1-kilometre (1,100-yard) grocery aisle, buying everything from pig’s heads to sugar cane to grapes for that night’s festivities.

Outside, it was another story. People without enough money to shop were sifting through piles of discoloured and discarded avocados and tomatoes, wrapping what was still edible in scraps of newspaper and furtively carrying them off for their own more meagre supper.

For many of these Mexicans, life is getting harder. A fiscal reform that took effect on January 1st introduces a number of new taxes that are chiefly aimed at the rich but end up clobbering the poor. A value-added tax of 16% was slapped on various forms of public transport. In Mexico City the underground “metro” fare had already gone up before Christmas, a 66% increase from 3 pesos (23 cents) to 5 pesos. As part of a government drive to fight obesity (see article) the new levies also include a tax of 1 peso per litre on soft drinks and an 8% levy on some particularly calorific foods.

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Op-Ed: Hello 2014: For Mexico, the hard work starts now

January 3, 2014

Mexican Flag XXLBy Duncan Wood and Christopher Wilson

FT Beyondbrics, 1/3/2014

We will look back on 2013 as a truly historic year for Mexico. The scale of the reform process that was undertaken and largely achieved by President Enrique Peña Nieto is astonishing by comparison not only with other countries around the world today, but also in the context of recent Mexican history. For 15 years Mexico had seemed condemned to endure one of the less palatable elements of democratic systems, legislative gridlock. However President Peña Nieto, through a combination of determination, hard bargaining and political skill, has managed to work with the congress to pass a series of major reforms that do much to put Mexico on the road to modernity and competitiveness.

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