I appreciate this very intimate space that the OECD gave us for the release of this relevant document of “Going for Growth”. I am very glad that this is the forum chosen by the OECD for the release of “Going for Growth”. In a context where Finance Ministers and Central Bank Governors of the G20 are gathering for the first meeting in México.
In what context are we meeting and why is this document relevant? Overall we are meeting when the news we have been receiving, especially in the last couple of months, have been good news.
The world has moved in a direction where the weaknesses we observed at the end of last year have been brought down. Overall the news we have received from the United States are positive, also European policy decisions have contributed to abate the likelihood of a catastrophic risk.
Also, emerging countries continue with a dynamic performance, although less than it had shown in the past, still positive. Despite that direction or that movement in the right direction, the world remains in a fragile condition that forces us, as said by Secretary Gurria, to be more assertive in coordinating the different policies and the decision-making process.
There are three economic tools that can help to create a better environment for growth and welfare: On one hand, monetary policy; which in general, as the Secretary of the OECD mentioned, has been an accommodative monetary policy, oriented to give liquidity to markets and to generate an environment of low interest rates to stimulate investment. Also, an environment where fiscal policy sought to be accommodative, but, as mentioned by Secretary Gurria, the fiscal activism of some economies proved, in some cases, not to be the best recipe to deal with the environment we had, but at the end fiscal and monetary policy act on an economy that has a defined structure.
If the structure that the economy has is better, more flexible and more modern, both the fiscal and monetary policy will have a better impact. If the structure of the economy does not change, the impact of the fiscal and monetary policy will be lower.
We cannot replace fiscal policy by structural measures. Certainly, given the structure of the economy, if one relaxes fiscal discipline, as some countries did, it generates, especially in the short term, some stimulus, but the space to stop doing this task and replace it by the competitiveness given by a better structure in the economy by fiscal stimulus is already sold out, and therefore generating, agreeing and proposing measures that change the structure of our economies is especially valuable if we are to have a better environment for growth and development.
Therefore, in the G20 agenda, the adoption of structural reforms by countries is part of the discussion. On one hand, a document like this highlights opportunities in the first place; certainly when one reads the document and when you see the opportunities that are often specific to a context and a country but in other cases are general, it allows us to identify opportunities for structural change to make things better.
On the other hand, it allows us to identify which countries are doing their homework in terms of structural changes, and which ones have been less sensitive or have had fewer conditions that allow them to push such an agenda. Here we must remember that the G-20 agreed on an action plan at its Cannes meeting, and it involved the commitment, by a significant number of countries, to carry out structural reforms.
The report “Going for Growth” will allow us to give feedback on the agenda of the G-20 to check exactly how we have complied with this agenda.
There is one specific chapter about Mexico, but I will look further into some of the things mentioned in the report, and into some that were not included, but that illustrate that Mexico has been changing the structure of its economy, and here is why.
It is striking, as seen from the graph presented by Angel, that Mexico is one of the countries, that despite the complicated political context, that has pushed further structural reforms, and indeed it is noteworthy, as he also noted, that in many cases the structural reforms preceded a crisis that drove many of the mentioned countries, from the access to debt markets.
The structural reforms pushed by Mexico occurred in a context in which Mexico still had, continues to have, and will have a very good market access; this is, Mexico made its reforms and generated its consensus in peacetime.
Some countries were forced to make their reforms in an extremely complicated time, but if one goes over what we have been seeing, and why our economy today has had a more robust recovery, a job recovery that has been atypical compared to other latitudes, is partly because the structure of our economy has changed under these reforms.
The OECD highlights, for example, the response, the construction and the scaffolding put in place by Mexico on temporal employment and fighting poverty to cope with the international financial crisis; the structural reforms have an inclusion dimension. One of the challenges placed by them, is for development to be more inclusive, and this is a development that involves a particular challenge when what is seen in the OECD reports is a significant increase in the inequality in the region.
Mexico is located under this metric as a country with high inequality, but as one of the few, and in fact, according to OECD data, where inequality has been brought down more in the last decade.
It draws our attention, that in the context of the very deep crisis that we are going through, that the programs available to Mexico to strength the safety net, extreme poverty did not grow in absolute or relative terms.
It is highlighted in the document, that two radio spectrum were auctioned in a traditional way. It had passed more than a decade since one has been available to a concessioner, and for us Mexicans at the end of our day, radio spectrum increases access, quality and competition in the telecommunications sector.
The radio spectrum auctioned was reinforced by one of Federal Electricity Commission’s dark fiber that allows us to have a backbone with a national network that generates more competition and more services in the telecommunications sector.
Secretary Gurria highlighted, and I think it is important to do so, because, once again, in a complicated political context, in the congress session that ended last year, a reform, that significantly strengthens our competitive framework, was approved; which incorporates best practices that come from what the OECD has been talking about.
Another very relevant reform, also mentioned in the document, was made to Pemex, which has led it to have more independence and greater accountability, but especially; it has changed, in a very significant way and for the first time, how the contracts from the public sector are constructed.
As all of you know, the Constitution requires us to hire in the best conditions for the state, and for long it was interpreted that the best condition was defined solely by price. Pemex’s reform, among other things, allows developing that Constitutional principle to better define what better conditions mean for the State, and thus allow that the procurement made by Pemex aligns better the interests of Pemex with the interests of the contractor and to interpret in the most modern way what “better conditions for the state” mean. An innovation that has been working well and should be even weighted if it extends to further sectors.
Secretary Gurría already pointed out the changes in education and the incentives that these changes bring. Two further tax reforms in 2007 and 2009 that have strengthened our tax revenues and reaching record highs and non-oil tax revenues, reform that indeed; the first one, which allowed us to generate more revenue precisely from those sectors that had a significant flow amount, but a very low tax burden.
There have been significant legal reforms to strengthen our security system and justice, to continue consolidating Mexico as a country of laws. Very important reforms that changed the structure of our healthcare system; today, health is not an element that generates risk for many Mexicans, who have access for the first time to medicines and doctors, and therefore, nor one of uncertainty, and the one that most explains changes in deciles when a health contingency presents, so it was improved substantially.
Our housing market has been one that has given us structural strengthening, employment and growth, also in this last period of sessions, the Infonavit’s legal framework was modernized, and this will allow renewing the housing market strength as a generator of jobs.
The report also talks about the future, it says what the world economies need to do forward, and also indicates where Mexico must continue working to accelerate its growth and ensure a more inclusive development process.
It points out that we have to improve our working environment, that we have to give more flexibility to the workplace, and also notes that this increased flexibility tends to be in benefit, especially, for the young, and what we see is that part of the policy response that many of the OECD countries are facing pass by a labor reform that plays a central role in the scaffolding, decisions of public policy that must be taken.
Continue working on bringing down existing barriers for foreign direct investment in some sectors. Clearly the combination of foreign direct investment and the technology transfer which it entails is a good recipe that has been successful in Mexico and elsewhere to generate more and better jobs and growth.
We also work, as noted by the document, in the creation of specialized courts so that the judges have the technical skills required to successfully resolve issues associated, for example, to economic competition, mercantile programs or problems and of credit.
All this we have been discussing implies that the report is betting on growth. It is a very important document, a useful document for public policy evaluation, a useful document to be considered and to construct the G20 agenda; a document that highlights that if we want to overcome today’s crisis we have no other way than that of structural reforms, the rest of the policies have limitations.
A document that certifies that structural reforms are worth having and give results in the short term. A document that exhorts us, in consequence, to generate political agreements around the world and in Mexico to give the country the structure that is needed to keep growing forward, and so, without any further reference, here I end and I appreciate the opportunity to share this space with Secretary Gurria and all of you.
Mexico City, February 24, 2012
http://g20mexico.org
