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2003 OECD Economic Surveys: Mexico 2003

image of OECD Economic Surveys: Mexico 2003

This 2003 edition of OECD's periodic review of Mexico's economy includes special features on structural reform and migration.

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Challenges Ahead for Macro-Economic Policy and the Financial Sector

This chapter reviews recent macroeconomic policy developments and outcomes. It also explores ways in which fiscal and monetary policies can contribute to Mexico’s core priority of raising actual and potential growth rates of per capita GDP. The fiscal policy setting can support growth, via higher and more predictable spending on infrastructure, basic health programmes and targeted poverty relief, provided the overall size of the government is not excessive. It also requires a tax system that provides adequate financing, without creating distortions and inefficiencies. To this end a tax reform is needed to generate higher, more stable and broader-based revenue than is currently the case. Monetary policy can help by achieving and maintaining a low-inflation environment in which allocation of investible resources becomes more efficient26, provided that the financial sector is fulfilling its intermediation role. In this context, it is noteworthy that Mexico has already made significant progress towards low inflation and avoiding excessive macroeconomic fluctuations. Fiscal discipline was maintained in 2002, with the public sector borrowing requirement being brought down to close to 3 per cent of GDP, while monetary conditions have eased, with interest rates reaching a historical low by mid-2003. The chapter first reports on fiscal policy and public debt management, including a discussion of medium-term issues in tax policy and budget planning. The second section reports on monetary policy. The final section highlights recent improvements in the financial sector, addressing the key question of whether it is now in shape to resume broad-based lending to the private sector...

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