News Brief: IMF Management Welcomes Mexico's Comprehensive Economic Program
January 3, 1995
IMF Management Welcomes Mexico's Comprehensive Economic
Program
Acting Managing Director of the International Monetary Fund
(IMF), Stanley Fischer, made the following statement today:
"Over the past several weeks Mexican financial markets have been
under pressure, reflecting investors' concern about Mexico's external
current account deficit and uncertainties about political events. In
an effort to address financial market imbalances, on December 22, 1994
the authorities allowed the peso to float and substantially raised
short-term interest rates.
"The Mexican authorities have announced a comprehensive economic
program aimed at stabilizing the economy, restoring financial market
confidence, and deepening the process of major structural reform. The
principal goals of the program are the containment of inflation, and
the reduction in the external current account deficit by about
4 percentage points of GDP to a level that can be financed on a
sustainable basis. The program has received the support of Mexican
business and labor sectors within the context of the Agreement to
Overcome the Economic Emergency.
"The program is centered on a further strengthening of the
public finances, a restrictive monetary policy, and wage restraint.
Despite a substantial rise in interest payments, the overall public
sector balance will move to a surplus of about 0.5 percent of GDP in
1995, thereby consolidating the substantial strengthening of the
public finances achieved over the past several years. The programmed
fiscal improvement is to be achieved through cuts of current
expenditure and a temporary reduction in capital expenditure. At the
same time, the increase in the loan portfolio of development banks is
to be cut by the equivalent of 2 percentage points of GDP. The
program will be supported by a wage policy that will strengthen the
public finances and ensure the maintenance of a strong international
competitive position.
"The authorities also have announced the expansion of their
already wide-ranging privatization program to promote faster economic
growth and social development. In particular, railroad operations,
which are a major source of structural inefficiency, will be open for
private investment; Mexican financial markets will be opened to
greater foreign participation; and planned reforms in the area of
telecommunications will be accelerated.
"To underpin the program, and to ensure orderly conditions in
foreign exchange markets under the floating exchange rate regime, an
Exchange Stabilization Fund of US$18 billion has been established,
with contributions under the North American Financial Agreement, and
from the monetary authorities of other major countries and from
private commercial banks.
"After reviewing the economic policies described above, IMF
management believes that they are appropriate to the circumstances and
that they should result in low inflation, renewed economic growth, and
a significant strengthening of the balance of payments. Moreover, they
show the capacity of the authorities to respond promptly and effectively
to economic and financial developments, and need to be seen against the
background of the sound macroeconomic and structural reforms that have
been adopted over recent years. These policies provide a solid basis for
discussions on an agreement that could be supported by the use of IMF
resources, at the request of the Mexican authorities. We support the
initiatives being undertaken to assist Mexico with a secondary line of
reserves and stand ready to cooperate with the Mexican authorities as
needed."
IMF EXTERNAL RELATIONS DEPARTMENT
