Mexicos government hopes this year to launch the tax
overhaul that is its only permanent ticket out of the economic
doldrums, in the face of an emboldened opposition, Finance
Minister Ernesto Cordero has said.
There is some agreement, Cordero told
Emerging Markets this weekend in Cancun. Now we
have to get down to details, and see how far these agreements
will take us and whether theyll allow us to
present a solid, responsible fiscal reform proposal to
Mexico was the Latin American country worst hit by the
global recession. In 2009, growth dived 6.5%, as demand fell
among US consumers who buy most of its exports. Now, as US
manufacturers bounce back, Mexico is hitching a ride, and local
demand is picking up too. An initial 2010 growth estimate of
3.9% is likely to be increased.
But without radical reform, Mexico, with its abysmally low
tax take, will never achieve sustained growth, instead having
to piggy-back on US growth spurts.
Its great that now we can expect Mexico to grow
between 4% or 5%, Cordero said. But if we made
headway on our structural reform agenda ... we could expect it
to grow at 6% or 7 %.
Fiscal reform is President Felipe Calderóns
economic holy grail, but Congress has only tweaked an
inefficient tax structure. Negotiations flounder over value
Increasing the VAT rate is seen as the easiest way to raise
the tax take. A slight increase last year raised total revenues
to 15% of GDP, but exemption of foods and medicines costs
dearly. The majority opposition Institutional Revolutionary
Party (PRI) has a working-class base, and removing those
exemptions is considered politically unwise.
As the PRI, which ruled Mexico for 70 years before
Calderons party ousted it in 2000, barrels toward a
likely 2012 presidential victory, it will not likely back down,
especially with key gubernatorial elections this year.
But Cordero is hopeful. Right now were talking
to everyone ... comparing notes and discovering where we
coincide, he said. Were open to absolutely
Mexicos fiscal problems partially stem from
constitutional blocks on foreign participation in the oil
sector, which keep deep water reserves largely out of reach.
Cordero was less upbeat on oil reform, saying Mexico would
first have to wait to see how a previous round of partial
reforms played out.
Mexicos peso weakened after a long rally this week,
relieving exporters, after Cordero said the government would
buy up more dollars and currency traders bet on
But he said the dollar hoarding was simply aimed at
bolstering Mexicos foreign currency defences in case of
We have no intention of trying to influence the exchange
rate, he said. In Mexico we believe in a free