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Mexico Facts of the Day

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Mexico is the country of inequality. No where does there exist such a fearful difference in the distribution of fortune, civilization, cultivation of the soil, and population.”
- Alexander von Humboldt, Problems And Progress in Mexico, c. 1800

In Mexico the law is an aspiration, not the norm. We made many laws to look good, not to obey them. There is no public condemnation of lawbreakers.”- Bernardo León, a lawyer who advised Mr Fox on judicial reform.

- By most estimates, as many as 80 percent of Mexicans do not have bank accounts.

- Compared with countries that have similar levels of development, World Bank figures show that Mexico is well behind Brazil and Chile in an important measure of banking activity — private credit as a percentage of total output. In Mexico that figure was 18 percent in 2003, compared with almost 40 percent in Brazil.

- Mexican workers are only a third as productive as those in the United States. Foreign direct investment, apart from a couple of big bank takeovers, has fallen from 3.5% of GDP in 1994 to less than 2% a decade later.

- The Inter-American Development Bank estimates that remittances from Mexicans abroad will total $24 billion this year, about a third more than the flow of foreign direct investment

Ukraine and fiscal space for growth

A recent World Bank report on Ukraine- Creating Fiscal Space for Growth: A Public Finance Review;

“Recent economic and fiscal trends in Ukraine, combined with the financing requirements of the reform agenda, have brought fiscal pressures to the fore. Ukraine’s economy grew by more than 50 percent between 1999 and 2004, but growth decelerated from 12.1 percent in 2004 to 2.6 percent in 2005. Contributing to this slowdown were less favorable terms of trade dynamics (in particular for metal prices)1 and a substantial deceleration in investment demand (partly as a result of uncertainty about government policies and cutbacks in public investment). Despite the recovery of the economy in the first semester of 2006 (5 percent growth y/y), the short term outlook is still threatened by potential further increases in energy prices in 2007. At the same time, increasing public spending threatens to crowd out the private sector. Driven by hikes in pensions and public sector wages, public spending soared from 39.4 to 44 percent of GDP in 2005, placing significant pressure on public finances. This high public spending and its consumption orientation risks generating inflationary impulses and higher interest rates, and eroding household wealth. Ukraine also has a high tax burden which discourages the private sector.”

The Chile Story

The secret behind Chile’s macro-economic stability and robust growth over the past 20 years.

- Strong fiscal discipline. Over the last two decades, only in Chile were years of fiscal deficits roughly offset by years of surpluses; most other Latin American countries displayed a bias toward deficits. Fiscal discipline was reinforced by the introduction of the structural surplus rule in 2000. The reward has been a vastly lower debt-servicing burden, as fiscal discipline resulted not only in lower government debt but also in lower real interest rates.

-A credible inflation targeting framework has helped anchor inflation expectations at a low level. Under this framework, the central bank aims at keeping inflation within a 2–4 percent target range. In recent years, the central bank has also let the peso float freely.

-The financial system was strengthened and capital markets deepened. Financial liberalization was a mainstay of policy reform in Latin American in the 1990s, mainly focusing on deregulation and privatization. Chile took strong actions to strike the right balance of market discipline and sound banking supervision, while its capital market rapidly deepened.

- Trade integration, in conjunction with a broad financial opening, was significant. Chile’s export sector, one of the most open and diversified in Latin America, has proven an important buffer against current account shocks, while also boosting Chile’s growth potential.

- Institutional arrangements were set to create a more certain macroeconomic environment. Sound economic policies and reforms have been carried out within a stable institutional framework to avoid reversals. These institutional arrangements have helped reduced the incentives problems that have led to a lack of fiscal discipline, complex and distorted trade polices, and moral hazards in the financial system see elsewhere in the region.

Haiti Fact of the Day

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