Public Financial System Consolidation

closed

In the last three years the authorities have performed a series of financial reforms in the banking sector, the stock market and the promotion of the saving and the popular credit. The objective of these reforms has been the fortification of the market mechanisms and the deepening and extension of the financial markets. The present operation of US$600 million, with two equal sections of US$300 million each one, will support the implantation of directed measures to continue and to deepen the process of policies reforms in three areas: 1) the banking system: The Mexican banking system has been solidifying its capital base and resuming the credit granting. In spite of the important advances, still an important increase of the credit to the PYMEs and certain reforms to the frame of supervision of the regulated financial organizations are needed. The measures considered in the project will include the strengthening of the mechanisms of early alert, sanctions regime, as well as the intervention faculties and corrective action of the CNBV. In addition, measures will be implanted to reduce the transaction costs of the credit operations to the PYMEs. 2) The capital markets: The stock-exchange financing has been growing rapidly in Mexico, impelled by the increase of the financial saving. The resources canalized through the institutional investors (Administrators of Pensions Funds, Investment funds) have been growing, increasing near approximately 2% of the GIP in 1997 to near 10% of the GIP by the end of 2003. In order to adjust to the last developments of the market and to the best international practices, the authorities are considering to make a series of modifications to the regulatory frame of the capital market. Within the Program directed measures are contemplated to strengthen the protection of the minority stockholders, the schemes of corporative government and the obligations to reveal and publish information. Also, mechanisms will be explored to facilitate the access from the PYMEs to the capital markets. 3) Public debt market: Like in other countries, in Mexico the public debt markets have been a very important factor in the development of the market of debt in general. The deliberate strategy applied by the authorities has allowed to the diversification of instruments and the expansion of terms generating an efficiency curve that today reaches the twenty years with instruments of fixed rate. That effort has allowed the consequent development of the market of private debt. The operation will include measures to gather and to extend this experience, that will be directed to introduce improvements in the mechanisms from information to the market, the development of new instruments, the diversification of the base of investors and the institutional strengthening of the institutional mechanism of the public debt.