Mexico

Mexico, the second largest economy in Latin America, is recovering from a brief but very deep recession, resulting mostly from its heavy reliance on oil exports and its trade with the United States.

According to CONEVAL(e) (National Council on Evaluation of Social Development Policy) the number of Mexicans living in poverty increased by 3.2 million from 2008 to 2010, following the global economic crisis. It implies that around 46.2 percent of Mexico's total population (52 million people), live in poverty, mainly in urban areas. Meanwhile, extreme poverty (those living with less than $978 pesos (US$76) a month in urban areas and less than $684 pesos (US$53) in rural areas (August 2010) ) reduced slightly from 10.6 to 10.4 percent (11.7 million people).The fact that extreme poverty held steady over that period is attributed to targeted social protection programs such as the 'Oportunidades' Conditional Cash Transfer iniciative and the Seguro Popular universal health insurance.

Violence has taken a high toll on Mexico, mainly from wars between rival drug cartels. More than 15,000 people were killed in 2010 in drug-related violence. There were 12,903 deaths related to presumed delinquent rivalry in the first nine months of 2011, according to statistics of the Office of the Mexican Attorney-General (PGR).

President Felipe Calderon has made public security a priority for his administration, launching aggressive operations against organized crime and drug traffickers. However, since President Calderon launched his offensive against drug cartels, violent crime has been steadily escalating. More than 47,000 people have been killed since the crackdown began. According to the Federal Government, the intensification of the violence is a sign of the weakening of the cartels, as the offensive has disrupted their trafficking routes and forced them to battle each other for control of the narcotics business.

On July 1st, 2012, presidential elections will be held in Mexico and the new President will start to exercise his post on December 1st, 2012. Additionally, the country will elect in the same process 128 Senators and 500 Congressmen, the total of both chambers.

After being hit hard by the global economic crisis and the collapse of international trade in 2009, when Mexico's GDP fell by 6.1 percent, the economic activity recovered and grew 5.4 percent in 2010.

The rebound was driven by a higher external demand due to the recovery in U.S. industrial production. In the near term, a larger contribution from private consumption and investment is expected, given that the recovery of trade and industrial activity is leading to a rebound in employment, credit to private sector and consumer confidence.

During 2011, Mexico’s economic growth was moderate and reached 3.9 percent and it is expected to stay at 3.3 percent in 2012. External demand for Mexican manufactured goods is projected to persist but it will normalize compared with its sharp post-crisis rebound. Trade and current account deficits will increase as domestic demand starts to play a larger role in the economic recovery. Progress on the economic reform agenda and higher levels of investment in public infrastructure over the past few years are likely to raise potential growth. The government has based its medium-term fiscal outlook on an annual economic growth of 3.9 percent for 2013-2017.

Inflation pressures have been falling down this year after the concerns generated for higher food prices (particularly grains) at the end of 2010. By the end of 2011, consumer prices recorded a variation of around 3.8 percent, within the range of 2 to 4 percent that the Mexican Central Bank has determined as inflation objective in the medium term. The consensus among analysts is that the Central Bank will not hike the policy rate until the second half of 2012.

In light of the recent financial developments around the globe, the Bank has changed its relationship with Mexico by emphasizing the flexible design of the Country Partnership Strategy for Mexico. This has facilitated a timely and effective Bank response in the face of a deteriorating international environment.

Mexico has had a longstanding partnership with the World Bank Group encompassing the delivery of a full menu of financial, knowledge and coordination and convening services. In addition, there has been an active engagement in sharing with other countries jointly developed areas of best practice and innovation.

COUNTRY PARTNERSHIP STRATEGY (CPS)

A broad range of knowledge products was agreed to meet growing demand. With the unbundling of financial and knowledge services, the new CPS foresaw the need to move beyond an ESW*-driven AAA** program to one that, with a variety of knowledge services to strengthen knowledge transfer associated with project preparation and implementation, deepens dialogue and meets emerging needs.

• One of the centerpieces of the Bank response is the Economic Response DPL. The operation builds on knowledge services, including recent Bank studies on competition, access and development banks and capital markets development.

• Implementation of the CPS in terms of financing was determined largely by the evolution of the economic downturn and the prospects for growth, and the Bank's financial capacity to play an important financing role.

• As the current CPS is valid between the 2008 and the 2013 fiscal year, a new CPS will be discussed and elaborated between the World Bank and the Mexican government during the first semester of 2013.

* ESW: Economic and Sector Work
** AAA: Analytical and Advisory Activities

The Bank demonstrated to be a strong partner for Mexico during the global economic recession providing unprecedented IBRD resources for crisis response programs. As of January 31st, 2012 Mexico is the IBRD’s 5th largest portfolio.

The Bank Group also has a very active portfolio of grants in Mexico. Mexico is among the top 5 major recipient countries that take advantage of the use of trust funds. They are closely linked with Mexico IBRD lending program providing substantial support to project preparation activities, related analytical work and project co-financing.

The Bank is offering a wide range of instruments to channel knowledge to Mexico, including in-time technical support, and fee-based-services. As an innovative Middle Income Country (MIC), Mexico has increased its engagement in learning with other developing countries. Flagship programs, such as CCT Oportunidades, receive numerous delegations from other countries, most of which are organized by the Bank.

The framework for moving forward, agreed with Mexico, includes a major effort to accelerate reforms to meet longer term development challenges in areas where the Bank has been engaged with financial and knowledge services: social protection, health, education, water, public sector management and private sector development, including finance and regulatory reforms, and Small and Medium Enterprises (SMEs)-related work.

Programs designed to protect the most vulnerable, the environment and to improve the government’s efficiency have had notable success. The World Bank's portfolio in Mexico is currently comprised of 17 active projects and 13 knowledge-service products.

In order to tackle poverty, the Government requested the Bank to help over 5 million low-income families -25 million people or a quarter of the population- by increasing financing for the support of Oportunidades Program, which has become one of the most successful World Bank initiatives in Mexico.

Mexico’s environment was also at the forefront of the Bank's climate change efforts. For example, the WB approved a US$ 300.75 million Development Policy Loan (DPL) to support the institutionalization of policies that improve social resilience to extreme situations, especially those linked to climate change. Among the actions the DPL promotes are State-level climate change action planning, disaster risk reduction, as well as sustainable forest management at a community level.

Moreover, the World Bank approved the Efficient lighting and appliances project for US$250.63 million loan plus a US$ 7.11 million grant of the Global Environment facility additioned by a US$50 million grant of the Clean Technology Fund to promote Mexico's efficient use of energy and to mitigate climate change by increasing the use of energy-efficient technologies at the residential level.

The Bank also approved a Development Policy Loan to Strengthen the Business Environment for Enhanced Economic Growth for the amount of US$751.8 million. This program support economic policies that will strengthen Mexico´s business environment and the micro-economic foundations for enhanced economic growth and employment generation. This will be achieved by strengthening the conditions for competition in crucial markets, in particular the telecommunications sector and public procurement.