In a formal appearance before Congress to defend the Government’s 2011 Budget, Finance Minister Ernesto Cordero warned of a repeat of past economic crises if the PRI proposal to cut value added tax rates passed. “To reduce revenues while at the same time increasing the deficit, would create the risk of falling into an unsustainable debt situation that could cause another crisis of internal origin, such as occurred in 1976, 1982 and 1986,” he said. “To weaken the tax base in this moment would be irresponsible, at the time when we are emerging from the need to have to borrow. It is inconsistent when we are ending the need to borrow to lower taxes. Never in the history of the country has a reduction in tax rates increased tax revenues.”(Universal 9/15)
President Calderón and Finance Secretary Ernesto Cordero announced administrative measures that are designed to reduce the burden of complying with Mexico’s tax laws. The steps include: eliminating the monthly declaration of the Single Rate Corporate Tax (IETU) in favor of a single annual declaration; eliminating the annual declaration of Value Added Tax, since the tax payments and declarations are already made monthly; eliminating the requirement for audited financial statements for filings made with Hacienda and the Social Security Institute; enabling taxpayers with credit balances from the Tax on Cash Deposits (IDE) to get refunds without having to present audited financial statements; and extending the validity of electronic signatures for four years from the current two. The President said that these measures and other steps (already implemented and to be implemented) to allow for electronic filing of forms would save companies Ps. 15 billion per year and reduce by 40% the time needed to meet tax obligations, therby putting Mexico at the median of OECD countries. (Hacienda 6/30)
Secretary of Finance Ernesto Cordero and banking commission chairman Guillermo Babatz announced restrictions on deposits of cash dollars to curb money laundering from drug trafficking. “The Mexican banking system is receiving a large quantity of cash dollars, far beyond what could be explained by economic activity. There exists the presumption … that many of these dollars have an illicit origin,” Cordero said. Individuals will be limited to making dollar cash deposits of US$4,000 per month (if they have a bank account) or US$1,500 per month (if not). Companies that operate in tourist regions and the border region will be limited to US$7,000 per month in cash deposits. The regulations will also “reinforce measures against money laundering, including the knowledge, identification, and monitoring of [bank] customers, non-customer users of the banks, and their exchange transactions.” The new regulations do not affect dollar sales by financial institutions, or non-cash transactions; they go into effect on June 21 for individuals and in 90 days for companies. (Universal 6/16, NYT 6/16, Hacienda 6/15)
In a break with tradition, newly-appointed Banco de México Governor Agustín Carstens invited Finance Secretary Ernesto Cordero and Undersecretary Alejandro Werner to attend the Bank’s first policy meeting of the year. In addition, the Bank and Ministry of Finance jointly announced a decision to start accumulating international reserves. Noted columnist José Yuste, “This would be the first large scale joint operation between the Bank and Hacienda, inaugurating a new relationship between Carstens and Cordero, together with President Felipe Calderón himself. People speak of an understanding which remembers that the central bank is an institution of the federal government.” (Excelsior 1/27)
The key economic policymakers, in their new roles, gave similar perspectives on the economy in back-to-back presentations at the ITAM’s annual economic conference. Banco de Mexico governor Agustín Carstens said that the economic recovery that began in the second half of 2009 will continue, and that any increase in inflation that resulted from higher taxes and increased fuel prices was likely to be transitory and not require a policy response from the central bank. Finance Secretary Ernesto Cordero emphasized the positive contribution from the government’s reform initiatives: the liquidation of Luz y Fuerza, the energy reform, the liberalization of investment rules for pension funds, and the modernization of public-private partnership investment rules. The consensus outlook for 2010 is economic growth of about 3%, and inflation of about 5%.
Their presentations may be found on the Hacienda and Banxico websites.
The new Secretary of Finance, Ernesto Cordero, ratified the three current undersecretaries in their posts, squashing speculation that there could be a wholesale exodus of officials. In a press release, the Ministry said that Undersecretary of Finance Alejandro Werner, Undersecretary for Income José Antonio Meade, and Undersecretary for Expenditures Dionisio Pérez Jácome would all remain in their posts. The 12/22 statement said:
The officials have been instructed to guarantee the conditions for stability of the Mexican economy, as well as to deepen the various projects in their respective areas in order to carry out a fundamental economic reform, with substantive transformations that will enable the Mexican economy to become more competitive, with accelerated and sustained rates of economic and job growth, while safeguarding at all times the soundness of public finances.
The naming of Ernesto Cordero, 41, as Minister of Finance drew mixed reviews. Business Coordinating Council president Armando Paredes endorsed the choice and said the private sector looked forward to working together with him on the needed economic reforms. Echoing many others, former Foreign Minister Jorge Castañeda wrote that, “For the first time since [Luis Echeverría named José López Portillo as Minister of Finance in 1973] the leadership of Hacienda is in the hands of someone nominated for exclusively political motives and without the best evident technical qualifications.” (Reforma 12/10, 12/10)
Breaking a long silence, Banco de Mexico governor Guillermo Ortiz said he would be willing to serve a third term as head of the bank: “If the President and the Congress think that I can continue to be of service, I will do so with great pleasure; I will never say no to Mexico,” Ortiz said. The President is expected to make his nomination, which must be ratified by the Senate, this week. Calderón has been believed to have a clear preference for putting Agustín Carstens in the central bank, with Ernesto Cordero taking over at the Ministry of Finance. However, as columnist Salvador García Soto noted, the trial balloon of Cordero’s name “was not well viewed by Congress—particularly by the PRI Senate delegation—or by influential Wall Street voices who lack knowledge of the current Minister of Social Development.” (Universal 12/3, 12/5)
Finance Minister Agustín Carstens responded vigorously to the comments made earlier in the week by Nobel prize winning economist Joseph Stiglitz. Speaking at a conference in Mexico, Stiglitz said that Mexico’s response to the global financial crisis had been “unusual” with a “relatively weak” fiscal stimulus in contrast to the actions of many other countries. He added that Mexico needed to diversify its exports, and that relying on economic recovery in the U.S. was unlikely to result in a strong recovery since the world’s growth is concentrated in Asia. Stiglitz also said the government need to invest not only in infrastructure but also in technology, education, and programs for improving economic opportunity. Carstens responded by noting that the government had to respond to the twin crises that hit Mexico–the global recession and the 800,000 b/d decline in oil production. “We did not have the option of contracting more debt. One has to act responsibly, and this is what President Calderón decided and did,” Carstens said. Economy Secretary Ernesto Cordero said that Stiglitz “needed to read a bit more on Mexico” before making comments. The Templo Mayor column observed: “Wow. Looks like the Minister of Finance has decided to celebrate the anniversary of the Revolution by shooting at Nobel Prize winners.” (Universal 11/19, 11/20, Reforma 11/20)