Posted on 12/29/2002 1:42:25 PM PST by DeaconBenjamin
Francisco Gil Diaz, Mexico's finance minister, has defended his government's controversial policy of using some $2bn in unclaimed pension contributions to limit the budget deficit to 0.5 per cent of gross domestic product.
Although the policy drew strong support in the Mexican Congress, Mr Gil has been severely criticised by economists who think the country is passively awaiting a US economic recovery.
But Mr Gil told the Financial Times he was unrepentant and that tight fiscal policies were necessary to avoid sending Mexico into an Argentine-style crisis.
"We have a high foreign debt, and the way the market perceives us is that if we aren't disciplined with the budget they aren't going to lend to us," he said. "And if they don't lend to us we are going to end up like these other countries."
Mexico has avoided contagion from South America's financial crises, in part by maintaining a deficit target of 0.65 per cent of GDP. That target has been reduced to 0.5 per cent for 2003. Congress estimated higher oil production and prices than the finance ministry, making this target easier to achieve.
To reach the deficit target the government decided to convert workers' pension contributions, made automatically under a 1992 reform, from a liability into a contingent liability.
Mr Gil obtained permission from Congress to claim 20bn pesos (almost $2bn) from a fund for workers who did not chose a private fund manager. This will be used to reduce next year's projected deficit by almost 0.5 per cent of GDP.
Most of the funds will go towards refinancing a new rural development bank, while 1bn pesos will remain in an administered account to pay any claims.
Mr Gil stressed the government retained a duty to pay pensions to those who came forward, and described the move as "an accounting transaction".
He said that the government had undertaken several campaigns to encourage workers to claim the accounts and move the money into privately managed pensions.
"After so many campaigns and so many years the presumption is that if your money is earning 2 per cent per year in real terms and you have not claimed it, it's because either you don't know about it or you don't have the documents to claim it," he said.
Other possibilities were that workers had migrated to the US, or died, or had been working temporarily, he said.
But Rogelio Ramirez de la O, an independent economist at Ecanal, the Mexico City consultancy, said the decision would lead to legal challenges.
"It's a fallacy to say that they are taking pension funds to pay for the new farm finance vehicle," he said. "They have this budget and they don't want to touch any part of it and so they take from the pension funds."
Joseph Stiglitz, a 2001 Nobel laureate in economics and a noted critic of globalisation, met Mr Gil and other economic officials on a visit to Mexico last week and urged them to raise spending to promote growth. He said failure to invest and raise the tax take could lead to the same problems afflicting South America.
In response to the accusation that the government was passive in the face of its economic slowdown, Mr Gil said: "Is it pro-cyclical to keep a tight budget in the face of a weak economy, or is it pro-cyclical if you consider that not doing it raises interest rates, raises the exchange rate, raises inflation, and contracts the economy?"
You're correct. 25% of Mexico's workforce is in America & Bush wants to pay them SS benefits. Mexico doesn't need their own system because the gringos are stupid enough to pay benefits.
Fox shows a new level of audacity. First he accuses the US of stealing money that illegals have paid into the SS system, and then turns around and uses Mexico's funds on his budget deficit
It seems Bush is contemplating another raid of them. His friend Fox is demanding access to Social Security funds.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.