Why Mexico needs a fiscal reform?

the territorial dimension

Paris, 26 March 2007

1. Globalisation / Decentralisation

2. Growing disparities between regions

3. Ineffectiveness of conventional policies

and governance

Does this sounds like Mexico?

Territorial disparities in OECD Countries (gdp per capita 94-2000)

.20

0

.17

8

.15

9

.15

3

.14

5

.14

0

.13

6

.12

9

.12

6

.12

4

.11

6

.10

6

.10

1

.09

7

.08

9

.08

5

.08

2

.07

0

.06

7

.06

5

.05

7

.05

4

.04

6

.04

1

.03

4

.000

.050

.100

.150

.200

.250

ME

X

US

A

HU

N

ITA

DE

U

PR

T

CA

N

AU

T

SV

K

ES

P

GR

C

UK

D

PO

L

BE

L

IRL

NL

D

KO

R

FIN

FR

A

JPN

DN

K

AU

S

NO

R

CZ

E

SW

E

Economic Growth and Regional Disparities

Growth

3.5%3.0%2.5%2.0%1.5%1.0%.5%

Regional Disparity

4%

3%

2%

1%

0%

-1%

-2%

-3%

US

UK

Spain

Slovak Rep.

Portugal

Norway

Netherlands

Mexico

Japan

Italy

Hungary

Greece

Germany

France

Finland Denmark

Czech Rep.

Canada

Belgium

Austria

Australia

Adopting a ‘territorial approach’ ?

an example of what NOT to do…

factors of national growth are strongly localised

promoting national growth requires improving the use of these factors within regions

regional policies

1971 1996

When spending forgets the ‘regional dimension’: the case of Italy

Centre-West

South-Southeast

Centre

Northwest

Northeast

Individual and territorial disparities + unused potential

> Threats to Mexico’s competitiveness and cohesion

32 %

70 %

MEXICO: fiscal reform can’t ignore the regional dimension

3 key territorial challenges …and potential resources

Dispersion

Rural development challenges

Concentration

Urban developmentchallenges

+ cross-border dimension

Metro-urban dimension: the case of the ZMVM

Federal Government

Federal District State of Mexico State of Hidalgo

Delegaciones Municipalities Municipalities

Non-Governmental actors

metropolitan commissions…

do / can actors co-operate?

cost…63/66

1. Rural Mexico not synonymous with decline

2. …nor is synonymous with agriculture

Rural dimension

What is the spending strategy?

Cross-border dimension: Mesoamerica1. Strategic geo-political location

PANAMÁ

BELMOPAN

SAN JOSÉ

GUATEMALA

TEGUCIGALPA

Sto. Tomas

Flores

San Pedro Sula

Quetzal

Cutuco

MANAGUA

Limón

La Ceiba

ChetumalPUEBLA

CoataacoalcosVillahermosa

XPUJIL

Tuxpan

Tampico

SAN SALVADORKey

Pacific Corridor

Inter-oceanic corridors

Caribbean tourism corridor

SE Mexico highway expansion

Central andNorthern MexicoNorth America North America

Europe

Europe and South America

South America

Asia

NorthAmerica

SouthAmerica

Territorial approach: rethinking multi-level governance

Federal

Regional

Local

Upper Horizontal co-ordination

Mechanisms

Vertical co-ordination

Local horizontal co-ordination

Objetcive:

• Finding the right mix of knowledge/responsibilities/resources

Key issues

1) need to tackle the disparities issue

2) fiscal reform crucial for regional policy

3) regional policy can support fiscal reform

long-term vision, political commitment are key