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Exclusive: Videgaray Spells out Reform Agenda 0

Dec 17, 2012

Mexico’s new finance minister Luis Videgaray says he is confident political consensus now exists to shake up state oil company Pemex and overhaul the country’s fiscal regime through a bold set of reforms to be carried out next year. In his first interview with the foreign or local print media since taking office this month, Videgaray tells LatinFinance that an overhaul of the country’s fiscal system will be central to boosting competitiveness and raising potential GDP from 3% to near 6% in the coming years, a key electoral pledge. "This not just a marginal twist in the fiscal regime. We need to do a true overhaul of our fiscal structure in order for this to be possible," he says. The fiscal reform will have three main objectives: to simplify the system in order to boost competitiveness; to create a level playing field for taxation; and to enhance the efficiency of public finances at both federal, state and municipal levels. He says that fiscal responsibility is at heart of his government’s economic agenda and underpins plans to return the budget deficit to zero in 2013. "We need to send a signal that we are committed to stability regardless of where the market moves and that’s what we will do," Videgaray says. Lawmakers last week approved the revenue portion of the government’s proposal for a balanced budget, extending a rally in Mexican assets since the government took office at the start of the month. Videgaray, a former finance minister for the State of Mexico, cites as evidence of a fresh drive towards fiscal prudence a new law on sub-sovereign debt management, announced December 1 by President Enrique Pena Nieto, to be sent to Congress in the new year. It follows recent legislation to increase the transparency and accountability of local governments. The reforms are "two key pieces [of legislation] to move quickly in the direction of more transparent, more accountable and more fiscally responsible state governments." Videgaray reiterates his government’s commitment to push for reforms next year at Pemex. He says the goal of the reform would be to bring "capital and expertise" to the company, income from which funds roughly a third of the federal budget. "Pemex is a very good company at doing some things but has not enough experience or expertise at doing some others." The company "needs to team with other players in the international energy arena that can bring capital and expertise so that's the key of the reform, to allow Pemex to partner with such players," he says, but insists the company would remain in state hands. "We’re not thinking of Pemex to be privatized and we’re not thinking about selling reserves. It’s about allowing Pemex to act more as a company and to be a true global player that can partner and cooperate with others in these huge opportunities that are in front of us." Videgaray says he is confident reforms to shake up the energy sector and the tax system will succeed where past efforts have failed. All political parties are "alert to the importance of doing this, and to the cost of delaying a fiscal reform." "It’s a major innovation to have the opposition parties approach the government and seal a pact to work together," he adds. Asked whether he was confident an agreement to reform Pemex will be reached within his ruling Institutional Revolutionary Party (PRI) – long seen as opposed to such measures – Videgaray says: "Absolutely, otherwise we wouldn’t be doing it." To read the full exclusive interview with Videgaray, see the January/February edition of LatinFinance.

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