Latin Finance - September/October 2014 - 49

ups in big public works. It also affected
the smaller elements of administration.
Kimberly Clark, the government's main
supplier of toilet paper, for example,
saw government sales decline by about
a third, says Casillas. But public investment increased at a record rate in the first
quarter of 2014, which will spur growth
in coming months, says Oviedo. Though
not much will come of it in 2014, the
National Infrastructure Plan, revealed in
May, envisages infrastructure spending
at almost half a trillion dollars from 2014
to 2018: 70% higher than in a similar plan
from the previous government, according
to Oviedo.
US growth
The second short-term factor Carstens
gives for lower growth is output in the
much larger economy next door. "The
performance [of the US economy] over
the past year was not as favorable as
expected. Certainly, the first quarter of
this year was quite disappointing," says
Carstens.
"The good news is that apparently we
are seeing a much stronger [US] recovery.
There is to some extent a consensus that
[US] growth in the coming quarters will
be about 3%. That will feed into Mexico."
The part of the US economy most critical to Mexican growth - manufacturing,
which generates demand for Mexicanmade components - is doing relatively
well, notes Oviedo.
Carstens' third factor is the aftermath
of over-construction in housing. That,
coupled with changes to low-income
housing subsidies under Peña Nieto, led
some homebuilders into default in 2013.
This is a trouble-spot that Carstens says is
"in the process of being resolved".
"We expect that the rate of growth in
the coming quarters will be much better
than in the first quarter of this year," says
Carstens.
Oviedo has doubts whether a rebound
in the construction sector is imminent.
He also points to a decline in oil production this year, due to technical difficulties,
as a factor in the slower growth that may
or may not improve in coming quarters.
However, according to Oviedo's research,
quarter-on-quarter growth is already
improving (see graph).
Starting next year, says Carstens,
Mexico could gradually start to feel the
effect of Peña Nieto's structural reforms.
Carstens reckons the potential rate of

AGUSTÍN CARSTENS, BANCO DE MÉXICO

"WE EXPECT THAT
THE RATE OF
GROWTH IN THE
COMING QUARTERS
WILL BE MUCH
BETTER THAN IN THE
FIRST QUARTER OF
THIS YEAR"
growth will gradually increase from between 3% and 3.5% today to around 5% by
2018, at the end of the presidential term,
as a result of the reforms, including in
energy, where secondary legislation was
passed in August.
"Starting in 2015 we expect that gradu-

ally the different aspects of the structural
reforms will start kicking in," he says.
According to Carstens, one Peña Nieto
reform - helping commercial banks use
guarantees from Nafin, a development
lender - is already having an impact, in
this case on lending to small and mediumsized enterprises. "It has to be remembered that Mexico is one of the countries
in Latin America with the lowest proportion of credit to the non-financial private
sector as a proportion of GDP," he says.
"There is a lot to be done in financial
markets," says Carstens. "This will be very
important to get growth going."
Amid the slowdown, non-performing
loans increased as a proportion of total
loans from 2.5% in 2012 to 3.4% 2013, says
José Pérez-Gorozpe, a banks analyst at
Standard & Poor's. Loan growth, however,
is likely to increase to 12% in 2015, he says:
and the fastest growing segment (though
from a low base) is lending to small and
medium-sized enterprises. LF

Public finance

Saving up oil revenues
Mexico hopes the country's energy reforms will ultimately bolster its creditworthiness,
by using a sovereign wealth fund to make best use of windfall oil revenues.
Under its energy reform laws, the government can budget for oil revenues of no
more than 4.7% of GDP in any given year. That is the same proportion the state received from the industry in 2013.
Any extra earnings will be channeled into the new fund. This pot is to be untouched
for the first few years, until it holds cash equal to 3% of GDP - around $40 billion today.
Once it hits that level, 70% of the surplus can be allocated to certain defined purposes,
including a universal pension fund, renewable energy projects, and infrastructure.
The ministers of energy and finance, the central bank governor, and four government-nominated members will oversee the fund.
It will be administered by the central bank. The fund will follow the Santiago Principles on governance and transparency agreed by a group of sovereign wealth funds in
2008 in the Chilean capital, Agustín Carstens, governor of the bank, tells LatinFinance.
Carstens says "it will take some time" for the fund to reach 3% of GDP, with the exact
period depending on oil prices and production. Given the time needed to bring new
production on stream, it is unlikely to reach that level before 2032, estimates Marco
Oviedo, chief Mexico economist at Barclays.
"At least two or three years will have to pass before we have a significant amount to
manage in the sovereign wealth fund," says Carstens. "It will take longer than that to get
to 3% of GDP."
Meanwhile, of the 4.7% of GDP that will go into the government's annual budget,
close to half - 2.2% of GDP - will go to a revenues stabilization fund. This will contribute to the government's budget in the event of an economic contraction, fall in the oil
price, or decline in production. Given the current GDP, around $1.3 billion annually
would go into the revenues stabilization fund. LF

September/October 2014 - L ATINFINA NCE.COM 49


http://www.LATINFINANCE.COM

Latin Finance - September/October 2014

Table of Contents for the Digital Edition of Latin Finance - September/October 2014

Table of Contents
Latin Finance - September/October 2014 - Cover1
Latin Finance - September/October 2014 - Cover2
Latin Finance - September/October 2014 - Table of Contents
Latin Finance - September/October 2014 - 2
Latin Finance - September/October 2014 - 3
Latin Finance - September/October 2014 - 4
Latin Finance - September/October 2014 - 5
Latin Finance - September/October 2014 - 6
Latin Finance - September/October 2014 - 7
Latin Finance - September/October 2014 - 8
Latin Finance - September/October 2014 - 9
Latin Finance - September/October 2014 - 10
Latin Finance - September/October 2014 - 11
Latin Finance - September/October 2014 - 12
Latin Finance - September/October 2014 - 13
Latin Finance - September/October 2014 - 14
Latin Finance - September/October 2014 - 15
Latin Finance - September/October 2014 - 16
Latin Finance - September/October 2014 - 17
Latin Finance - September/October 2014 - 18
Latin Finance - September/October 2014 - 19
Latin Finance - September/October 2014 - 20
Latin Finance - September/October 2014 - 21
Latin Finance - September/October 2014 - 22
Latin Finance - September/October 2014 - 23
Latin Finance - September/October 2014 - 24
Latin Finance - September/October 2014 - 25
Latin Finance - September/October 2014 - 26
Latin Finance - September/October 2014 - 27
Latin Finance - September/October 2014 - 28
Latin Finance - September/October 2014 - 29
Latin Finance - September/October 2014 - 30
Latin Finance - September/October 2014 - 31
Latin Finance - September/October 2014 - 32
Latin Finance - September/October 2014 - 33
Latin Finance - September/October 2014 - 34
Latin Finance - September/October 2014 - 35
Latin Finance - September/October 2014 - 36
Latin Finance - September/October 2014 - 37
Latin Finance - September/October 2014 - 38
Latin Finance - September/October 2014 - 39
Latin Finance - September/October 2014 - 40
Latin Finance - September/October 2014 - 41
Latin Finance - September/October 2014 - 42
Latin Finance - September/October 2014 - 43
Latin Finance - September/October 2014 - 44
Latin Finance - September/October 2014 - 45
Latin Finance - September/October 2014 - 46
Latin Finance - September/October 2014 - 47
Latin Finance - September/October 2014 - 48
Latin Finance - September/October 2014 - 49
Latin Finance - September/October 2014 - 50
Latin Finance - September/October 2014 - 51
Latin Finance - September/October 2014 - 52
Latin Finance - September/October 2014 - 53
Latin Finance - September/October 2014 - 54
Latin Finance - September/October 2014 - 55
Latin Finance - September/October 2014 - 56
Latin Finance - September/October 2014 - 57
Latin Finance - September/October 2014 - 58
Latin Finance - September/October 2014 - 59
Latin Finance - September/October 2014 - 60
Latin Finance - September/October 2014 - 61
Latin Finance - September/October 2014 - 62
Latin Finance - September/October 2014 - 63
Latin Finance - September/October 2014 - 64
Latin Finance - September/October 2014 - 65
Latin Finance - September/October 2014 - 66
Latin Finance - September/October 2014 - 67
Latin Finance - September/October 2014 - 68
Latin Finance - September/October 2014 - 69
Latin Finance - September/October 2014 - 70
Latin Finance - September/October 2014 - 71
Latin Finance - September/October 2014 - 72
Latin Finance - September/October 2014 - 73
Latin Finance - September/October 2014 - 74
Latin Finance - September/October 2014 - 75
Latin Finance - September/October 2014 - 76
Latin Finance - September/October 2014 - 77
Latin Finance - September/October 2014 - 78
Latin Finance - September/October 2014 - 79
Latin Finance - September/October 2014 - 80
Latin Finance - September/October 2014 - 81
Latin Finance - September/October 2014 - 82
Latin Finance - September/October 2014 - 83
Latin Finance - September/October 2014 - 84
Latin Finance - September/October 2014 - 85
Latin Finance - September/October 2014 - 86
Latin Finance - September/October 2014 - 87
Latin Finance - September/October 2014 - 88
Latin Finance - September/October 2014 - 89
Latin Finance - September/October 2014 - 90
Latin Finance - September/October 2014 - 91
Latin Finance - September/October 2014 - 92
Latin Finance - September/October 2014 - 93
Latin Finance - September/October 2014 - 94
Latin Finance - September/October 2014 - 95
Latin Finance - September/October 2014 - 96
Latin Finance - September/October 2014 - 97
Latin Finance - September/October 2014 - 98
Latin Finance - September/October 2014 - 99
Latin Finance - September/October 2014 - 100
Latin Finance - September/October 2014 - Cover3
Latin Finance - September/October 2014 - Cover4
https://www.nxtbook.com/nxtbooks/latinfinance/0319QMR
https://www.nxtbook.com/nxtbooks/latinfinance/1218JYM
https://www.nxtbook.com/nxtbooks/latinfinance/paraguay_2018
https://www.nxtbook.com/nxtbooks/latinfinance/8320YTM
https://www.nxtbook.com/nxtbooks/latinfinance/8465TBM
https://www.nxtbook.com/nxtbooks/latinfinance/1476YBW
https://www.nxtbook.com/nxtbooks/latinfinance/7835THM
https://www.nxtbook.com/nxtbooks/latinfinance/8655TGL
https://www.nxtbook.com/nxtbooks/latinfinance/0614IJP
https://www.nxtbook.com/nxtbooks/latinfinance/ecuador_20170910
https://www.nxtbook.com/nxtbooks/latinfinance/2713KNP
https://www.nxtbook.com/nxtbooks/latinfinance/4982CFT
https://www.nxtbook.com/nxtbooks/latinfinance/7803HWE
https://www.nxtbook.com/nxtbooks/latinfinance/3829THA
https://www.nxtbook.com/nxtbooks/latinfinance/7891MDD
https://www.nxtbook.com/nxtbooks/latinfinance/7714JCR
https://www.nxtbook.com/nxtbooks/latinfinance/5619CMK
https://www.nxtbook.com/nxtbooks/latinfinance/6939ASL
https://www.nxtbook.com/nxtbooks/latinfinance/1364ASF
https://www.nxtbook.com/nxtbooks/latinfinance/0453DAS
https://www.nxtbook.com/nxtbooks/latinfinance/0453DAS_supp
https://www.nxtbook.com/nxtbooks/latinfinance/1304APV
https://www.nxtbook.com/nxtbooks/latinfinance/7234GSD
https://www.nxtbook.com/nxtbooks/latinfinance/1643XGS
https://www.nxtbook.com/nxtbooks/latinfinance/9511JKM_supp
https://www.nxtbook.com/nxtbooks/latinfinance/9511JKM
https://www.nxtbook.com/nxtbooks/latinfinance/8745TNV
https://www.nxtbook.com/nxtbooks/latinfinance/3629PBC
https://www.nxtbook.com/nxtbooks/latinfinance/7466TBC_HSBC
https://www.nxtbook.com/nxtbooks/latinfinance/7466TBC_supp
https://www.nxtbook.com/nxtbooks/latinfinance/7466TBC
https://www.nxtbook.com/nxtbooks/latinfinance/9463RVB
https://www.nxtbook.com/nxtbooks/latinfinance/7345GPY
https://www.nxtbook.com/nxtbooks/latinfinance/6398TVB
https://www.nxtbook.com/nxtbooks/latinfinance/4899EXM_supp
https://www.nxtbook.com/nxtbooks/latinfinance/4899EXM
https://www.nxtbook.com/nxtbooks/latinfinance/3885CWS
https://www.nxtbook.com/nxtbooks/latinfinance/45923GBC
https://www.nxtbook.com/nxtbooks/latinfinance/67449NBD
https://www.nxtbook.com/nxtbooks/latinfinance/46733NLP
https://www.nxtbook.com/nxtbooks/latinfinance/78456HCL
https://www.nxtbook.com/nxtbooks/latinfinance/89456RBM
https://www.nxtbook.com/nxtbooks/latinfinance/22278HBL
https://www.nxtbook.com/nxtbooks/latinfinance/2895YBM
https://www.nxtbook.com/nxtbooks/latinfinance/9033TBM
https://www.nxtbook.com/nxtbooks/latinfinance/8934TNP
https://www.nxtbook.com/nxtbooks/latinfinance/costarica20130304
https://www.nxtbook.com/nxtbooks/latinfinance/4672PNB
https://www.nxtbook.com/nxtbooks/latinfinance/9377BKL
https://www.nxtbook.com/nxtbooks/latinfinance/drmtest
https://www.nxtbook.com/nxtbooks/latinfinance/drmtest2
https://www.nxtbook.com/nxtbooks/latinfinance/5532LMC
https://www.nxtbook.com/nxtbooks/latinfinance/9044TBM
https://www.nxtbook.com/nxtbooks/latinfinance/4877RBC
https://www.nxtbook.com/nxtbooks/latinfinance/3008JHV
https://www.nxtbook.com/nxtbooks/latinfinance/3728YBC
https://www.nxtbook.com/nxtbooks/latinfinance/9337KLM
https://www.nxtbook.com/nxtbooks/latinfinance/5674GNJ
https://www.nxtbook.com/nxtbooks/latinfinance/8330KMC
https://www.nxtbook.com/nxtbooks/latinfinance/7663HCM
https://www.nxtbook.com/nxtbooks/latinfinance/2319ZMB
https://www.nxtbook.com/nxtbooks/latinfinance/7110MKL
https://www.nxtbook.com/nxtbooks/latinfinance/8599FHG
https://www.nxtbook.com/nxtbooks/latinfinance/4517HJK
https://www.nxtbook.com/nxtbooks/latinfinance/7813GHB
https://www.nxtbook.com/nxtbooks/latinfinance/1564FBM
https://www.nxtbook.com/nxtbooks/latinfinance/8884HGV
https://www.nxtbook.com/nxtbooks/latinfinance/7863SVB
https://www.nxtbook.com/nxtbooks/latinfinance/5233SFB
https://www.nxtbook.com/nxtbooks/latinfinance/5899SML
https://www.nxtbook.com/nxtbooks/latinfinance/4311PMN
https://www.nxtbook.com/nxtbooks/latinfinance/1366FBB
https://www.nxtbook.com/nxtbooks/latinfinance/9355AXC
https://www.nxtbook.com/nxtbooks/latinfinance/8559EBN
https://www.nxtbook.com/nxtbooks/latinfinance/8244QXC
https://www.nxtbook.com/nxtbooks/latinfinance/1779BBN
https://www.nxtbook.com/nxtbooks/latinfinance/7144XVB
https://www.nxtbook.com/nxtbooks/latinfinance/8971QGH
https://www.nxtbook.com/nxtbooks/latinfinance/200805
https://www.nxtbook.com/nxtbooks/latinfinance/200804
https://www.nxtbook.com/nxtbooks/latinfinance/200803
https://www.nxtbookmedia.com