Structural Reforms & Ten Facts About Today's Mexico

= Structural Reforms & Ten Facts About Today's Mexico =

Education Reform
On February 25th, President Enrique Peña Nieto enacted the Education Reform which aims to turn about education into the great transforming power of Mexico. The Reform proposes as a starting point that education is a fundamental right. Since, no other civil right, political, social, economic or cultural in its nature can be excerced without a minimum education.

The Reform amends Articles 3 and 73 of the Constitution, which enables the Mexican State to assume full regulatory action regarding the education sector.

The Educational Reform is a political agreement among the legislative party, state legislatures, and the Mexican society.

Education is the most egalitarian and cohesive instrument for any democracy. Its objective is to have an education of excellence to provide the appropriate elements for a successful and fully developed society.

The Reform establishes a professional system with incentives and better training processes for teachers. They are the central actors of the educational process and the State is obliged to give them certainty in their income and their promotion processes. The Professional Teaching System will allow students and parents to have confidence in better teachers.

Educational evaluation mechanisms will allow to understand faults, weaknesses and strengths of the education system. Based on this assessment, the authorities will articulate urgent and effective solutions to improve education.

The reform looks up to the active participation of the educational community, managers, teachers, students and parents in order to make joint decisions to improve education. Among the decisions that could be taken are: taking action to repair or expand the school, promoting quality education, cultural activities and caring for the students nutritional habits, among others.

Three Axes of Action
1. The best teachers will teach our students -The Professional Faculty Service was created. - Clear rules were established in order to assure that the professional merit is the only way to enter, remain and advance as a teacher, principal or supervisor.

2. Evaluations must become an efficient mechanism to improve the quality of education. - Constitutional status the National Institute for the Evaluation of Education with full autonomy. - A National Education Assessment System, will supervise the conditions and challenges that teachers face every day.

3. Improve conditions for comprehensive training of students -The Reform strengthens the autonomy of school management. -It is expected to substantially increase the number of full-time schools to provide more educational, cultural and balanced comprehensive development opportunities for students.

Highlights
-The Education Reform was declared constitutional by the House of Representatives on Feb. 6, after being endorsed by 23 state legislatures.

-The INEGI conducted this year a census of school teachers and students.

Energy Reform
On December 12th, Congress passed the Energy Reform in order to make the energy sector one of the most powerful engines of the national economy. The reform allows bringing, adapting and taking advantage of more advanced technologies and industry knowledge to maximize oil revenues and reduce environmental risks, for the benefit of workers, enterprises and Mexican families. These laws allow Mexico to use the partnership schemes that have worked best around the world.

Thanks to technological innovations and global exploration, Mexico now has the opportunity for new energy growth. Mexico has vast resources that are in deep-water oilfields where oil and shale gas are present. To exploit these resources, which was once technically and economically unfeasible, advanced technologies and expertise are required.

Without this reform, we would be energy importers in less than 5 years, despite being historically a leading energy exporter.

On the contrary, it will increase domestic production of oil, natural gas and other derivatives, reducing our current dependence on foreign oil. Imports of natural gas, gasoline and other products, such as plastics and fertilizers will be reduced.

Contracts will be public and verifiable by any citizen at all times, strong controls through external audits were established for each contract and the publication of results.

Greater autonomy will be given to the National Hydrocarbons Commission and the Bank of Mexico will participate in the management of oil revenues. Through this law, the conditions will be created to prevent, identify and severely punish acts of corruption of public officials and businesses.

The Mexican Petroleum Fund for Stabilization and Development will be created, which guarantees the transparent and efficient management of the profits. This will generate savings to assign to the development of education, science and technology, renewable energy, among others.

The reform will produce more low cost electricity and gas for Mexican households.


 * Having more cheap energy will transform raw materials into higher value-added products.
 * More natural gas, at a better price, will avoid the shortage that has slowed our industry.
 * With cheaper and clean electricity, Mexico will attract much more investment and create more jobs.
 * In a few years quality jobs will be generated for Mexicans in the energy sector and related industries such as the manufacture of plastics, fertilizers and green transport.
 * Increased production of natural gas and oil will mean more revenue for the state and more money for schools, hospitals, roads, social programs and public investment.


 * The reform promotes the use of natural gas to produce electricity and to replace fuel oil and diesel.
 * It will allow progressively reducing of pollutant emissions and tackling of climate change.
 * With natural gas at a better price, they may replace diesel trucks with cleaner gas trucks.
 * Electricity will be generated from clean sources such as natural gas, wind and sunlight.

Pemex becomes more independent from the government and its union, to be a productive state enterprise. There will be no union representation on the Board of Directors and it will have greater autonomy and budgetary management. The tax scheme adapts to the performance of each oil field and it will get more resources to invest in training and technology.

Pemex will choose where to explore first, its investments are protected and mining rights over all oilfields will be secured. It is assigned the best areas of exploration and may team up with other suitable companies. As a result it may also share and avoid loss in financial risk activities.

The CFE becomes a true, more independent and productive public company with better service standards. The transition will allow greater distribution of electricity to more households with more competitive prices. A more agile, efficient and transparent management model is guaranteed. It will be the only company authorized to generate electricity with nuclear plants.

Key Points of the Reform
 Opening of the hydrocarbon sector to PI: for exploration, exploitation, processing, transportation, storage and distribution.

 Legal Modalities PI participation: service contracts, profit sharing, shared production and licensing.

 Opening the power industry to PI: in production and supply. The transmission and distribution remain exclusive to the CFE, but it may hire individuals to build, maintain and operate their networks.

 Administrative tasks: The Ministry of Energy selects the areas to be proffered, the Ministry of Finance establishes fiscal terms of contracts and the National Hydrocarbons Commission will hold the tenders and select the winners.

 “Round Zero”: Pemex may request allocation of exploration areas without competition from other actors and maintains the rights of all production fields.

 Mexican Petroleum Fund: it will receive and manage oil revenues of the Nation.

 New decentralized agencies: National Center for Control of Natural Gas, the National Energy Control Center and the National Agency of Industrial Safety and Environmental Protection.

 Greater autonomy for the regulators: Strengthens the National Commission of Hydrocarbons and the Energy Regulatory Commission providing them with technical and administrative autonomy and budgetary self-sufficiency.

 Transition of a subsidy regime: generalized substitution of energy subsidies by energy inputs with targeted subsidies.

 Transparency and Corruption Combat: all contracts should have transparency clauses and corruption will be sanctioned.

 Respect for labor rights: Pemex and CFE employee rights will be respected.

￼Highlights
- With this and other reforms almost half a million jobs will be created during the current administration.

- Pemex and CFE will remain 100% Mexican.

- An increase in oil production from 2.5 to 3 million barrels per day in 2018 and 3.5 in 2025 is expected.

- In regards to natural gas an increase is expected from 5.7 cubic mm per day to 8 mm in 2018 and 10.4 in 2025.

￼Further Information
- Main features of the reform (Secretaría de Energía). http://sener.gob.mx/res/prensa/Reforma_Energetica-principales_caracteristicas.pdf

'''- Diagnosis of the energy sector in Mexico and features of the reform (Presidencia de la República). ''' http://presidencia.gob.mx/reformaenergetica/#!landing

- Infographics on Pemex (Presidencia de la República). http://www.presidencia.gob.mx/que-le-pasara-a-pemex-con-la-reforma-energetica/

- Purpose of the Energy Reform (Gobierno de la República). http://consulmex.sre.gob.mx/littlerock/images/stories/PDF/re.pdf

- Video #ReformaEnergéticaSí (Presidencia de la República). http://www.presidencia.gob.mx/multimedia/reformaenergeticasi/

Financial Reform
On January 9th, President Peña Nieto enacted the Financial Reform, which lays the foundation for inclusive development, maintaining healthy sensible practices and improving the efficiency of Mexico’s financial system.

The main objective of the Financial Reform is that Mexicans and enterprises have products and services that meet their needs with a competitive price in order to transform Mexico. This Reform will allow making the most of 2014 favorable economic conditions to boost growth.

The Reform will improve the financial sector in order to transform it into an effective tool for an integral national development. Thus, a virtuous cycle will be established to promote that more Mexicans acquire the necessary resources to accomplish their ideas and to establish productive enterprises in the formal market; creating quality jobs and sustainable growth for the future.

The Reform originates from the strength of the Mexican financial system. Mexico has liquid and developed financial markets, profitable and well capitalized intermediaries, as well as low rates of delinquency. However, these strengths were not fully used to finance productive projects and enterprises. Various strategic areas such as micro, small and medium enterprises (MSMEs), agriculture, innovation, infrastructure, and housing did not have sufficient credit access.

Since the release of the Financial Reform in the Official Journal of the Federation, several changes have taken effect immediately. So, all the users of financial services now have new tools at their disposition in order to choose the products and services they need, and if so to exercise their rights towards institutions. It is clear that there will still be a number of dispositions to be developed and implemented within the following months.

The Four Axes of the Reform
Encourage greater competition among financial service providers

 Strengthening CONDUSEF to increase transparency in financial institutions  Greater strength to CONDUSEF’s resolutions of users’ complaints regarding financial institutions  Reduction of fees charged by businesses when accepting credit and debit cards  Access to the transfer of loan guarantees  Financial market study by the Federal Competition Commission to promote competition.

Promote and strengthen the Development Banking

 Adapting the development banking to promote greater credit and improve its operation  Products for innovation, patents and other industrial property rights  Credit schemes that promote gender equality and the development of infrastructure  Programs and products in priority areas for national development as MSMEs and field

Extending financial products and services best placed for its users

 Regular assessments of the levels of loans placed by Multiple Banking institutions in order to encourage a greater offer. Simplification of regimes for the granting and execution of loan guarantees in order to reduce associated risks and costs of credit

Ensure liability and prudency of the financial sector as a whole

 Decreeing into a Law, the rules for the constitution and quality of a capital (Basilea III)  Strengthening of the mechanisms of coordination and cooperation among financial authorities  Providing bankruptcy processes to safeguard the rights of investors, minimize the impact on creditors and reduce the fiscal cost

Further Information
Pacto por México (Reforma Financiera) http://pactopormexico.org/reformafinanciera/

Informe semanal SHCP http://www.shcp.gob.mx/SALAPRENSA/doc_informe_vocero/2014/vocero_02_2014.pdf

Tax Reform
On September 8th, President Peña Nieto presented a proposal for a Tax Reform to promote a more prosperous and egalitarian Mexico. After its discussion in the Chamber of Deputies and the Senate on October 31 a reform was approved. It fosters economic growth and provides elements with social purposes. The funds obtained will be destined to areas such as education, unemployment insurance and universal pension.

The reform includes a number of amendments to various Acts and Legislation: Fiscal Code of the Federation, Customs Law, the Fiscal Coordination Law, the General Law of Governmental Accounting, Tax laws, IEPS, ISR and Bill of Rights, as well as abrogation the IETU and IDE laws. Also, the Revenue Act, which contemplated a budget of 4 trillion 470 thousand million pesos, was approved.

All Mexicans will all contribute, in proportion to its own revenues: To establish more progressive income tax recovery for individuals. Stock’s profits will pay taxes, as in other parts of the world. Taxes on business dividends to stockholders will be made.

ISR (Direct Income Tax) only be charged for the sale of homes with a value higher than 3.5 million pesos. Large agriculture producers will no longer pay less income tax than other employers.

Important Points

1) The Reform will remain one of the most effective business competitive rates in the OECD.

2) Inverstment will be made in human capital, innovation and infrastructure.

3) Incorporation in the Fiscal Regime will be created for formal small businesses to provide access to IMSS (social security), unemployment insurance and housing loans.

4) The government will support companies in their early years with the payment of taxes.

5) Foreign trade will be strengthened by simplifying customs regulation. 6) For assembly plants, it will be created an agile certification mechanism that allows the immediate return of VAT in order to not affect the export sector.

7) It will bring support to priority sectors with potential growth.

Government

1) New positions in government will not be created.

2) The three levels of government must reduce 5% of its salary expenditure of middle and senior management position.

3) The purchases of new cars for government personnel will be eliminated.

4) The Federal Government will pay to teachers in the country directly; this will avoid areas of discretional nature.

5) The Federal Government will buy medicines for the whole country, maintaining better control and negotiating better prices.

6) States will be required to publish how much money they receive and how much is delivered to municipalities.

7) The obligation to have a custom agent to import or export will be deleted.

8) A fund will be created to save in case of economic crisis.

9) It will be established a maximum limit to the growth of current government spending

Key Provisions
1. Universal Pension Plan No adult over 65 should be unprotected

2. Unemployment Insurance For all formal worker

3. Less Social Security Fees For low-income workers

4. Tax Incentives For companies that hire workers over 65.

5. Environment Taxes on pesticides and clean energy, as well as incentives for renewable energy generation.

6. Health Protection Tax will be imposed on soft drinks and junk food to combat obesity and diabetes.

7. Agriculture Support Agricultural producers that produce less than 10 million pesos per year will pay a rate of 21 %, which is lower than the general.

8. Tourism Promotion Facilities for hotel and related services will be created.

9. Cultural Promotion It will support film productions

10. Families Income Support No VAT on food, medicine, school fees , rent , shows , sporting events, mortgages or property purchase.

Highlights
 The 2014Revenue Act estimated 4 trillion 467 billion pesos on public income

 A reference price of Mexican oil of 85 dollars per barrel, an exchange rate of 12.9 pesos per dollar and a forecast of real GDP growth of 3.9% was endorsed.

 A ceiling of 570 billion pesos of domestic debt and 10 billion dollars of external debt was established.

 Public expenditure for paving (5 billion pesos) and hospital equipment (2.5 billion pesos) in the States will be reassigned.

 7% of the resources of the development bank will be used to purchase energy saving goods.

 2 billion pesos be reallocated to support the housing sector with subsidies, syndicated credit lines and SHF guarantees.

￼=== Further Information ===

http://reformahacendaria.gob.mx/

http://www.shcp.gob.mx/SALAPRE NSA/doc_informe_vocero/2013/voc ero_44_2013.pdf

Telecommunications Reform
On March 11th, as part of the “Pact for Mexico”, President Enrique Peña Nieto introduced the Constitutional Reform Bill on Telecommunications. The proposal was supported by the presidents of the PRI, PAN and PRD parties. This is a far-reaching initiative that provides access to broadband as a constitutional right, empowering regulators to punish monopolistic practices, and opening the market to new concessions on radio and television in order to promote the use of radio spectrum. The Reform created specialized courts, as well.

1) Strengthen the rights associated with freedom of expression and information, in order to establish the right of access to information technologies and communication, as well as broadcasting and telecommunications services, including broadband.

2) Encourage competition in open and paid television, radio, mobile and fixed telephony, data and telecommunications in general.

3) Substantially increase the infrastructure and make a more efficient use, in order to decrease prices and increase the quality of services

Under the circumstances, telecommunication services are public and of general interest, so the state guarantees that they are provided under competitive conditions, with quality, plurality, universal coverage, networking convergence, and continuity. The authorities are obliged to ensure access to information technologies and implement universal digital inclusion policies with annual and six-year targets. It will also be an inviolable right to disseminate opinions freely, as well as information and ideas through any media. Censorship or restricting freedom of dissemination is prohibited. The initiative requires Congress to regulate the right to reply and bans misleading publicity or false news reporting.

The Federal Competition Commission (CFCE) and the Federal Institute of Telecommunications (IFT) as independent autonomous constitutional bodies, with budgetary autonomy and management will be created. Both integrated by 7 commissioners, through a 9 year period without re-election. They shall be appointed by the Federal Executive on a staggered basis with Senate confirmation.

The IFT deploys the basis for the legal concessions, as well as for the review of existing titles. It may investigate and impose penalties for breach of services or monopolistic practices; it may also force companies to share their infrastructure. The CFCE may order measures to remove barriers for competition and prevent monopolies, regulating the access to essential inputs and order divestiture of assets with anticompetitive effects.

The Federal Executive can no longer revoke or grant concessions in broadcasting and telecommunications. Concessions will be granted by the IFT through competitive bidding, under technical and not political criteria. Institutions and public authorities will be considered under the direct allocation mechanism

The Council of the Federal Judiciary shall establish Collegiate Circuit Courts and District Courts specialized in antitrust, broadcasting and telecommunications, in order t to meet protections and procedural challenges.

Commitments related to the Pact for Mexico that attended this Initiative
1. Strengthen the Federal Competition Commission. With authority to divide monopolies. Create specialized courts on matters of competition.

2. Establish the right to access broad band and the effectiveness of decisions by the regulatory body. The Constitution will be reformed for the matter.

3. Strengthen the autonomy of COFETEL. With a criteria of transparency and independence.

4. Develop a strong telecommunications network. Programs will be developed to ensure the optimal use of the radio spectrum and optical fiber belonging to CFE. Digital ground transition will culminate on December 31, 2015.

5. Digital agenda and broadband access in public buildings.

6. Competition in radio and television. 2 New TV channels will be introduced to the market and a nonprofit broadcaster will be created.

7. Competition in telephone and data services. Entry barriers will be deleted.

8. Competition in television, radio, telephone and data services. Foreign investment is permitted up to 100% in telecommunications and up to 49% in broadcasting.

Highlights
-Fixed telephone lines in Mexico : 20.1 million ( December 2012 )

-86, 100 people have access to mobile lines

-In 2012, there were 11.4 fixed broadband subscribers per 100 inhabitants.

Further Information
http://www.presidencia.gob.mx/wp-content/uploads/2013/03/Iniciativa-Reforma-Constitucional-Telecom.pdf

Ten Facts About Today's Mexico
1. A stable democracy.

Mexico is a multiparty democracy. As opposed to the rest of Latin America and most of Europe, Mexico has held peaceful elections since 1934, allowing government to change every six years without coups, rebellions or any other interruptions of the constitutional order.

2. An economy of global significance.

Mexico’s GDP amounts to 1.2 trillion US dollars, making it Latin America’s second-largest, 4th in the Americas and 14th in the world. Moreover, it has a substantial internal market, is the 11th most populous (119 million inhabitants) and has a GDP per capita of 15,363 US dollars at PPP.

3. Macroeconomic stability.

Mexico has a low inflation rate (below 4%), low levels of debt (31% of GDP), low interest rates (3.17% for 28-day sovereign bonds), a highly capitalized financial system with a new banking reform to increase lending and one of the OECD’s lowest unemployment rates (5%).

4. Free trade.

Mexico is strongly committed to free trade. Together with Germany and the United Kingdom it is the G20’s most open economy. Mexico has 10 free trade agreements with 45 countries, including North America, the European Union and Japan. Moreover, we are currently taking part in the Transpacific Partnership (TPP) talks.

5. US-Mexico Partnership.

The number of legal border crossings between the US and Mexico is the largest between any two countries in the world. Moreover, bilateral trade amounts to 500 billion dollars a year, 1.3 billion dollars a day and almost 1 million dollars every minute.

Mexico exports more than 280 billion dollars’ worth of goods and services to the US each year. This is 2.6 times as much as Brazil’s, Russia’s, India’s and South Africa’s exports taken together, 1.6 times as much as the whole of Latin America’s, 2.6 times Germany’s and 1.9 Japan’s.

6. Demographics.

Mexico is a young country. We are equipped with the ideal demographics to support our economic growth, similar to the one the US enjoyed 30 years ago. Half our population is younger than 29 and the median age is 27, while it is 37 in the US and 35 in China.

7. Human capital.

Mexico enjoys the most significant development in human capital in Latin America. Every year, 106,275 engineers graduate from our country’s higher education institutions, significantly more than in Germany (74,371) or Brazil (59,506).

8. High value-added industries.

80% of Mexican exports are manufactures and only 20% are commodities, whereas in Brazil or Argentina these make up the majority of exports.

Mexico produces more manufactures than the rest of Latin America taken together. Overall, its exports are worth more than those of the entire region.

Mexico is the world’s largest producer of flat screens, the 5th exporter of computers and the 4th exporter of IT services. It is also the world’s 4th exporter of new cars and the 1st destination for FDI in aerospace manufactures.

9. Violence reduction.

The perception that Mexico is a violent country persists today. Even though it is true that between 2007 and 2012 violence increased in some regions of the country, in 2013 homicides diminished almost 20% to reach a nation-wide murder rate of 19/100,000 inhabitants. This compares favourably with the homicide rates of Brazil (21), Colombia (31) and Venezuela (45).

10. Historic reform process.

In Mexico, the big reforms are happening as we speak. In only one year, 10 structural reforms were passed: labour market, education, telecommunications, economic competition, finance, tax, social security, government, anti-corruption and energy.

These reforms have been made possible by the Pact for Mexico, a political agreement reached between the Federal Government and the three main parties to promote 95 initiatives in order to transform our country.