Ildefonso Guajardo Villarreal (IGV), Minister of Economy: Interview

Interview: Ildefonso Guajardo Villarreal

How will reforms help alleviate unemployment?

ILDEFONSO GUAJARDO VILLARREAL: Mexico must create 1m jobs annually to match the number of young people entering the labour market. To reach that goal, the government has approved reforms aimed at tackling the factors that have inhibited growth: rigid labour rules, highly concentrated markets, low access to credit, expensive telecoms, inefficient public spending and high energy costs. The structural reforms aimed at improving productivity will help increase potential economic growth from around 3.5% to 5.3% by 2018. This, together with the education reform, will allow us to create over 1m jobs a year and take advantage of our demographic bonus: a large young population that averages 27 years of age.

How might the Trans-Pacific Partnership (TPP) affect Mexico’s economic ties to North America? Could stronger ties to China affect Mexico-US relations?

VILLARREAL: Through the TPP, Mexico seeks to diversify its trade and enhance its economic presence in the Asia-Pacific region. This region is one of the world’s most dynamic and presents opportunities to increase trade and promote investments and transfers of technologies.

From a North American Free Trade Agreement ( NAFTA) perspective, the TPP is an opportunity to diversify exports while offering new investment and production schemes among NAFTA partners to consolidate the region as an export platform towards Asia-Pacific and the world. We believe that this way we can reach our trilateral goal of making North America the world’s most competitive region. Mexico needs to find new sources of inputs that complement national production in order to remain competitive while strengthening the country’s export capacity.

Trade with China, our second-largest import supplier, contributes to the competitiveness of our export performance. Specifically, 85% of Mexico’s imports from China are intermediate and capital goods, to which Mexico adds value through productive processes in highly competitive sectors such as electronics and automotives. Manufacturing is another good example of trade complementarity between Mexico and China. The more integrated Mexico is to global production processes, the more competitive North America will be as a region competing in international markets. An enhanced bilateral trade relationship with China aids Mexico’s competitiveness and a stronger Mexico contributes to a stronger NAFTA.

What could put growth for 2015 at risk?

VILLARREAL: According to our official data, as well as international organisations and various consulting groups, 2015 growth forecasts range from 2.5% to 4.2%. An important factor that could jeopardise our growth is the evolution of the world economy. We anticipate that due to weak global economic growth, low levels of inflation and the fall in prices of basic commodities (including oil), the monetary stance in most advanced economies – and some emerging – will remain accom-modative in the next few quarters of 2015.

While US economic recovery is good news for Mexican exports, it involves some risk. A hike in interest rates by the Federal Reserve would contribute to global financial volatility. Furthermore, oil production and prices could continue to be weak, affecting public finances.

What caused the reduction in the informal sector?

VILLARREAL: For the first time in our recent economic history there was a reduction in the informal sector. This decrease was due to the fiscal reform and other measures, including the Crezcamos Juntos programme, in which the government, the private sector and state and local governments started working together to offer a more attractive transition to formality. For business owners and their employees, the programme offers benefits such as access to health services and social security, credit for housing and consumption, direct support, and financing and training programmes. According to the tax authority, this transition from informal to formal sector could take up to 10 years.