The first day of the conference concluded with a dinner at the Castillo de Vinuelas outside Madrid. In that historic setting, Pedro Aspe Armella, the Secretary of Finance and Public Credit of Mexico, presented the second keynote address on the implications for the Bretton Woods institutions of the transformations under way in Mexico and many other developing countries. Mr. Aspe’s speech was introduced by Wim Duisenberg, the President of De Nederlandsche Bank and of the Bank for International Settlements. Mr. Duisenberg’s remarks focused on the importance for the IMF of maintaining its monetary character as it responds to a changing world economy.

Wim Duisenberg

Although the Articles of Agreement still bear considerable resemblance to the first issue of 1944, the Fund has clearly changed over the years, focusing its activities on those areas in which they have been most needed. Yet its fiftieth anniversary calls for reflection on whether the IMF train is still running in the proper direction. Tonight’s keynote speaker is planning to take up the role of the Fund in Latin America. To provide some counterweight, I would like to make a few observations on the monetary role of the Fund.

In this respect, two somewhat extreme views can be distinguished. One is that the industrial countries no longer need the Fund either as a provider of financial assistance or as a forum for multilateral surveillance. The first function is now taken care of by the international capital markets. The second is not really taken care of, or perhaps one could argue that the caretaker is the nonsystem of floating exchange rates. The upshot of this view is that the Fund should focus its activities on the developing countries and the transforming economies in Central and Eastern Europe and the former Soviet Union. The other view, essentially taken by the Bretton Woods Commission, is that the Fund should return to its original key monetary tasks—giving guidance to the international monetary system and keeping substantial distance from financing developing and transition countries.

I have a lot of sympathy for those who say the Fund should focus more on its middle initial. But I would hesitate to draw the conclusion that the Fund should consequently reduce its advisory role in developing countries and in the transition process for several reasons, one of which I will specify. The reforms undertaken in the eastern part of Europe are of vital importance for the international community, on economic as well as on political grounds. It is crucial that this process is adequately supported. The Fund has done a valuable job there, through its policy advice, technical assistance, and financial support. Of course, in this area, too, the IMF should live up to its guiding principle that only sound programs deserve strong financial support. Sound programs form the basis permitting private capital flows to play an increasingly important role in closing balance of payments financing gaps.

Despite my support for the role of the Fund in nonindustrial countries, greater focus by the IMF on its middle initial is desirable because it is important that the world have an effective multilateral forum for policy coordination. Why is it important? In the international monetary system, a key question is whether exchange rates should be left to float freely, or whether we should try to influence them by some kind of mutually agreed rules. In principle, I would prefer a system providing an incentive for stability, but not stability in the sense that exchange rates should be fixed. Rigidity is not synonymous with stability. Fixed rates based on imbalanced fundamentals will certainly prove unsustainable. What I would like to see is stability in the sense that the system disciplines domestic budgetary and monetary policies. The notion that no coordination is necessary because exchange rates will remain stable and sustainable if everyone puts his own house in order is probably an illusion. First, because not everyone’s house is in order. Second, different countries have different views on what “in order”actually means. Does it imply a budget deficit of 4 percent of GDP or a balanced budget? Does it mean an inflation rate of 3 percent or zero percent to 2 percent? As long as such different perceptions prevail, exchange rates will stay adrift. A free float is asking too much of the self-restraint of governments. Misalignments and undue volatility will come along with it.

You might expect, having heard this, that I would be a proponent of target zones. I am not—not at present. Financial markets would be all too eager to test the resolve of the authorities as soon as the boundaries of the zones came into sight. Any halfhearted attempt to defend prevailing exchange rates would prove to be a failure, as the amounts of capital that fund managers can nowadays provide are no doubt larger than central banks could mobilize. Thus, a determined, fierce defense of a target zone would require adjustment of interest rates, even if such an adjustment were not seen necessary from a domestic point of view. And that, in turn, would require a strong commitment by the authorities. Only then might target zones be beneficial. But if such a commitment is nonexistent, as it is currently, introduction of target zones will prove counterproductive.

Therefore, I would argue for a middle road where the members of the Fund frankly ask themselves a number of incisive questions. Are we fully aware of the external implications of domestic policy decisions, and do we take these external consequences seriously into account? If exchange rate movements signal diverging policy stances, it may be concluded that the policies pursued are nonetheless appropriate. Yet if the conclusion is that policies might have to be adjusted, to replace action with words is no solution. Markets cannot be fooled. And the crucial question is, Is our own house in order? Do we agree on what this means? Is vacuum cleaning enough, or should the furniture be polished as well? And, mind you, it is not the housekeeper who will take care of this; we have to do it ourselves!

The Fund could do valuable work here. Until now, it has tried to come up with several initiatives to influence international discussions in the exchange rate field. Success has been limited, perhaps partly because the Fund did not always express an unambiguous view on exchange rate issues. Some Fund documents show more appreciation for efforts to stabilize exchange rates, for example in Europe, than others. It would perhaps be more effective if the Fund simply accepted, explicitly, the choice of a country’s exchange rate regime—as long as it does not hurt others!—also among the major countries. And from that starting point, the Fund could act as a neutral, high-quality advisor on economic, monetary, and exchange rate issues. It could show in its Article IV reports and on other occasions when these understandings are apparently misunderstood how certain policy measures affect other countries and how they should be judged.

We could go one step further. Would it not be appropriate to publish the Fund’s analyses made in Article IV reports? So far, the policy not to do so has always had my support because confidentiality enhances the frankness and thus the quality of the discussions. Yet it is increasingly disturbing that these thorough analyses hardly seem to play a role in the policy discussions in the industrial world. Publication would probably change this, but it would also risk watering down the analyses when a country is averse to a critical assessment of its policies. Therefore, carefully designed rules to prevent such a situation would be necessary. I believe we should seriously consider whether such a policy can be made effective, and whether the conditions could be created under which the staff would be in a position to put the real issues on the—public—table.

Not at all afraid of a critical assessment is our next speaker. His face is extremely familiar in the Fund. A representative of the very country that shocked the international community in 1982, he delighted the same community later on, making Mexico the showpiece of the debt strategy. As Minister of Finance since 1988, he has made a crucial contribution to the economic revival of Mexico. He may rightly be considered a personification of stability, but stability based on sound fundamentals.

Pedro Aspe Armella

It is a great honor to address such a distinguished audience on the fiftieth anniversary of the Bretton Woods conference. I am sure that the proposals that will result from the working sessions that are taking place during this commemoration will produce concrete results for the benefit of our nations.

Five decades ago, leaders of 44 nations gathered at Bretton Woods to set the basis for a new international economic and financial order. During this half century, the world has experienced profound transformations. The Berlin Wall was raised and later demolished. Eastern European countries transited into socialism and out of it and are now striving to rejoin the international community. Apartheid and numerous dictatorships have disappeared. Closed economies and societies have proved their unfeasibility.

Competition, but also poverty and inequality, have increased. National and international actors, as well as rules and objectives, have acquired new weights and dimensions. The end of the Cold War has brought with it new opportunities but has also revealed or exacerbated challenges such as regionalism, ethnic and religious conflicts, inequalities between and within nations, and increased migration flows.

In the light of these events, the world at the end of the century is moving from the postwar order, which is giving way to new forms of integration and cooperation whose rules and structures are gradually emerging. From a bipolar logic, we have moved to a multipolar one, marked by economic globalization and national interdependence. The international community is constructing new agreements and consensus and, at the same time, is removing old processes and structures.

In this flow of change, consumption patterns and cultural spheres are now globalized, and a new consensus for social and political action has been designed, including most notably on human rights, environmental protection, economic growth, the fight against extreme poverty, and the consolidation of democracy. These important contemporary issues, jointly with each country’s own requirements, have forced nations to undertake transformations of their own structures.

Mexico’s response to these internal and external challenges has been the Reform of the State. It was imperative for my country to formulate a viable development model, to open new opportunities for society as a whole, and to be able to respond to the challenges of the new international order. We had to leave behind us the closed economy and society in order to construct an open system. Modernization has touched practically all aspects of our economic, social, and political life. We openly face and welcome the challenge of increased international competition, convinced of our capacity to change and to work constructively and productively.

Let me comment on some of the main aspects of Mexico’s transformation that have enabled the conciliation of economic stability with improving living standards in a competitive political system.

At the end of the 1980s, Mexico was going through particularly difficult economic circumstances: high inflation of close to 160 percent annually, a public sector deficit of 16 percent of GDP, a large external debt representing almost half of GDP, low growth rates, and a lack of competitiveness in the country’s productive plant.

Starting from a global approach that recognized the need for integral reform with the participation of all social sectors, an economic reform program was formulated with three fundamental aspects: macroeconomic stabilization, structural change, and the fight against extreme poverty.

Under these three aspects, the program included actions in the following areas: a macroeconomic stabilization program; tax reform; budget reform; privatization of publicly owned enterprises; the fight against extreme poverty; trade reform and economic deregulation; and financial sector liberalization. Let me briefly analyze these main elements of the Mexican economic transformation.

The program and actions that came about as a result of the reform implemented since 1987 have been achieved through an intense process of social agreements and a constant effort to obtain a fairer distribution of the benefits of development.

Designed as a mechanism to overcome stagnation and to achieve stable and sustainable growth, the main social actors in Mexico seven years ago signed a pact, nowadays called the Pact for Stability, Growth, and the Improvement of Living Standards, which defines the basic pattern of agreement between urban and rural workers, and between entrepreneurs and the Government. This mechanism has generated a more just distribution of the costs of adjustment, facilitating the coordination of actions among the participant sectors and therefore reducing the negative impacts of stabilization.

The Pact complemented the orthodox stabilization measures—such as fiscal deficit reduction and control of domestic credit growth—with an unceasing search for consensus. New consensus-reaching mechanisms were implemented to establish guidelines for determining wages and other leader prices in the economy, based on expected future inflation and not on past inflation. Furthermore, an exchange rate policy that promotes stability and competitiveness was announced, with enough anticipation to give certainty to economic agents about the future evolution of this variable.

Inflation has been reduced from 160 percent in 1987 to 8.1 percent in 1993 and to 6.7 percent this year, which is the lowest inflation rate in the last 21 years. It is also the lowest that over half of all Mexicans have seen during their lifetimes, and it was achieved with practically a complete supply of goods and services—showing that the reduction in inflation has not been artificial and that it is founded on a structurally sounder economy. This reduction in inflation was achieved while maintaining economic growth. Between 1989 and 1994, GDP has grown annually at an average rate of 2.9 percent in real terms; this rate is favorable, considering the significant reduction in inflation and the intense structural change experienced in the country’s industrial base.

The permanence of macroeconomic stability is based on the structural correction of the public sector deficit and on the autonomy of the central bank decreed in 1993. Before the central bank could be made autonomous, the structural correction of the public deficit had to be consolidated. Without this prerequisite, autonomy would not have been feasible. Today, the Constitution establishes the achievement of price stability as the bank’s primary objective. No authority can force the bank to provide financing, and the members of the bank’s governing body can be removed only in case of grave faults. The autonomy of the bank will protect future generations from the damaging effects that inflation can have all over the basic social fabric.

An essential condition for moderating inflation was the elimination of the external debt overhang. Before the debt renegotiation, Mexico’s transfers to the rest of the world had been greater than those demanded from the defeated nations in the aftermath of the First World War. The excessive burden of these transfers nullified the effectiveness of any measure to reduce inflation and re-establish growth.

As you are aware, the renegotiation process was a difficult and complex task. The solid economic reform program undertaken by Mexico, the support of the international financial institutions, in particular the International Monetary Fund and the World Bank, the design of an imaginative package with various options for commercial banks, and the support of most governments of the industrial nations were the basic elements for obtaining a favorable agreement.

Mexico was the pioneer in achieving a multiannual renegotiation package that implied a definitive solution to the debt problem. Mexico was the first to do it, and, fortunately, other countries have followed. The agreement generated a reduction of over $7 billion in debt principal and an annual average reduction in transfers to the rest of the world, from 1990 to 1994, of more than $4 billion a year, owing to the reduction in interest payments, fresh resources, and the rescheduling of amortization payments. With this agreement, Mexico regained access to voluntary capital markets, and, most important, it was able to leave behind the external debt issue to pursue other economic reforms.

The structural correction of public finances in Mexico stands out among the most profound in the world. The adjustment generated a shift from a deficit of 16 percent of GDP in 1987 to complete equilibrium in 1992, 1993, and 1994, excluding all the proceeds obtained from the privatization process. The reduction of fiscal deficits is always an arduous task. However, the truly difficult part was to carry out the adjustment permanently and so that tax rates and the number of taxes were reduced while social expenditure and public investment increased in a sustainable manner. The structural and permanent correction of the deficit prevents the recurrence of any future inflationary pressure and frees resources that can be applied to social programs and to infrastructure projects.

The main elements of the tax reform were the reduction in the number of taxes and in tax rates, the widening of the taxpayer base, and the strict enforcement of fiscal laws to fight fiscal evasion. In 1988, there were 19 federal taxes; today there are less than half that number. The corporate income tax rate was reduced from 39.2 percent in 1988 to 34 percent in 1994. This tax rate is lower than the U.S. federal corporate income tax rate of 35 percent. In addition, local corporate taxes in the United States increase the total tax rate to an average of 39.5 percent. In Mexico, the tax base is also smaller, owing to adjustments for inflation and the elimination of the tax on dividends.

The value-added tax rate has been reduced from a dual rate of 20 percent and 15 percent in 1988 to a single one of 10 percent in 1994, and the maximum rate for personal income tax was reduced from 50 percent to 35 percent. Workers on the lower end of the income tax schedule receive an income tax credit that implies a positive transfer from the Government. For workers who receive one minimum wage, the income tax credit implies an increase of 13 percent in their disposable income.

The changes I have just mentioned constitute the easy part of the tax reform: fewer taxes and lower rates. The difficult part—but inseparable from the first—consists of increasing the number of taxpayers and rigorously enforcing the tax law. Excluding salaried workers whose taxes are withheld in their workplaces, the taxpayer base increased from 1.7 million taxpayers in 1988 to 5.5 million in 1993. Between 1917 and 1988, only two indictments were issued for fiscal evasion. Between 1989 and 1994, more than 500 cases were presented. As a result, notwithstanding the reduction in tax rates, tax revenues increased by 35 percent in real terms, while GDP has increased by 18.8 percent in the same period.

An important element of the structural reform in public finances was the privatization of government-owned enterprises. In 1982, the public sector participated in almost all economic sectors and owned 1,155 public enterprises. By the end of 1994, the number of public enterprises has been reduced by more than 80 percent.

The privatization process yields once-and-for-all revenues. Therefore, they have not been used to finance current spending but have been applied to cancel public debt. These proceeds, together with the renegotiation of the external debt and the increase in tax revenues, have allowed a reduction in the consolidated public debt from about 64 percent of GDP in 1988 to 22 percent in 1994, which is one of the lowest among nations of the Organization for Economic Cooperation and Development (OECD).

Interest payments on the public debt have been reduced from 18 percent of GDP in 1988 to only 2.5 percent in 1994; in terms of the public budget, they have declined from 44 percent of total government spending in 1988 to 10 percent at present.

The lower interest payments, the smaller transfers to money-losing public enterprises, and the increased tax revenues have permitted a permanent and noninflationary increase in social spending. Public expenditures on education, health, housing, and environmental protection have increased from 6.3 percent of GDP in 1988 to 10.2 percent in 1994. As a share of government programmable expenditures, they have risen from 33 percent in 1988 to 54 percent in 1994. These expenditures represent the highest levels in Mexican history.

The Mexican Government now spends more resources on its people and less on interest payments. The increase in the resources channeled to social expenditure implies that, during this Administration, 14 million more Mexicans have drinking water, 12 million more have sewage service, and 20 million more have electricity.

This process brings out another important lesson for Mexico: equality of opportunities and better distribution of the benefits from development are essential conditions for achieving a more just society. We Mexicans are very proud of these accomplishments, but we recognize that much still needs to be done for all Mexican families to have acceptable living standards.

To promote efficiency and to gain access to a wider variety of consumer goods and production inputs, as well as to advanced technologies, Mexico has implemented a profound trade liberalization process and an economic deregulation program.

During President Salinas’s Administration, various deregulation actions have been initiated that must be intensified in the future. The reforms have begun in the financial, communications, transportation, industrial, commercial, and agricultural sectors. As a result, these reforms have reduced barriers to entry in several industries and have opened more opportunities for productive private investment. During the last five years, physical private investment had an accumulated growth of 60 percent in real terms.

The trade-liberalizing process dismantled an excessively protectionist regime and has provided the right incentives to modernize the productive plant and to gain greater access to foreign markets.

Mexico has moved from a closed economy to one of the most open economies in the world; as a result, our industry has become more competitive and has achieved price and quality standards that make it possible for a wide range of exports to have a significant presence in international markets.

Our economy, and especially our external trade, are today less dependent on oil. In 1982, oil represented about 80 percent of total exports while manufacturing exports were only 14 percent. At present, the situation has been reversed. During 1993, manufacturing exports represented about 80 percent of total exports and oil exports were only 14 percent.

Through the signing of free trade agreements with the United States and Canada, Chile, Venezuela, Colombia, and Costa Rica, and by joining international economic cooperation organizations such as the OECD, the General Agreement on Tariffs and Trade (GATT), and the Asia Pacific Economic Cooperation (APEC) forum, Mexico has institutionalized its trade liberalization process. Allow me to point out that the North American Free Trade Agreement (NAFTA) is already stimulating trade flows in the region. During the first semester of this year, Mexican exports to the United States increased by more than 20 percent, while exports from the United States to Mexico rose by 16 percent.

Mexico’s financial relations with the rest of the world have also been transformed. Mexico has shifted from a situation of transferring considerable amounts of resources to the rest of the world to being a net recipient of foreign capital. Last year, the capital account surplus reached $30.9 billion. These results have had as a natural counterpart an increase in the current account deficit and a significant accumulation of foreign reserves. There has also been an important change in the composition of capital inflows. During the early 1980s, most of the foreign resources were commercial bank loans to the public sector. In 1993, 95 percent of capital account inflows were in the form of direct and portfolio foreign investment.

The modernization of the financial system had two main objectives: first, to increase financial savings in the economy and allocate resources toward the most productive investment projects; and second, to provide access to financial services for a larger share of the population. To achieve these objectives, a process of liberalization was implemented through a more competitive and sound financial structure. New financial legislation was passed, and commercial banks, which were owned by the public sector, were privatized.

Among the most important changes were the introduction of universal banking; the participation of foreign capital in domestic institutions; the establishment of capitalization requirements in accordance with internationally accepted standards; central bank autonomy; and the creation of new financial groups. Furthermore, many new financial intermediaries have been authorized. In particular, the number of commercial banks has increased from 19 in 1988 to 36 at present.

Owing to the reforms, Mexico has a more competitive and stable financial system, in which the number of intermediaries has doubled. In accordance with international agreements and domestic legislation, we received last July 102 applications from international financial institutions that want to open subsidiaries in Mexico. The capital of these institutions amounts to $2.7 billion. In October, the first authorizations will be granted. This increase in competition has been accompanied by more strict regulation to guarantee that intermediaries act in strict accordance with the law.

Those of us who have had the privilege of participating in some of the decisions and reforms in our countries know that, at the dawn of the twenty-first century, the competitive position of a country does not depend on its natural resources but on its capacity to innovate and to be more productive. This microeconomic reform is a necessary condition for the construction of a market economy. Only in this way can we increase efficiency and avoid overexploitation of our natural resources.

The guiding principles of the microeconomic reform have been to increase productivity levels, reduce costs, widen employment opportunities, transform labor and business practices, and develop a competitive and flexible industrial structure.

Our world, at the end of the century, is radically different from the one in which the founders of the Bretton Woods institutions lived. No single country, to a greater or a lesser extent, has escaped from the dynamics of a more integrated world economy. In Mexico, we are facing the new challenges through the Reform of the State. Allow me to share with you seven reflections that follow from Mexico’s experience with economic transformation and that may be useful guidelines for the future evolution of the Bretton Woods institutions.

First, institutional reforms are essential for the success of economic reform programs. On the macroeconomic front, stabilization does not only require austerity in public finances and a restrictive monetary policy; it is also essential to carry out structural and permanent transformations. This is the main challenge.

In the Mexican case, the Pact has allowed actions to be coordinated between sectors to distribute the costs of the adjustment fairly and to unify efforts. The reduction in the public deficit has been accompanied by a profound tax reform, a rationalization of budgetary expenses, and a prudent monetary policy that is guaranteed by the autonomy of the central bank.

These same principles apply to microeconomic reform. Regarding trade liberalization, it is not enough to lower tariffs and to reduce quantitative restrictions. Investors, and society in general, need assurance as to the permanence of the liberalization and its specifics. By joining GATT and the OECD, and by signing NAFTA, together with other bilateral and regional trade agreements, Mexico has precisely established the modalities of its integration into the international economy for decades to come.

A fundamental aspect of institutional reform is the strengthening of property rights. Not only does this policy promote economic efficiency but it also generates a better distribution of income and wealth. In Mexico, for instance, with the objective of promoting rural development, the Constitution was reformed to strengthen peasants’ property rights over their land. Also, to increase domestic savings and to achieve dignified standards of living for senior citizens, we have implemented a structural and operational reform of our pension system.

Second, efforts must be concentrated in social programs and the protection of the environment must be promoted. The crucial factor for development in any country is the motivation and the skills of its men and women, whose welfare, in turn, is the ultimate objective of economic progress. Elements such as capital, technology, and intermediate inputs are very important for economic activity, but, in the contemporary world, they are extremely mobile between countries. Even though today we observe substantial migration flows, labor mobility is significantly lower than that of the other factors of production.

Therefore, the promotion of education, worker training programs, and health care projects is a necessary condition for increasing productivity and improving living standards. These types of programs generate a better distribution of opportunities, which is the most effective policy for increasing social mobility and promoting a more just income distribution.

Sustained development requires special attention to the environment to ensure that the rising levels of production do not further damage our habitat and also to attempt to recover what has been lost.

In Mexico, we have redirected government efforts toward attaining the priority of social needs. As I mentioned before, public expenditures in health, education, environmental protection, and housing are at their highest levels in our history. Our National Program of Solidarity channels important amounts of resources toward the neediest groups in society through an innovative scheme in which citizens themselves participate in the design and evaluation of the projects undertaken.

In this sense, the World Bank should intensify its support for social programs. Technical assistance projects must increase in number and improve in quality to ensure that, with close cooperation from the governments of each country, resources actually reach the poorest social groups and are applied efficiently.

Third, sustainable economic growth should be actively promoted. In terms of economic development, middle- and low-income countries have to catch up with industrial nations. Therefore, it is not sufficient just to take measures that guarantee macroeconomic stability. Governments have to assume an active role in the promotion of growth. The guiding principle must be to complement markets or to create them when they do not exist.

Governments, with the firm support of the Bretton Woods institutions, should undertake sound policies to promote and to open opportunities for private investment. The continuous globalization of all types of economic transactions implies the need for a tighter integration of the economies that participate in the Bretton Woods institutions.

Fourth, increased financing to the private sector is necessary. Governments must set the basis for and promote economic development. Nevertheless, the main engine of growth has to be the private sector. To encourage it, the first premise is that governments must not absorb the resources generated by society. Therefore, healthy public finances are imperative.

When governments establish adequate incentives and permit the orderly operation of markets, creativity and the initiative of individuals and groups will translate into socially productive projects. In most cases, the main restriction is access to adequate financing. This problem is particularly troublesome for small and medium-sized enterprises, which have great potential for innovation and for job creation.

The resources of the Bretton Woods institutions must not replace the financial flows of private intermediaries. On the contrary, they must complement them. The emphasis must be centered on covering those risks for which no market instruments exist. Furthermore, the institutions must support the internationalization of emerging markets, as well as collaborate with developing nations’ authorities in developing their domestic financial markets, such as stock exchanges, pension funds, mortgage markets, and venture capital funds.

Fifth, the internal operation of the institutions should be improved. Most developing nations that have so far undertaken successful economic reform programs have improved the internal operation and evaluation systems of their governmental agencies. They have simplified structures and have improved the technical capacity and moral quality of their public servants.

In the Mexican case, the Pact has been an effective instrument for executing the economic reform program because the worker unions and the business and peasant organizations that participate in it are well organized and highly representative of their members. This participation permits meaningful consensus and a high degree of effectiveness to be reached. Furthermore, institutional restrictions have been established to prevent undesirable deviations from the agreed economic policy. The best example is the autonomy of the central bank, which not only guarantees a prudent monetary policy but also guarantees its independence in providing domestic credit. In practice, this implies a limit to fiscal deficits, since they would have to be financed exclusively through capital markets with a consequent increase in interest rates.

In this same vein, the Bretton Woods institutions face a double task. First, they should start at home and modernize their administrative apparatus. Second, they must promote among all member countries the implementation of new structures and processes with enough freedom of action to respond adequately to society’s demands but also with firm controls to prevent them from deviations or corruption.

Sixth, the International Monetary Fund and the World Bank must complement each other. To promote efficiency and to avoid an excessive concentration of tasks and resources in one institution, there should be some specialization of functions between the Fund and the Bank. The Fund must concentrate its financial resources and its analytical capabilities on short-term macroeconomic situations. The Bank must concentrate its efforts on promoting and supporting long-term structural transformations.

However, both institutions must work in close coordination. In most cases, macroeconomic imbalances are the result of long-term structural problems. For example, chronic inflation is generally a result of large fiscal deficits caused by obsolete tax systems, excessive public expenditures, or inefficient public enterprises. The correction of these imbalances requires the application of both macroeconomic and microeconomic measures, and, therefore, participation and coordination between the Fund and the World Bank.

Seventh, a long-term perspective must be maintained. The undeniable sign of our times is accelerated change, not only in the technological and economic arenas but also in the political and social settings. Half a century ago, leaders of various countries had the vision to set the foundations for a new system of international coordination and cooperation on economic issues. From the Bretton Woods agreements, institutions such as the Fund and the World Bank emerged, both having served well the interests of the international financial community. It is time again to look to the future, and to do so in a permanent way. Today, more than ever, the Bretton Woods institutions must be alert to finding new opportunities that benefit member countries as they work to prevent possible future crises.

To detect risks and opportunities, the institutions must carefully evaluate the economic performance of both developed and developing economies. Their recommendations and proposals must follow homogenous criteria and must be applied uniformly, without granting any privileges to developed economies. I must say that in the past a double standard has been used. Substantial imbalances in developed nations have seemed to go unnoticed by the institutions, whereas the disequilibria in developing nations have promptly been sharply criticized, and little flexibility shown in the provision of financial resources.

It is the responsibility of member countries, more than that of its Directors, who are known to conduct themselves with technical and professional excellence, to provide the Bretton Woods institutions with a clear mandate and sufficient autonomy to act objectively, based on technical parameters that are independent of the degree of development or the political weight of the country in question.

The institutions must take the initiative in facing new challenges. We must act—countries and institutions together—with the creativity and close collaboration that characterized the renegotiation of Mexico’s external debt. At that time, the schemes prevailing to alleviate the debt-overhang problem had already shown their ineffectiveness. Meanwhile, indebted nations, including Mexico, were suffering the effects of increasing transfers to the rest of the world.

In this context, the Mexican Government, the U.S. financial authorities, and the Executive Directors of the Fund and the World Bank—and here I want to publicly acknowledge the support of Michel Camdessus, Barber Conable, and Lewis Preston—worked together and designed an innovative and imaginative mechanism to achieve a permanent solution to the debt problem. The scheme was new and not without risks; nevertheless, the concerted efforts and determination to surmount the problem led to success. The mechanism has proved useful not only for Mexico but for other nations as well.

The main lesson from the Mexican debt-renegotiation experience is that it reveals the great potential for joint and creative work between governments and multilateral institutions. The Fund and the World Bank must provide the leadership needed to create and take advantage of all kinds of new opportunities for the benefit of all member countries.

The last decade has been one of profound economic, political, and social reform in Mexico. Much has been done, but we still have vast challenges to overcome. These have been years of sustained effort by Mexico’s society and Government. We have learned much. In my own personal experiences, I have been able to perceive vividly the enthusiasm and courage of the Mexican people; I have seen how national unity and the desire for shared prosperity have been stronger than economic crises, overcoming any intent to make us deviate from our national project. I have also had the privilege to work together with an outstanding team of public servants, led by the great vision and firm compromise of President Carlos Salinas de Gortari.

As a public servant, I have learned that true leadership is shown in times of adversity. It is then that one must decide promptly and correctly among different courses of action and, through agreement, negotiation, and hope, convince society to act together in the chosen direction. Short-term sacrifices are frequently required, and it is the leader’s task to convince the parties with the truth and with a vision of the better future that is to come.

If I had to sum up the main lesson that I have learned during my years as a public servant, it would be that true development must embrace all facets of the human dimension. It is not enough to achieve sustained economic growth. Its fruits must be distributed justly among society. Individuals and groups must act with complete freedom in an environment that promotes creativity and personal initiative. Development must also include increased openness and participation in the political, social, and cultural spheres. Democratic participation, free expression of ideas, and personal enrichment through culture, tradition, and history are crucial elements that must be the essence of any nation’s development.

The particular case of economic reform cannot be implemented alone; it must be accompanied by political and social openness to be permanent. The best guarantee for the continuity of an economic program lies in a society that is convinced about the chosen route, and where this consensus is expressed through its political participation and everyday activities.

In Mexico, we have undertaken a profound Reform of the State in order to improve economic efficiency, generate more political participation, and achieve more equity and freedom in the social arena. To reach the twenty-first century in the best possible conditions of strength and viability, Mexico is fostering individual and community development, a market economy and social justice, liberty and equality, sovereignty and globalization, and stability and democracy.

Mexico is a country with an extensive diversity of ideas and with increasing political participation. Last August, we held the most clear and transparent presidential elections in our history, which were even praised by the international community. Voter turnout was an outstanding 77 percent of registered voters. This process reveals the will of Mexicans to continue advancing through political openness and democracy.

To attain the future that our nations deserve, societies and governments must work together and share costs and benefits justly among groups and individuals. The will and the participation of society are the main factors of change, which account for the permanence of the successes achieved. Honest, capable, and committed leaders, who project their societies’ goals and guide them to their achievement, are also needed. Multilateral organizations must provide this type of leadership in the international arena.

The Bretton Woods institutions face a new international environment. Disparities between and within nations have increased. The challenge of human development is more present than ever before. It would be difficult for any country to overcome these challenges in isolation. International cooperation, through the coordination of policies and the allocation of resources, will be the key to promoting global development.

With the end of the Cold War, the role of the Bretton Woods institutions has become more prominent. Military alliances are no longer the main keepers of national security and sovereignty. Economic development is the new pillar and the new objective for world stability. This is the great challenge for the Bretton Woods institutions. Mexico, as I am sure is true for all member nations, will participate with enthusiasm and a spirit of compromise in strengthening the Bretton Woods institutions for the benefit of the international community as a whole.