Statement by Young-Hoi Lee at the meeting of June 8, 1999

International Bank for Reconstruction and Development International Development Association International Finance Corporation 87356 Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY CONFIDENTIAL EDS99-190 June 7, 1999 06:09:53 PM Statement by Young-Hoi Lee Date of Meeting: June 8, 1999 Mexico Country Assistance Strategy We welcome the opportunity to discuss this Country Assistance Strategy for Mexico and support the Bank Group's lending and non-lending proposals envisaged in the CAS for the next three years. We commend staff for engaging government and other sectors of the Mexican community in an extensive consultative process during formulation of the CAS. Significant progress has been made in a number of key and important sectors since the publication ofthe previous CAS. However, many challenges remain. The current CAS once again reflects the joint efforts of IBRD and IFC in supporting the government's development efforts in targetting social improvements, removing obstacles to sustainable growth, maintaining macro-economic stability in the context of globilization, and enhancing public governance. However the Bank Group and the Mexican authorities face a stern test leading up to next year's Presidential elections and beyond. In this respect we agree that understanding the client's political environment and allowing program flexibility are important considerations in implementing the CAS. That said, we have some nervousness about the statement in paragraph 50 that " the use of progress bench marks ...... should not be overemphasized". We support the Bank Group's selective approach in targetting activities that have an impact on poverty and/or grO\vth or where the operational focus is on activities for which broad consensus already exists. We also endorse the thrust of the base case lending scenario proposed under the CAS given the assumption that the overall reform agenda is maintained. that on-going sectoral initiatives are pursued and on the basis that accessing private external financing is limited and/or too costly. The proposed base case lending also assumes no substantial slippages in program iThis document has a restricted distribution and may be used by recipients only in the '~;(~rformmce of their official duties. Its contents may not othern·ise be disclosed without '.\.·,_, rld B :mk authorization. implementation prior to the Presidential election next year and a stable domestic financial environment. In the event of major slippages in the lending proposals we support the lending program shifting to a lower case scenario under the conditions/triggers proposed. It is in this context that we would underline the importance of ensuring that "flexibility" in program design does not translate to a softening in the Bank's and the Mexican authorities', commitment to reform. Moreover, given the apparent reluctance of the Mexican Government to enthusiastically and comprehensively embrace-the reform agenda, we would be interested in management's further comment on the rationale for fully one third of the proposed $5.2 billion commitment being in the form of adjustable loans.