Mexico - Current economic position and prospects

RETURN TO EPORTS DESK RESTRICTED CIRCULATING COPY Report No. WITH H N 17a ONE. WEE140 B RETURNED TO ARCHIVES DIVISION This repert was prepared for use within the Bank. It may not be published nor may it be quoted as representing the Bank's views. The Bank accepts no responsibility for the accuracy or completeness of the contents of 'the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT CURRENT ECONOMIC POSITION AND PROSPECTS OF MEXICO April 10, 1962 Department of Operations Western Hemisphere CURRENCY EQUIVALENTS U.S. $1 = 12.49 pesos I peso (Mex$) = U.S. $ .08# 1 million pesos = U. S. $80, 000 TABLE OF CONTENTS PAGE BASIC DATA CHART "A" CHART "B" CHART "C" SUMMARY AND CONCLUSIONS i - iii CHAPTER I ECONOMIC CONDITIONS IN 1961 1 A. Output and Business Conditions 2 B. Monetary Developments 2 C. The Fiscal Situation 3 D. Trade and Payments 5 CHAPTER II ECONOMIC GRO1-TH IN RECENT YEARS 8 A. Levels of Gross Domestic Investment 8 B. Public Investment 10 1. Resources and Problems of Finance 11 2. Distribution of Public Investment in Recent Years 14 3. Investment Plans of Government Agencies and Enterprises, 1962-64 16 C. Private Investment 18 CHAPTER III ECONOMIC PROSPECTS 20 APPENDIX I INVESTMENT PLANS OF GOVERNMENT AGENCIES AND ENTERPRISES, 1962-64 1 Agriculture 1 Industry 6 Transportation 8 Social Services 11 Other 13 APPENDIX II CURRENT FOREIGN EXCHANGE EARNINGS (195o-61) AND PROJECTION FOR 1970 STATISTICAL APPENDIX BASIC DATA Area: 760,000 square miles Population: 34.9 million (1960 census) Rural population (19),0): 65%, 1960: 49, Rate of growth: 1910-60: 2.9% 1955-60: 3.15 Gross National Product (1961): Mexh2.2 billion Real rate of growth: 195-cL6: 8.1' 1957-61: 4.6<?' Per capita income: USA320 equivlent Origin of Gross National Product (1961): Agriculture: 20 Mining, including petroleum: 7T Manufacturing & Construction: 30f Services: 431 Gross Fixed Investment (1961): MexJ22.2 billion = 15.6% of GNP Government Finance (1960): (millions of pesos) Federal Revenue 11,665 Federal Expenditures 12,103 Deficit -438 Public Investment (1961) 8,719 Federal Government 3,033 Other Public Sector 5,686 Balance of Payments (1960) (USS million): Current Account -167 exports 739 tourism and border trade 670 imports -1,186 other (net) -390 Capital Account +232 long-term private capital -l3 long-term official capital 169 short-term capital 76 Net Errors and Omissions -62 Changes in Official Reserves + 3 Money Supply, October 1961 (billions of pesos) 16.5 decrease by 2.,4% since December 1960 Wholesale Prices (1954 = 100), December 1961 138.7 Gross Foreign Exchange Reserves, December 1961 (US" mill.) 1,11 External Public Debt Outstanding, September 1961, including undisbursed (USS mill.) 1,169.0 MEXICO CHART A GROWTH OF GROSS NATIONAL PRODUCT (IN REAL TERMS) (PERCENT) 10 10 8.8 %~ 8 -8 LONG - TERM TREND 1939-56 6.5% 6 6 4.6 % 4 -4 2 2 0 ' % '0 1950-51 1952-53 1954-56 1957-61 INDUSTRIAL PRODUCTION AGRICULTURAL PRODUCTION (PERCENT) (PERCENT) 8.4% 8 8 7.2% 6.1% 6 6 4 4 3.3% 0 .0 1950-56 1957-61 1950-56 1957-61 IBRD - Economic Stoff 1967 MEXCO HART s GROSS FIXED INVESTMENT AS PERCENT OF GROSS NATIONAL PRODUCT 16 TWO - YEAR MOVING AVERAGE 4 -1 TOTAL GROSS INVESTMENT 13 la 9 PRWATE INVESTMENT 88 7 7 PUBLC INVESTMENT 6 l - - $ 6.* 155 950 195t 1952 953 954 955 1956 957 1959 1959 0960 1961 FISCAL PERFORMANCE (BILLIONS OF PESOS) 14 14 12 2 BUDGETARY EXPENDITURES 10 10 EUEDGETRY REVEES 6 6 4 4 0< 9%V 9% 78% REVENUES AS PERCENT OF GNP Q0% 0% 1952 1953 1954 1955 1956 1957 1958 1959 1960 196) RO- Econoic Staff 96 MEXICO CHART C FOREIGN EXCHANGE EARNINGS TOTAL CURRENT FOREIGN EXCHANGE EARNINGS (BILLIONS OF U.S. DOLLARS) 2.0 2.0 1.5 1.5 1.0 1.0 .9 .9 .8 I I .8 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 % OF TOTAL CURRENT FOREIGN EXCHANGE EARNINGS 70 70 6TTA COMMODITY EXPORTS 6 60 60 ..** BORDER TOURISM AND BORDER TRADE 30 EXPORTS OF "OTHER" COMMODITIES .--. * -0. .20 0I0 10 --'2-- TO URIST RECEIP TS ' 1 (INTERIOR OF COUNTRY) 0 I I 1 0 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 IBRD - Economic Staff 1969 SUMMARY AND CONCLUSIONS 1. For over two decades the economy of Mexico experienced a process of rapid expansion. As this occurred there have been important structural changes which have strengthened the ability of the country to withstand unfavorable developments of external origin and have pro- vided a gold basis for further growth. However, since 1957 the economy has expanded at the rate of 4.5% -- an amount which implies a substantial levelling with respect to the growth trends (6.2% per year) which pre- vailed between 1939 and 1956. 2. Economic conditions in 1960 were favorable and the growth rate (5.7%) exceeded the average of the previous three years. The year 1961, on the other hand, was characterized by a lower rate of growth (3.5%), some uncertainty and reduced business confidence and by a heavy capital flight which resulted in a considerable loss of gold and foreign exchange reserves. The flight does not appear to have been prompted by a structural disequilibrium in the Mexican economy since the current international trans- actions and the long-term capital movements showed improvement with resnect to 1960. By the end of the year there were indications that the capital flight had come to an end. Strict monetary policies succeeded in maintain- ing price stability, even though the fiscal accounts closed with a deficit. 3. The relative slow-down in the rate of economic growth is stressed in this report since demographic data indicate that population is expanding at the rate of 3.1% per year. 4. An analysis of trends in gross domestic investment shows that for some years Mexican economic growth was facilitated by the prevalence of extremely favorable capital output ratios and by a rapidly expanding international trade. The experience of the past five years suggests that the country has reached a stage of development where in order to maintain growth rates in the general range of 6-7%, gross domestic investment will have to be substantially increased above the level of about 15% obtaining since 1956-57. 5. However, domestic savings have not shown atandecYto rise. Although public investment has increased as a percentage of GNP, in the past three years approximately one-third of it was financed by internal or external credits. 6. The prevalence of fiscal deficits since 1957 is accounted for by the need to undertake greater current and capital expenditures and by a taxation policy under which revenues have expanded less than GNP. Expenditures have been influenced by increasing pressures on the Govern- ment to provide social services and by the extension of Federal subsidies - ii - to certain government enterprises. The subsidy policy, however, is gradually being abandoned -- e.g. Pemex and the Federal Electricity Commission -- but continues on a substantial scale in the case of the National Railroads. 7. Private investment increased about 35% since 1957 but has tended to decline slightly as a percentage of GNP. It is possible that the credit demands of the public sector have curtailed excessively the financing available to the private sector and restrained its growth. Other factors possibly contributing to explain the trend in private investment are the low rate of growth of agricultural output and the extremely unequal distribution of income prevailing in exico, which may be curtailing effective demand. 8. Aware of the need to improve its financial position, the Mexican Government introduced early in 1962 a limited income tax reform. Available information indicates that the additional revenue to result from the reform will not greatly improve the current fundamental deficit position of the government or its ability to finance public investm-.nt. 9. Tentative estimates of public sector saving show that in order to carry out investment programs which the various agencies and state enterprises propose for the period 1962-6h, the country would have to resort to heavier external borrowing than is justified or feasible. The preliminary agency investment plans, discussed in some detail in Apvendix I, can and probably will be reduced but even so, the need for additional revenue to finance required minimum public investment needs is urgent. 10. The correction of the weaknesses in the economic and financial position of Mexico mentioned above is well within the possibilities of the country. On the one hand there is clearly a substantial margin for raising overment revenues through higher taxation and improved tax colection meod. Also te economy is highly dynaic and has reached a stage of development which permits levels of savingTyond those of recent years. 11. A more rapid rate of economic expansion than that which has prevailed since 1957 depends on the country's willingness to adopt policies leading to higher levels of gross domestic investment. Attain- ment of such goal should be facilitated by a shift in credit policies directed to improve the general position of the private sector and that of the agricultural producers in particular. This shift in turn requires a lowering of the Government's present dependence on central bank finan- cing, abandonment of the policy of subsidizing state enepie an- further tax r~csm nt directed to bin about a substantial i7n-crease in revenues. A complementary objective of tax policy should be to dis- coE Iuge xury consumption and to correct the present disequilibrium in the distribution of income. - iii - 12. The importance of a better domestic saving performance is emphasized by the circumstance that, although the long-term balance of payments prospects are satisfactory, the country's foreign exchange earnings are likely to expand in the future at a slower pace than in the past. 13. The external debt of Mexico as of the end of Sentember 1961 amounted to US$1,170 million. IBRD loans (US$201.7 million) represented about 17% of the total. Service payments on the external debt reaches a maximum in 1962 when it is estimated it will represent 12.3% of current exchange earnings. The service ratio declines rapidly from then on, reaching 7% in 1965 and 2.3% in 1970. 14. Mexico's margin for further external borrowing is sill1 sub- stantial, particularly if the practice followed in recent years of resorting to rather short-term credits is abandoned. If this margin is used only for financing essential high priority projects and if the current economic and financial policies are modified so as to induce a greater national savinp effort and a higher capacity to invest, the rate of growth of the Mexican economy should soon return to the rapidly rising levels which prevailed until a few years ago. I. ECONOMIC CONDITIONS IN 1961 1. In a previous report on Mexico (1,H-96b, August 1960), it was pointed out that for over two decades the Mexican economy had been developing at a good pace (5.6% per year); that GNP had risen in 1957, 1958 and 1959 at a lower rate (4.3%) than in the past, but that this was due to unfavorable developments in the export sector; that the growth of the economy had been well balanced; that the country's current foreign exchange receipts had expanded at the average rate of over 10% per year and that since 1957, notwithstanding substantial government deficits, monetary stability had been maintained. The country's creditworthiness was high and the growth prospects satis- factory. 2. In describing the Mexican economy, the Aupust 1960 report stressed certain features which make it particularly strong. Thus, Mexico's growth has been associated with a rapid expansion and diver- sification of its international trade in commodities and services. This development has been facilitated by the growing diversification of Mexican output, by the country's ability to adapt to changes in external demand and, in the case of some commodities, by the country's physical proximity to U.S. markets, offering constant export opportuni- ties, which Mexican entrepreneurs have been willing and able to exploit. In turn, the expansion of international trade has greatly facilitated the industrialization of the country by providing the means to import the required capital equipment and increasingly larger volumes of the many raw materials and semi-finished goods which make possible the degree of diversification attained. The fact that the country's development has occurred without transfer restrictions induced an important flow of private foreign investment and created favorable conditions for obtaining capital from official sources abroad. 3. During 1960 and 1961 the economy of Mexico continued expanding although the rate of growth, which in 1960 reached the satisfactory level of 5.7%, declined to 3.5% in 1961. The favorable performance of 1960 was largely due to a spurt in gross domestic.investment supported by substan- tial increases in imports and in the levels of building construction. In 1961 these factors provided a much weaker impetus to the economy (Tables 3, 4 and 5). 4. The Year 1961 was further characterized by some uncertainty and reduced confidence among the business and industrial sectors and by a capital fligit which led to a substantial loss of official Pold and foreign exchange reserves. Yet the balance of payment current account and the long-term international capital movements maintained their usual strength. Strict monetary policies resulted in a high degree of price stability, even though the government accounts closed with a deficit. - 2- A. Output and Business Conditions 5. The economic expansion of 1961 shows substantial sectoral dis- parities. Thus agriculture and building construction exoanded by only 3.0% and 1% each as against 0Wt% and 12.7% respectively in 1960. Manu- facturing expanded by 3.5% as against 8.6% in 1960 while mining, which for years has been in a condition of practical stagnation, declined by 3.0o. Trade, transport and communications, and "other" economic activ- ities also show relatively small increases. On the other hand, netroleum and electricity production continued expanding at a fast rate, viz: 14.0% and 9.5% respectively. Sectoral Changes in Real Output, 1958-1961 % change in given years with resDect to previous years Average 1958 1959 1960 1961 1958-61 Agriculture 10.6 0.8 0.4 3.0 3.7 Mining -2.2 1.6 2.7 -3.0 0.2 Petroleum 14.3 16.5 6.5 15.0 13.1 Manufacturing 4.8 7.0 8.6 3.5 6.0 Building Construction -1.7 4.5 12.7 1.0 b.1 Electricity 7.6 7.5 9.8 9.5 8.6 Transport and Communications 2.4 2.8 8.2 0.5 3.5 Trade -1.2 4.5 6.0 3.0 3.1 Other h.4 4.7 5.7 3.5 '*6 TOTAL 4.5 4.6 5.7 3.5 18.3 Source: Statistical Appendix, Table 5. B. Monetary Developrents 6. Control over the expansion of bank credit was more strict in 1961 than in 1960, year in which the price level experienced the largest increase (about 5%) since 1955. In 1960 total financing by the banking system amounted to over eight billion pesos or 26% over the volume out- standing at the end of 1959 (Table 11). However, money supply increased by only Mex$1.5 billion or about 10%, since a substantial part of the additional liquidity was absorbed by imports or went into time and saving deposits (Table 10). Even so the 1960 credit expansion per- mitted a high level of demand in some sectors and this, together with wage increases, accounted chiefly for the rising price level. - 3 - 7. In 1961, despite reduced imports and a slightly lower rate of increase in domestic output, the stricter monetary policies resulted in a high degree of price stability. The wholesale price index at the end of December 1961 stood at the same level as a year before; food prices and the cost of living index in the City of Mexico showed slight increases during the same period (Table 9). 8. Money supply between the end of 1960 and October 1961 actually decreased by about Mex$h00 million, or 2.4% reflectinF not only the more moderate extension of credit by the banking system but also a substantial absorption of liquidity through the loss of for- eign exchange reserves. In the first half of 1961, total financing by the banking system as a whole amounted to Met(2.4 billion, an increase of 5% over the comparable period of 1960. This total was composed of Mex!O.5 billion in credit extended by the Bank of Mexico; Mex$O.8 billion extended by private deposit and savings banks and Mey$.11 billion extended by government and related institutions. An undisclosed but apparently large amount of the credit provided by government banks to enterprises and individuals went to government enterprises (Table 13). 9. Financial assistance, extended to the public sector by the Bank of Mexico in 1961 was again considerable. Credit and purchase of government securities, amounted to Mex$l.l billion during the first 10 months of 1961 as against Mex$1.93 billion in 1960 (Table 1t). As in previous years the potential inflationary impact of the financing provided to the public sector was partly offset by reducing the liqui- dity of the banking system through sales of government securities to private banks. During the period of January-October 1961 the Bank of Mexico sold government securities worth about Mex10.5 billion to private banks, as against over Mex81.0 billion during 1960 (Cf.para. 13). C. The Fiscal Situation 10. Since 195 Federal receipts and expenditures have shovn a rapid upward trend -- with expenditures increasing somewhat faster than receipts. During 1955 and 1956 the Federal accounts closed with surpluses of Mex$677 million and Mex,387 million respectively on a level of receipts of between Mex$7.1 and Mex47.9 billion. Beginning 1957, however, substantial deficits appeared even though total re- ceipts gradually rose up to a level of MexPtll.7 billion in 1960 (Table 15). The 1961 Federal fiscal accounts are expected to close with a deficit similar to that of 1960, i.e. about Mexh00 million. 11. The 1962 Federal Budget recently presented to Congreee provides some indications of the direction and distribution of government revenues and expenditures, although later appropriations may alter the picture. Budget estimates for 1962 anticipate a level of revenues approximately ll0 higher than that of 1961. To a large extent the expected additional revenues will arise from some fiscal and administrative measures adopted in 1961 (adjustment of customs tariffs and other minor tax revisions and improved collection systems) and from others planned for 1962. The latter include an income tax reform and taxes on luxury imports and the ow,nership and use of automobiles. Approximately 1/2 of the additional revenues bud7- eted for 1962 are related to the income tax reform. Federal Government Budgetary Estimates of Revenues and Expenditures, 1961-62 (in millions of pesos) 1961 1962 Difference Revenues Income Tax 3,600 j,234 +63h Taxes on industry and trade 2,522 2,927 +ho0 Import and export taxes 2,250 2,638 +388 Other 2,670 2,521 -1119 Total 11,0h2 12,320 +1,278 Expenditures Administrative 1t,363 4,753 +390 Capital expenditures 3,254 3,334 +80 Public debt 1,049 1,110 +61 Transfers and other 2,376 3,123 +747 In the nev budget capital expenditures are maintained at practically the same level as in 1961 - the bulk of the additional budgeted revenue being allocated to cover current expenditures. As is customary, revenues and expenditures are balanced in the budget estimates. 12. Only partial information is available on the operations of other political entities apart from the Federal Government. Receipts and expend- itures of the Federal District show a rapid rate of expansion -- from about Mex600 million in 1955 to Mex$1,h00 million in 1960. In contrast vith the Federal Government, the operations of the Federal District have generally been balanced; in the past two years (1959 and 1960) they have shown sur- pluses in the neighborhood of MexS200 million (Cf. Table 16). 13. Bank of Mexico data provide indirect information on the opra- tions of the public sector as a whole. These data show that the public sector, including public enterprises, has tended to operate -ith substan- tial deficits at least since 1958. The volume of Central Bank financing (net credit plus net purchases of securities) extended to the public sector, amounted to approximately Mex82.0 billion in 1958 and 1960, and nearly Mex4$1. billion in 1959. The figure for the first ten months of 1961 was Mex41.1 billion (Table 14). D. Trade and Payments 14. During 1960 foreign exchange receipts from exports and other current account operations rose approximately 4.5' over the level of the previous year. However, the import level experienced a considerable expansion (US$1.186 million or 18% above 1950) and, as a result, the current account closed with a deficit of US1167 million. In spite of this, the overall international accounts showed a modest surplus due to a step-up in the net inflow of short and long-term capital (Table 18). 15. During 1961, Mexico's external financial position sharply deteriorated. Heavy capital flight which occurred in the spring and summer of 1961 resulted in a greater than seasonal loss of gold and foreign exchange reserves. To strengthen its reserve position, the Mexican Government in June of 1961 requested a one-year stand-by arrangement with the International Monetary Fund for US)90 million. The agreement became effective in August; by the end of 1961 Mexico had drawn USh million. In addition to the stand-by arrangement with the IMF,, the U.S. Treasury renewed its US75 million stabiliz- ation agreement with Mexico, and the Export-Import Bank granted a credit line of USA180 million, US$75 million of which had been uti- lized between August and December 1961. As a result of these draw- ings Mexico's gross foreign exchange reserves rose from USk264 million at the end of July 1961 to US1411 million at the beginning of December. During the last quarter of 1961 the net foreign exchange position also improved, indicating that the capital flight had probably stopped. , 6 - Balance of Payments 1959-61 (in millions of dollars) Jan.-Sept. 1959 1960 1960 1961 I. Current Account -32 -167 -112 62 Commodity Exports 756 787 590 618 Tourist receipts & other 701 733 947 567 Imports and other debits 1,488 1,687 1,249 1,246 II. Capital Account 150 232 104 172 Private long-term capital 78 -13 -56 69 Official long-term capital 63 169 120 109 Short-term capital 9 76 4o -6 III. Errors and Omissions -66 -63 -51 -195 IV. Changes in Bank of Mexico Position 52 2 -59 -85 Source: Statistical Appendix, Table 18 16. In contrast with the unfavorable short-term capital movement the current and capital accounts showed improvement in 1961 in comparison with 1960. Information for the period January - September 1961 indicates that both exports and tourist receipts increased approximately 5%, while imnorts and other debits remained at about the same level as in 1960. As a result the current account deficit was approximately half as large as that regis- tered during the same period of 1960. Net utilization of lonp-term official loans was at about the same level as during 1960. Gross private foreign in- vestments also remained approximately unchanged with respect to 1960 (Us lo6 million). The apparent improvement shown by the net figure recorded in balance of payments data (Table 18) results from the inclusion in 1960 of US17 million as "disinvestment" resulting from the purchase of the foreign electric companies. Since payments for the purchase will in fact be spread out over several years the inclusion of the total as an outlay is not justi- fied. 17. The flight of capital referred to in para. 21 does not appear to have been prompted by any basic changes in the international economic position of Mexico. The growth of export and tourist receipts since 1948, even though slower than the growth recorded up to 1957, does not indicate increasing inability to compete abroad. The internal price level, as measured by wholesale prices, increased by 2h% between 195), and 1957 -- as against 7% in the United States. Since 1957, however, Mexican prices have remained fairly stable -- the increase amounting to only 12,. 18. In view of the above it seems that the interpretation of the capital flight given in official circles, viz. as resulting from psycho- logical and speculative factors is probably accurate. The Cuban situation has led to fears of similar developments in other countries; in Mexico isolated declarations by political personalities fostered these fears an led some groups to anticipate radical social reforms and perhaps the adon- tion of a policy of excessive government intervention in the economic sphere. Although in Mexico, as in other Latin American countries, there are grouns .who would favor such developments, the official attitude and currP.nt poli- cies do not justify the existence of such fears. 19. Speculative activities are another factor that may have contrib- uted to the capital flight. Some evidence of this is the fact that the capital outflow was not accompanied by a liquidation of securities or a drawing on savings and time deposits but by a decline of checking deposits in private and official banks. -8- II. ECONOMIC GRaTH IN RECENT YEARS 20. In this chapter the purely factual information on current economic conditions and developments in 1960-61 presented in Chapter I, is placed against the background of the country's longer-term economic trends. As this is done it becomes clear that the slow-down in the levels of economic activity and output registered in 1961 is not a temporary phenomenon but rather part of a pattern going back at least five years. This pattern of retardation in the traditionally rapid rate of economic growth of the country has been accompanied by develop- ments in domestic investment and fiscal policies which deserve analysis. A. Levels of Gross Domestic Investment 21. The expansion of the Mexican economy between 19h and 1951 was rapid and averaged about 6.1% per year. In contrast, during the two fol- lowing years the country's real national product experienced a slight decline. The rate of economic growth went up sharply for a few years following the 1954 devaluation of the peso and attained the unprecedent- ed level of 8.1% in 199-56. But since 1957 -- with the exception of 1960 -- the rate of growth in real terms has fluctuated within narrow limits around an average of only 4.45 per annum. 22. The relative slow-down in the rate of growth during the nast five years is a cause for some concern since during the neriod noula- tion expanded at the rate of about 3.1% per year. If present economic and demographic trends were to continue the doubling of real per capita income levels would require nearly 50 years. In attempting to explain this relative retardation in the rate of growth an obvious point of departure is the analysis of the levels of investment in recent years. 23. Total gross domestic investment in Mexico represented only 10% of GNP in 1944, but expanded steadily until 1951 when it reached the level of 14.5%. The average for the eight years was 12.7%. Dur- ing this period the combination of rapidly rising investment levels and increasing exchange earnings in current account resulted in a rather pronounced (6.1% per annum) average rate of growth of GNP. During the post-devaluation years (1954-56) domestic investment, which had declined slightly in 1952 and 1953, returned to its pre- vious level and current exchange earnings, as well as long-term foreign private investment, showed Changes in GNP, Investment Rates and Exchange Earnings (1944-61: Averages of selected periods) GNP Investment Current Account (Av. Annual as % of Exchange Receipts change) GNP (Annual Change) 1944-51 6.1 10 - 14.5 16 Av. 12.7 1952-53 -0.2 13.9 3 1954-56 8.1 lh.5 15 1957-61 4.6 15.3 2 a great expansion. This was reflected in an unusually rapid growti of GNP in real terms - which reached 8.1% per year. During the 1957-61 period, the comparatively slow growth of GNP coincides with a decline in the rate of expansion of exchange earnings in current account, largely due to price declines in some of Mexico's traditional exports, and with a practical stabilization, around the level of 15%, in total domestic investment. 24. An important feature observable in the distribution of total gross domestic investment in Mexico since 195 is that the gradual ex- pansion of public investment (from 5.4% of GNP in 1955-56 to 6.3% of GNP in 1960-61), has been accompanied since 1956-57 by a relative decline in private investment. This trend has tended to offset the relative gains in the public sector. Private and Public Investment in Mexico as % of GNP (Two-year moving averages, 1955-61) Total Public Private - -------- -in of GNP - - ------ 1955-56 14.75 5.) o 9.35 1956-57 15.20 5.45 9.75 1957-58 15.35 5.70 9.65 1958-59 1t.90 5.70 9.20 1959-60 15.15 6.10 9.0 1960-61 15.65 6.30 9.35 - 10 - 25. The data presented above imply that until 1956 Mexican economic growth has been facilitated by the prevalence of extremely favorable cap- ital output ratios and a rapidly expanding international trade. The experience of the past five years suggests that the country may have reached a stage of development where in order to maintain growth rates in the general range of 6-7%, the level of gross domestic investment will have to be substantially increased. Such change in investment requirements could follow from the gradual use of the best -- or more productive -- investment opportunities in any expanding economy. In the case of Mexico, the shifts in the composition of investment re- ferred to in paragraph 23 may have further contributed to the change in the capital output ratio. Also, as the growth of GNP decelerated, the absolute amounts available annually for net additions to the exist- ing capital stock have probably tended to decline since a higher propor- tion of the annual gross investment must have been devoted to simnle replacement of capital stock. 26. In brief, although the factors accounting for the lower-rate of economic growth in recent years cannot be pinpointed, it is clear that the level of gross domestic investment must be raised if Mexico is to acceler- ate its economic growth. This conclusion is strengthened by the circum- stance that the pressure for increasing social investment -- whose period of gestation is long-- is mounting, and this development will not contrib- ute to improve presently prevailing capital output ratios. 27. Given the capital-output ratios prevailing during 1957-61, the attainment of a growth rate of 6-7% would require gross domestic investment in the neighbortood of 21% of GNP. However, this estimate provides only a very rough approximation of future investment requirements since capital- output ratios must vary somewhat following qualitative changes in the com- position of investment. In fact, it should be expected that a policy of strict adherence to economic priorities in public investment and shifts in the overall composition of investment -- with emphasis on the needs of the private sector -- would reduce substantially the above estimate of capital requirements of the economy. B. Public Investment 28. Public investment is estimated to have increased from Mex4.6 billion in 1956 to Mex'8.7 billion in 1961 or, as indicated in paragraph 24, from 5.4% of GNP in 1955-56 to 6.3% in 1960-61. The rise in pesos of constant purchasing power has also been substantial and represented apOrox- imately 13% per year over the five-year period. - 11 - 1. Resources and Problems of Finance 29. Information on the operations of the Federal Government is com- piled in Mexico by the Ministry of Finance as well as by the Bank of Mexico. In addition, the Secretariat of the Presidency compiles data on public sec- tor investment (Federal Government, Federal Agencies, states and municipal- ities, autonomous enterprises and semi-public entities). Unfortunately, the information available from these various sources cannot be reconciled, due to differences in methodology and criteria of classification. A most important step toward adequate public investment programming is the re- organization of the fiscal statistical services with a view to producing detailed and meaningful information on government receipts and expenditures, government saving and accurate data on the financing of public investment. 30. According to the Secretariat of the Presidency, in 1959-61, approx- imately two-thirds of all public investment was financed with fiscal resources or with resources of the investing state enternrises. Of the remaining bal- ance, between 65% and 70% was covered with external credits. The Federal Government itself in the three years under review appears to have financed with domestic and external credits approximately 25 of its investment. Financing of Public Investments, 1959-61 (in billions of pesos) Financing Budgetary Agencies & Domestic External Year Total Resources Enterprises Credit Credit Total Public Investment 1959 6.5 2.4 1.9 0.8 1.1 1960 8,,4 2.7 2.8 0.8 2.1 1961 8.7 3.1 2.6 0.8 2.2 Federal Gov't 1959 2.7 1.8 0.2* 0.6 0.2 1960 2.4 1.7 0.2* 0.4 0.1 1961 3.0 2.0 0.3* 0.)4 0.3 Autonomous and 1959 3.8 0.6 1.7 0.3 1.2 Semi-public 1960 6.0 1.0 2.6 0.h 2.0 Enterprises 1961 5.7 1.1 2.2 0.), 1.9 Source: Secretary of the Presidency Covers special resources (such as lottery profits) assigned to some Federal agencies. - 12 - 31. The prevalence of Federal fiscal deficits since 1957 is the result of a combination of factors. On the one hand, current and cap- ital expenditures in real terms have tended to increase rapidly -- 9.5% per year between 1955 and 1960 and as much as 17% in 1960 alone. The rise in capital expenditures has already been commented on; as to current expenditures, the expansion is accounted by increasing pressures to pro- vide needed government services, particularly in the social field. Thus, in 1961, the budget of the Secretariat of Education reached Mex2.270 million, or about 20% of all budgetary expenditures - as against Mex,357 million, or 11% of Federal expenditures in 1951. 32. In contrast with the rapid rise of Federal expenditures, reve- nues in real terms have increased slowly and, until 1960, did not keep pace with the growth of GNP in real terms. As a result, the Ferieral tax burden in Mexico is under 9% of GNP and the total national tax burden, (i.e., including the Federal District, States and Municipalities) is in the neighborhood of only 11% of GNP. Both of these percentages are among the lowest in the world. Federal Revenues and Expenditures and GNP in Real Terms, 1955-60 (Indices 1955 = 100) Revenues as Revenues Expenditures GNP % of GNP 1955 100 100 100 8.5 1956 107 112 107 8') 1957 103 120 110 7.8 1958 108 133 115 7.7 1959 115 133 120 7.7 1960 135 155 128 8.7 33. Also important as an explanation of the Federal deficits is the fact that for a number of years the Mexican Government has had to subsi- dize certain state enterprises whose financial situation was weak because of the policy of pricing their services below actual costs of production. In the past, the main enterprises receiving Federal support were the Federal Electricity Commission, Pemex and the National Railways. Another agency, CEIMSA, which engaged in agricultural price support and food stor- age and distribution operations, resorted heavily to official bank credit. - 13 - 34. It must be pointed out, however, that subsidies to some of these enterprises have been eliminated or substantially reduced in the last few years. Prices of the petroleum products sold by Pemex were allowed to rise in 1956; in 1960 the Government agreed to consolidate the tax liabilities of Pemex in the form of a capital contribution and since then the company has been paying taxes and interest to the qovern- ment at the rate of more than Mex$800 million a year. The Federal Elec- tricity Commission raised its electricity rates early in 1962; in the next two or three years the agency, because of the magnitude of its in- vestment program and the need to repay short-and medium-term liabilities, will still obtain some funds from the budget. But beyond 1964 such support should not be required and the agency should generate enough cash to finance a substantial part of its investment program. As to CEIMSA, a recent deci- sion led to the assumption by the Government of the agency's debt with the Central Bank; in the future CEIMSA will no longer resort to central bank financing but will rely on its own resources and regular commercial bank credit. 35. The financial position of the National Railways is, however, still unsatisfactory and the Federal budget support extended to the enterprise is very substantial. In 1961 the National Railways showed a current operating deficit of Mex1332 million; to cover this deficit and also capital expenditures, debt servicing and other expenses, the Government in 1961 made available to the railways approximately MexA670 million -- in addition to Mex$185 million in tax refunds. In the same year the enterprise also borrowed abroad the equivalent of Mex'k250 mil- lion. There is no indication that the position of the National Railways is likely to change in the near future. 36. Aware of the need to improve its financial position the Mexican Government introduced early in 1962 a limited income tax reform. According to available information, a new overall tax schedule was added to the seven schedules (trade, industry, agriculture, labor income, professional fees, income from capital and royalties) in existence until the end of 1961. Also, tax rates were raised slightly. Early in November 1961 the Minis- try of Finance estimated that the additional revenue to result from the reform would amount to perhaps Mex9)00 million in 1962, Mex700 million in 1963 and Mex1.0 billion in 1964 or a total of MexS2.1 billion over the next three years. - lb - 37. Given the rising trend of public expenditures it seems that the recent tax reform will not correct the current fundamental deficit position of the Government or greatly improve its ability to finance public invest- rmnt. However, there is no doubt that the margin for raising government revenues through higher taxation and improved tax collection methods is very substantial. However, if additional tax measures are not introduced in the near future, Federal Government savings for 1962-64 should be expected to remain at their present level of about Mex.13.0 billion a year. The state autonomous agencies and state enterprises were able to devote approximately Mex2.5 billion of their own resources to investments in 1961. This figure may increase somewhat as a result of the greater revenue of agencies such as the Federal Electricity Commission so that total savings for this part of the Dublic sector may also amount to Mex13.O billion a year. On this basis, it seems that total public savings would average approximately Mex 6.0 billion a year over the next three years. New tax measures could alter sub- stantially this estimate. 2. Distribution of Public Investment in Recent Years 38K An analysis of the distribution of public investment by major sectors since 1956 shows that approximately four-fifths of such investment has been directed to irrigation, electric Dower, petroleum and transport -- with the bulk of the balance devoted to public health, housing,education and research. Investment in administration and defence has been comparatively unimportant. Within these broad agare- gates, few clear trends are evident. Among them, investment to irrigation and petroleum has tended to decline in relative terms; on the other hand, investment in electricity and public health has increased sharply both in absolute and relative terms. Since the price level has risen only 17% since 1956 investment in real terms has gone up substantially even in sectors which show relative declines, as in the case of petroleum. -15 - Public Investment, 1956-61 Mex$ million % of Public Investment 1956 1961 1956 1957 1958 1959 1960 1961 Total Public Investment 4,571 8,488 100.0 100.0 100.0 100.0 100.0 100.0 I. Basic Development 3,61 a 6,331 79.1 78.6 83. 4 8.4 76.2 74.6 A. Agriculture 651 937 14.2 11.9 11.3 13.0 M.2 11.0 Irrigation 566 906 12.9 11.4 10.It 10.7 6);. 10.7 Other 63 31 1.4 0.5 0.9 2.3 1.8 0.3 B. Industry 1,289 2,609 28,2 30.8 33.8 30. 33.5 30.7 Ylectricity 2b5 1,000 6.2 5.2 7.5 11.7 17.5 11.5 Petroleum 860 1,239 18.8 22.8 21. 15.3 13.6 14.6 Other 14 370 3.1 2.8 4.9 3.4 2.h 4.3 C. Transport & Commission 1,702 2,785 37.2 35.8 38.4 41.0 34.5 32.8 Roads 556 1,060 12.2 14.0 13.7 16.0 9.9 12.5 Railways 807 1,084 17.7 15.1 16.6 17.1 16.2 12.8 Other 339 641 7.3 6.7 8.1 7.9 8.). 1.3 II. Social 904 1,938 19.8 19.2 14.2 12.5 21.5 22,8 Urban and Rural Services 550 889 12.0 11.9 6.9 6.6 7.9 10.5 Public Health 108 643 2.4 2.7 3.1 2.3 6.2 7.6 Education 131 264 2.9 2.3 2.5 1.8 2.2 3.1 Housing 115 142 2.5 2.3 1.6 1.8 5.2 1.6 III. Administration and Defense 27 220 0M6 2.2 2.)l 3.1 2.3 2.6 Source: Appendix I, Table A 39. In general terms, the sector distribution of public investment in the past appears to have been satisfactory, if judged by the overall development of the economy and the rather balanced growth attained by its various parts. The main exception to this pattern is the agricultural sector which since 1958 has tended to lag in comparison with other sectors. Also striking is the retro- gression of mining, as distinct from petroleum. The increasing emphasis given since 1958 to investments in the social field appears justified by the current needs of the country. - 16 - 3. Investment Plax% of Government Agencies Land Enterprises, 196246 40. In order to carry out fixed investments all public entities in Mexico must obtain the prior approval of the Secretariat of the Presidency. To this effect the Secretariat is organized under three departments, viz: Directorate of Investments which deals with the year-to-year operations; Directorate of Investment Planning, concerned with the longer-range programming of investments and Directorate for the Control of Investment which carries out inspections and audits of the various projects. The latter function is also assigned to the "Secretariat of National Patrimony." A recent decree spells out in detail the mechanism of coordination and the division of functions among both agencies. In general, the Secretariat of National Patrimony is concerned with the technical control and technical coordination of public investment. 41. External borrowing can be entered into only by Nacional Financiera (official development bank), the Bank of Mexico, the Banco de Commercio Exterior (Bank of Foreign Trade), and the Banco Nacional Hipotecario (National Mortgage Bank). Each of these institutions acts on behalf of the various investing agencies in the country. The National Mortgage Bank usually borrows on behalf of states and municipalities for public works purposes. This mechanism plus the normal budgetary controls of the Secretariat of Finance and controls on credit, by the Bank of Mexico, assure a considerable degree of central supervision on the invest- ment expenditures of the public sector. Somewhat related to the control of public investment are the activities of the "Commission on Public Imports," composed of representatives of the Secretariat of Finance, Secretariat of National Patrimony, Bank of Mexico, Bank of Foreign Trade and "Nacional Financiera," which must approve all imports by public agencies. 142. At the end of November 1961 the Secretariat of the Presidency had not yet approved the public investment program for the remaining three years of the present administration. However, the major investing agencies had elaborated preliminary programs which were available. 43* On the basis of the preliminary information available and some simple assumptions regarding investment by the minor investing agencies. it is possible to arrive at a total of "intended" public investment. fTn this basis, public investment for 1962-6 would average Mex$12.7 billion a year. If it is assumed that the increase (Nex6.0 billion between 1961 and 1964) is distributed uniformly in absolute terms over the next three years, the annual investment would be as follows: Mex$10.7 million in 1962; Mex$12.7 million in 1963 and Mex$14.7 million in 1964. The implicit relative annual increments are approximately 23%, 19% and 16% in each succeeding year. Of course, as the agency and sector plans are analyzed by the Secretariat of the Presidency, they may be substantially adjusted to bring them in line with financing possibilities. - 17 - Investment Plans of Government Agencies and Enterprises, 1962-64 and Comparison with 1961 in billions of pesos in % 1961 1962-64 1961 1962-6 Annual Av. Total Total Public Investment 8.7 12.7 38.1 100.0 100.0 Agriculture 0.9 2.5l. 19.7 Irrigation (0.9) (2.4) (7.2) Other ( - ) (0.1) (0.3) Industry 2.6 3.3 10.0 29.9 26.2 Electricity (1.0) (1.5) (4.6) Petroleum (1.2) (1.3) (4.0) Other (0.4) (0.5) (1.)0 Transport and Communications 2.8 3.7 11.1 32.2 29.2 Roads (1.1) (2.0) (6.1) Railways (1.1) (1.0) (3.0) Other (o.6) (0.7) (2.0) Social 1.9 3.0 8.9 21.9 23.h Public Health, Housing (0.8) (1.3) (4.0) Education and Research (0.3) (0.5) (1.5) Federal District (0.7) (1.0) (3.1) Other (0.2) (0.1) (0.3) Adm. and Defense 0.2 0.2 0.6 2.3 1,5 Unallocated 0.3 - - 3.5 - Source: Appendix I, Table A 44. Appendix I presents details of the various sector programs and comments on relative priorities. No effort has been made to assess the documentary material available on the technical aspects of the various programs and projects. As shown in the summary table (paragraph 43), the only major change in the relative allocation by sectors is in agri- culture. Proposed investment in irrigation is substantially increased; - 18 . as indicated in the corresponding section of Appendix I such a large increase may not be justified. Also there is need for closer coordina- tion between irrigation and agricultural policies in general as well as for measures to improve yields -- as opposed to opening of new lands through irrigation. Investment in industry and transport and communi- cations show small relative declines, but substantial absolute increases. In the area of transport Appendix I indicates the desirability of better coordination between railway and road investment plans. Social invest- ment continues expanding but the requirements of the country in this area seem to justify the proposed investment. In regard to housing Appendix I also points out need for a coordinated approach so that the resources of the various agencies may be more effectively used to solve the national housing problem. 45. The internal resources available to finance public sector investment of Mex$10.7 billion in 1962 will probably be in the neighbor- hood of Mex$6.8 billion, viz. MeA6.0 billion in public saving (Cf. para- graph 37) and Mex$800 million in internal credit (Cf. paragraph 29). A greater use of internal credit for public investment purposes does not seem likely or advisable. Under these circumstances the financing gap implicit in the 1962 public investment program is MexO3.9 billion or about US$310 million. Unless the resources of the Federal Government and State agencies and enterprises are increased substantially the ex- ternal financing gap in the 1963 and 1964 programs would go up to US"470 and US$630 million respectively. External debt amortization in 1962 may amount to US$100 million. Hence net borrowing in 1962 vould represent US'210 million - as against US$157 million in 1961. 46. The above estimates, even though only approximate, clearly show that, given the fiscal resources available, the implementation of the preliminary public investment program for 1962-64 would require external borrowing of such magnitude as to bring about in a short time an unduly heavy burden on the debt servicing capacity of the country. The alternatives, of course, are a reduction in the size of the program or a substantial change in tax policies and a reduction in the subsidies granted by the Federal Government to State agencies and enterprises. C. Private Investment 47. Private investment in Mexico increased from MexA10.1 billion in 1957 to Me4,13.5 billion in 1961 (Table 4). But as pointed out in para- graph 24, as a percentage of GNP such investment has tended to decline slightly. No precise explanation of this trend - which contrasts with the steady increase in public investment over the same period - can be advanced. However, two possible contributing factors should be mentioned. - 19 - 48. As shown in para. 13 Central Bank financing of the public sector has been taking place on a substantial scale since 1958. However, in order to prevent an undue overall monetary expansion the effects of deficit financing have been offset in part through Central Bank sales of government securities to private banks. It is possible that the credit demands of the government and government enterprises have excessively curtailed the scope for expanding credit to the private sector and restrained its growth. A similar negative effect on economic growth should be expected to follow from the slow expansion of agri- cultural output already mentioned and, because of its effect upon effective demand, from the extremely unequal distribution of income which generally prevails in Mexico. Although the inequality of income distri- bution is not a new phenomenon its effects, added to those resulting from the trends in agriculture may now be acting as a brake to the overall growth of the economy. 49. A resumption of a faster rate of economic growth in Mexico obviously requires a higher and expanding level of investment in the private sector. Attainment of this objective should be facilitated by a shift in credit policies directed to improve the general position of the private sector and that of the agricultural producers in particular. But such shift would require a lowering of the government's present dependence on Central Bank financing. Further reductions in subsidies to state enterprises and a higher level of revenues become, then, essential. A tax readjustment directed to bring about a substantial increase in revenues, discourage luxury consumption and correct the present disequilibrium in the distribution of income would help to accelerate Mexico's economic growth. - 20 - III. ECONOMIC PPOSPECTS 50. For over two decades the economy of Mexico has been undergoing a process of rapid expansion. As this occurred there have been important structural changes which have strengthened the ability of the country to withstand unfavorable developmnts of external origin and provided a good basis for further growth. Among these changes, the diversification of industrial output, the capacity to produce a variety of intermediate and capital goods and the diversity of exports that have been developed de- serve mention. The dyvamic nature of the Mexican economy is underlined by its rate of growth since 1957 - a rate which although below the his- torical trend -- is not a disappointing one by international standards. Yet the period since 1957 has been one in which external factors (mainly lower prices for some of the country's most important export commodities) have been unfavorable and the internal potential for economic expansion has been insufficiently utilized. 51. The international accounts' difficulties experienced during 1961 do not appear to have resulted from any obvious structural iyabalance of the Mexican economy. Still the magnitude of the gold and foreign exchange reserve loss has weakened the basis of the external value of the Mexican peso. Recovery depends on the adoption of measures designed to strengthen the confidence of domestic and foreign investors in the economic future and the financial stability of Mexico. 52. The long-term prospects of the Mexican economy are for further growth. However, in order to attain faster rates of economic expansion than those that have prevailed since 1957 gross domestic investment must be substantially raised; in turn the Mexican Government must be willing to adopt policies that will make such increase in investment possible. The importance of a more satisfactory domestic saving performance is emphasized by the circumstance that the country's foreign exchange earnings are likely to expand in the future at lower pace than in the past. 53. The prospects of the balance of payments over the next eight or ten years are satisfactory -- even though current exchange earnings will probably expand at a rate considerably below that of 7.4% per year attained between 1950-59. The last Bank report on Mexico (WH-96b, August 1960) projected total current exchange earnings to increase at the rate of 4.116 during the period 1959-70. The actual rates of growth for 1960 and 1961 (4.4% and 1.2% respectively) slightly exceeded this projection. Since no fundamental changes have occurred to justify a new forecast of Mexicots export prospects Appendix II presents the above-mentioned projection in its original form, except for the in- clusion of the actual data for 1960 and 1961. It may also be pointed out here that two recent official studies of Mexicots foreign exchange earning capacity point to somewhat more favorable prospects. - 21 - 54. As shown in Tables 1, 2 and 2a the total public external debt of Mexico as of the end of December 1960 amounted to US11,012.3 million, including US9294.9 million still undisbursed. Reported new borrowing up to September 1961 increased the outstanding debt by US617.9 million or to a total of US1,?170.2 million. This figure compares with US 565.2 million at the end of 1957. Of the total public external debt outstanding at the end of September 1961, US$201.7 million (includiig Usq57.2 million still undisbursed) represented IBRD loans. Service payments on the ex- ternal debt reaches a maximum in 1962 when it is estimated at approxi- mately US$206 million or the equivalent of 12.3% of current exchange earnings -- as projected in the Bank's last report. The service ratio on existing debt declines rapidly from there on, reaching 7.6% in 1965 and 2.3% in 1970. 55. In spite of the rapid increase in the magnitude of the public external debt since 1957, Mexico's margin for further external borrowing is still substantial, particularly if the practice followed in recent years of resorting to rather short-term credits is abandoned. If this margin is used only for financing essential high priority projects and if the current economic and financial policies are modified so as to induce a greater national saving effort and a higher canacity to invest, the rate of growth of the Mexican economy should soon return to the rapidly rising levels which prevailed until a few years ago. APPENDIX I INVESTMiNT PIANS OF GOVEPNMPT AGENCIES AND ENTERPRISES 1962-64 APPENDIX I INVESTMENT PLANS OF GOVERMENT AGENCIES AND ENTERPRISES, 1962-64 This appendix presents some relevant information on the major sectors of the Mexican economy and comments on the preliminary investment plans prepared by government agencies and state enterprises. Since the information relates to programs or plans of organizations responsible for the respective sectors, the amounts envisaged in many cases probably exceed by a substantial margin what will actually be authorized when they are balanced off against each other in formulating a general program for the period. AGRICULTURE Output Trends 1. Underlying the over-all growth of the economy, agricultural output in Mexico has experienced for the past two decades a sustained expansion. It is estimated that during the periods 1942-47 production increased by about 4% annually. But since 1947 and until recent years the rate of growth has been close to 8% per year, thus exceeding the rise of population (3%) and of total national output (6%). As a result per capita supply of domestic agricultural commodities, valued at con- stant 1959 prices, increased from Mexican $161 in 1932 to Mexican $38 in 1959, i.e. at the compound rate of 4% per year. Agricultural output has failed to increase since 1958; this situation is largely explained by production drops in major export commodities, such as cotton and coffee, following a deterioration in their international markets. 2. The development of the agricultural sector has not been limited to crop output. Cattle raising and meat production have also shown considerable increases. Beef production has expanded since 1950 at the rate of nearly 5% per year and production of pork, milk and other animal products at somewhat faster rates. Acreages and Yields 3. The above production increases have been obtained primarily by irrigation of new lands and, secondarily, by use of new non-irrigated land and improvements in yields. The area of cultivated cropland in- creased from 10.9 million hectares in 1950 to 17.0 million hectares in 1959; of the additional 6.1 million hectares of cultivated land, about 1.4 million consisted of land under irrigation and 4.7 million hectares of new land cultivated under natural rainfall conditions. In 1960 the - 2 - area of land under irrigation reached 3.0 million hectares or nearly one- fifth of the total cultivated land (17.0 million hectares) in that year. Since 1950, the process of incorporation of new lands (680,000 hectares annually) has exceeded the growth of population; cultivated land repre- sented 0.51 hectares per inhabitant in 1959 as against 0.42 hectares in 1950. Cultivated Land, 1950-59 Increase 1950 1959 Absolute 1950-59 Annual Average (in million hectares) Total 10.9 17.0 6.1 56 4l Under irrigation 1.6 3.0 1.4 97 7 Irrigation districts (1.1) (203) (12) Other (0.5) (0.7) (0.2) Natural conditions 9.3 14.0 4.7 50 4 Source: Secretariat of Hydraulic Resources h. Land in the newly irrigated districts, because of its greater productivity and generally higher unit value of output - as in cotton and truck-crops for export -- has tended to account for a raridly in- creasing proportion of the total value of agricultural output. This proportion rose from 120 in 1940, to 32% in 1950 and 37% in 1959. 5. Average agricultural yields in Mexico are low and the improve- ment which has taken place in the last decade is in a large measure the result of the increasing weight of land under irrigation. Agricultural Land Potential and Land Requirements 6. The emphasis given in the past to irrigation in Mexico is a consequence of the type of land resources which the country possesses. Flat lands are scarce and areas with adequate slopes to be cultivable represent only 36% of the total; rainfall is irregular and good quality agricultural land is very unevenly distributed. Even the hydrologic resources are ill-located from an agricultural point of view. Thus the great northern plains are largely desertic while in the southeast, which represents less than 10% of the country's territory and poDulation, there are a number of large rivers (Papaloapan, Coatzacoalcos, Grijalva and Usamacinta) whose total flow accounts for nearly 50% of the flow of all rivers in Mexico. As a result of this combination of natural factors the total agricultural land potential of Mexico, according to the Secre- tariat of Hydraulic Resources, amounts to only 30 million hectares or 154 - 3 - of the total area of the country (196.4 million hectares). The Secretariat has also estimated that to be productive 11.3 million hectares can and must be irrigated by surface or sub-surface waters and 18.8 million hectares, located in semi-arid, semi-humid and humid areas, can be exploited under natural rainfall conditions. The unutilized land potential of Mexico can thus be summarized as follows: Agricultural Land Potential of Mexico (in million hectares) Total Utilized Available Cultivable Land 30.0 17.0 13.0 Under irrigation 11.2 3.0 8.2 with surface waters (8.2) (2.3) (5.9) with sub-surface waters (3.0) (0.7) (2.3) Without irrigation 18.8 14.0 1.8 Source: Secretariat of Hydraulic Resources 7. A recent study of the Secretariat of Hydraulic Resources/ projects the irrigation needs of Mexico over the next 25 years. The study concludes that over this period Mexico should open over 9 million hectares.of irrigated land -- if agricultural yields are not increased -- and nearly 7 million hectares if yields increase by 40% in irrigated lands and 20fo in non-irbrigated lands. 8. Among the assumptions underlying the estimates mentioned in paragraph 7 is that present production patterns would be maintained and that the country's composite output would increase approximately 35 per year by simply adding the necessary areas of irrigated or non-irrigated land. Under these assumptions, the figures point to a rapid exhaustion of cultivable land resources and a large investment - most likely under- estimated since real irrigation costs per acre will probably increase as less favorable sites come into production. 9. The estimate is, of course, misleading since there is no reason to dismiss the possibility of changes in the production pattern through concentration in higher unit value crops, resulting in a much more effi- cient land-use than at present. In fact, such development, as exemplified by the growth of output and exports of products such as fresh vegetables and fruits, is already taking place. Under these circumstances, the value of agricultural output in real terms may very well increase greatly without the requirement of a commensurate growth in cultivated areas. For this reason, the estimates do not warrant the conclusion that Mexico must accel- erate the opening of new irrigated lands in order to maintain or increase the country's present measure of agricultural self-sufficiency. 1/ "Los Recursos Hidraulicos de Mexico. Su Relacion con los Problemas Agricolas y Economicos del Pais. Proposicion nara Establecer las Bases de su Planeacion y Desarrollo Futuro." S.R.H., Mexico, September, 1960 -4 - Appraisal of Preliminary Investment Plans 10. The study referred to in the preceding paragraph consti- tutes the basis for recent proposals by the Secretariat of Hydraulic Resources to invest over 7 billion pesos in irrigation during the next three years. No data on proposed investment in the rest of the agricultural sector was obtained, but in 1961 such investment amounted to about Mex.160 million out of total expenitures of Mex.4242 million undertaken by the Secretariat of Agriculture. The 1962 burlpet incli^P-s a slightly larger figure (Mex.273 million). 11. The 1962-64 program of the Secretariat of Hydraulic Resources contemplates the improvement of nearly 200,000 hectares of already irrigated land; completion of irrigation works now in process covering an additional 150,000 hectares and initiation of new irriga- tion projects covering 435,000 hectares. In addition, nearly 100,000 hectares of land would be irrigated by small works, including subsoil water. Out of the total investment of Lex.'0, billion over the three-year period, Mex.$3.h billion (US.$272 million) would be obtained through foreign loans. These figures do not include two large pro- jects requiring a special decision, viz: the rehabilitation of the irrigation systems on the Colorado River (Baja California) and the La Laguna district (Durango and Coahuila). The estimated investment in the Colorado River project is -ex."1.0 billion (US$80 million) and in La Laguna Mex.$3.5 billion (US,280 million). The latter would in- volve not only the rehabilitation of existing works but also the move- ment of 35,000 families to the southeastern part of the country where some large drainage and river control projects (Chontalpa or Malpaso) are under study. 12. Any appraisal of the irrigation and agricultural programs of Mexico must start with the comment that so far the emphasis has been on the opening of neu land through irrigation and that relatively little attention has been paid to policies leading to a better utilization of existing agricultural land. Present plans do not indicate a change in this trend. 13. Yet considerable increases in output in Mexico are possible by greater use of fertilizers, improved cultivation practices, seed selection and control of plagues. The resources allocated in the Federal Budget for agricultural research and extension works are obviously in- sufficient, although the benefits of these activities are fully recog- nized. The use of fertilizers is still very limited as shown by the fact that, according to the Secretariat of Agriculture, in 1959 the corn crop was greatly influenced by the application of fertilizer to 156,000 hectares of irrigated land and 278,000 hectares of non-irrigated land planted with this crop. The total acreage in corn in that year exceeded 6 million hectares. Agricultural credit is also very scarce, particularly in the case of communal or "ejido" lands where the margin for improvements in productive efficiency is greater. 14. A margin of some importance for output increases exists through the recovery of the now salted irrigated lands. Such recovery is being pressed forward by the Secretariat of Hydraulic Resources. It is estimated that there are in the various irrigation districts over 86,000 hectares of salted and totally unproductive land and nearly 200,000 hectares of partly salted land with reduced yields. Outstanding IBRD loans for the financing of land rehabilitation projects cover approximately 80,000 hectares of moderately salty land and 38,000 hectares of recoverable land now out of production. In addition, the Inter- American Bank has granted loans covering substantial physical improvements on 70,000 hectares of already irrigated land. I5. In the light of the possibilities referred to in paragraphs 13 and 14 it seems that no rigid projection of long-term irrigation needs could or should be used to plan new irrigation projects. Rather what is needed is a unified agricultural policy directed to increase agricultur- al efficiency in general, a movement toward the use of irrigated land for high value crops -- with some emphasis on export possibilities -- and a careful selection of new irrigation projects on their own merits, i.e., after serious studies of their costs and expected economic benefits. Such a policy may result in a variable annual rate of incorporation of new lands to production and yet in substantially increasing the value of output. In view of the country's other public investment requirements the Secretariat of the Presidency had tentatively decided that an invest- ment of perhaps Mex.'5.4 billion in irrigation over the next three years would be adequate. 16. One of the factors underlying the drive towards opening of new irrigated land is social rather than economic in nature. Some areas of the country -- e.g. La Laguna in the States of Durango and Coahuila -- are overpopulated and existing irrigation facilities are excessively taxed with the result that farms are too small to be economic and that the limited water available is spread over too large an area. An offi- cial plan being considered is the reduction of acreages under cultivation and the movement of population to new agricultural areas to be opened in other parts of the country. There may be some merit in such schemes provided the economic potential of the new lands can be proven. Other- wise their cost may be excessive and the same investment in some other direction, as for instance in manufacturing promotion in the now over- populated agricultural areas, may provide a more rational long-term solution to the existing social problem. An idea of the costs involved is given by the case of La Laguna. It is estimated that the rehabilita- tion of this district will cost Mex.'200 million; the movement and in- stallation of 35,000 families in the southeast will require an additional Mex.33.3 billion. To these estimates must be added perhaps Mex.3500 million for drainage and river control in the southeast. Without counting required agricultural credit for the farmers in the new area, the total cost amounts to over three hundred million dollars or nearly ten thousand dollars per family. -6 - INDUSTRY 17. The bulk (95%) of public investment in industry refers to petroleum and electricity and is undertaken by two state autonomous entities (Pemex and the Federal Electricity Comimission) plus three public enterprises, viz: Compania Mexicana de Luz y Fuerza Motriz (formerly Mlexlight), Empresas Electricas NAFINSA (formerly American and Foreign Power) and Nueva Compania Electrica Chapala, 3.A. Other important state manufacturing enterprises are Altos Harnos de Mexico, S.A. (steel), Constructora de Carros de Ferrocarril S.A. (railway rolling stock), Guanos y Fertilizantes (fertilizer), Diesel Nacional (motors) and several sugar mills. The total investment of this latter group of enterprises in 1961 was about Mex.:290 million. Penex invested Mex.l1,677 million and CFE and the three smaller electric power agencies a total of Mex.,2,524 million. Petroleum 18. The operations of the State petroleum agency have experienced a substantial expansion in recent years. Thus the number of wells drilled reached 762 in 1960 as against 440 in 1959 and 330 in 1955. Of the wells drilled in 1960, 75" were productive. Reserves of crude and distillates are estimated to represent 28 years' current production and those of gas 30 years. In 1955 these reserves represented 19 and 44 years current production, respectively. Production and refining reached a daily average of nearly 300,000 barrels in 1960 -- up 6/0 annually since 1955. Produc- tion of natural gas rose from 328,000 cubic feet daily in 1955 to 933,000 in 1960. 19. Tne fin nci,3 position of e v ,lso snow.:s irprovement. Following a change-in pricing policies in 1958 gross inceme increased sharply (from Nex$5.0 million in 1959 to Mex.58 billion in 1960). Since 1960 Pemex has not received budget assistance. In 1960 the enterprise paid over Mex:69h million in taxes, Mex,3141 million in interest to the government on its capital contribution, and charged over 40% of gross receipts to depreciation and other reserves. It has also shown small profits. 20. The company has traditionally financed its own investments. In recent years it has resorted heavily to forei.on borrowing -- approxi- mately US$200 imillioi'since 1959. Inasmuch as a high proportion of this borrowing has been for short-term periods the servicing of the accumu- lated debt places a heavy burden on the company's current income and is forcing the management to slow down somewhat the rate of new investment. 21. Pemex projects the growth of the petroleum industry for the period up to 1968 at the rate of 6.5% and estimates that consumption of petroleum products will rise from 330,000 barrels per day in 1961 to 500,000 barrels per day in 1968. The projected expansion of plant facilities is based on the fact that in the past consumption of light products has increased rapidly while that of residual products has tended to decline in relative terms. Also the rapid increase in the reserves of gas has forced and will force Pemex in the future to m7 - increase the processing and utilization of liquid products associated with gas. Other elements influencing the expansion of plant facilities are the decision to provide the Pacific coast of the country with its own refining capacity and to foster the petrochemical industry. The first involves the construction of two new refineries with a combined capacity of 80,000 barrels per day in Rosarito, Baja California and Mazatlan, Sinaloa. The second involves investments in partnership with the private sector. 22. The total petroleum expansion program, including repairs and maintenance, amounts to Mex.'6,762 million (US$51 million) of which US3140 million have already been financed. The total investment in petrochemical plants amounts to US$100 million of which private investors, under a system of mixed partnership, are expected to finance close to US$50 million. Petroleum: Investment Program (in millions of pesos) Total Already Balance of which Cost Invested 1962 1963 1964 1965 on Pemex 6,161 1,753 4,408 1,436 1,291 95Y 724 Plant Expansion 3,434 1,358 2,076 804 613 240 419 Distribution plants and pipelines 1,053 364 689 165 165 165 254 Repairs and Main- tenance 1,519 - 1,519 461 507 551 - Other 601 - 601 122 125 54 300 Petrochemicals 601 - 601 122 125 54 300 Total 6,762 1,753 5,009 1,558 1,h16 1,011 1,024 Equiv. in US.(rmillion 541 140 400 124 113 81 82 Electricity 23. The Mission did not attempt to obtain information on the investment plans of the electric power industry other than to confirm the program already available to the Bank. 24. The investment program of the Comision Federal de Elec- tricidad covers the period 1961-70 and is designed to increase capacity by 13.6% annually between 1961-65 and 8.1% between 1966-70. This ob- jective is justified by the expected growth in demand. The latest available information on proposed investment by CFE during the period 1962-64 points to an amount in the neighborhood of Mex.$h,812 million (US1385 million). To finance this investment CFE has negotiated already nearly Mex.$1,h2 million (US100 million) in foreign credits. Proposed IBRD and other loans would represent an additional USil25- U,S.i130 million of foreign financing. CFE's Investment Program (millions of pesos) Total Existing Year Investment Foreign Financing 1962 2,565 1,226 1963 1,93 184 1964 754 32 1965 678 - 1966 701 - 1967 766 - 1968 963 - 1969 1,209 - 1970 1,318 25. The investment program of the Compania Mexicana de Luz y Fuerza Motriz (Mexlight) is far less definite, but the Department of Technical Operations has estimated (T.O.275, March 31, 1961) that total investment by this company may amount to Mex.:250 million per year over the next four or five years. TRANSPORTATION 26. Detailed information was obtained on the investment programs of the Secretariat of Public Works (highways and railroads) and from Caminos y Puentes Federales de Ingresos, an autonomous agency engaged in the operation of toll-roads. The total investment proposed for the transport sector amounts to approximately Mex.$11.1 billion for the three-year period 1962-64. This figure represents 29.2% of total proposed public investment for the same period and compares with 32.2% invested in 1961. Yet, in absolute terms, investment in the transport sector would increase from Mex.'2.8 billion in.1961 to an average of Mex.$3.7 billion in 1962-64. Assuming that the increase over the next three years takes place in equal absolute amounts, the level of invest- ment in transportation would reach Mex.84.2 billion in 1964 or 50, above the 1961 figure. The decision as to whether this level of invest- ment in transportation is justified by the needs of the country would require more information than is now available. The above total includes a substantial investment in rural roads designed to open rather isolated regions of the country and over Mex.R3.0 billion for railways. Because of the magnitudes involved and the importance of coordinating investment in the various types of transport facilities, an overall survey of the entire Mexican transport sector might be a useful guide to further investment decisions. Highways 27. All highways in Mexico are designed and built by the Secretariat of Public Works under four different types of financial arrangements, viz: .. 9 - (a) Federal Highways fully financed by the Federal Government; (b) State highways, the cost of which is shared in equal parts between the Federal and State Governments; (c) Local highways financed one-third (plus engineering and technical direction costs) by the Federal Government, one-third by the State Governments and one-third by the private beneficiaries of the projects; (d) Toll roads, financed by a special agency (CPFI) with its own resources, viz: toll charges. 28. The Federal highway progran and the toll roads program are rather definite since their implementation depends on decisions by single agencies. The State and local highways programs are always tentative and subject to change or postponement since they depend on state and local contributions which sometimes are not forthcoming as expected. 29. In the determination of priorities for Federal highways the Secretariat of Public Works assigns priority to maintenance and repairs and completion of already initiated projects. For new highways the Secretariat has developed a system by which the potential annual agricultural and pastoral production of the area of influence of the new highway is related to the cost of construction and expressed in the form of an index or coefficient. This index provides a first indi- cation of the degree of economic justification of any given highway. In the case of state and local highways the Department relies on the judgment of the State and local authorities. Toll road construction is decided in principle on the basis of traffic (minimum of 2,000 vehicles per day) and estimates of savings to users. 30. In addition to programs covering all the above categories of highways the Secretariat of Public Works has studied a group of 25 roads which would traverse isolated and undeveloped areas of the country. While the immediate effect upon production is lower than in the case of other highways, they would accelerate the development of these areas and in due course increase agricultural output. The cost of construction is estimated at 1ex.1,Uh53 million (U S z116 million) and the Government hopes to obtain assistance in non-convential terms to finance part of the cost of this construction. 31. The total highway construction program for the next three years is distributed as follows: - 10 - Highway Construction Program 1959-61 and 1961-64 (in millions of pesos) 1959-61 1962-64 Federal highways 1,610 2,112 State highways 508 985 Local highways 152 347 Toll roads 431 979 Indirect expenditures 231 Total 2,932 4,333 J Special Development highway program 1,453 Total (all programs) 6,136 1/ Included above As shown above, the proposed investment in highways for 1962-64 would be about 48% higher than that undertaken during the previous three-year period -- if the special development-highway program is not included -- and more than twice as large if such program is included. In terms of over-all magnitudes an investment of Mex,$%.3 billion does not appear in itself exaggerated since it would represent 11.3% of the suggested total public investment for the period (Cf. Chapter II, para. 49) as against 12.5% in 1961 and as much as 16% in 1959. 32. The special development highway program poses a different priority problem. The economic justification of the various highways included in that program varies greatly and for those that have been assigned the highest relative priority by the Secretariat of Public Works, the potential value of the additional annual output to result from them greatly exceeds the construction costs. Thus, although in toto the program probably exceeds the financial possibilities of the country some of its component parts appear well justified. Railroads 33. The financial position of the Mexican railroads and the budgetary assistance being extended to them has already been mentioned in the text (para. 4l). 34. Aggregate investment in railway maintenance, rehabilitation and construction in Mexico averaged Mex.51,216 million for the period 1959-61. Incomplete information available indicates that railroad investment over the next three years (1962-64) may be in the neighbor- hood of Iex.13.0 billion or an average of Mex.$1.0 billion annually. 35. The bulk of the normal investment in roadway maintenance, buildings, signaling equipment, locomotives and rolling stock is - 11 - undertaken by the National Railways -- which account for over 16,000 km. of track out of a national total of approximately 23,000 km. In 1961 this type of investment on the part of the National Railways amounted to Mex.1,668 million and projections for 1962-64 point to an annual average of 1ex.3651 million. No infor- mation on this type of investment was obtained for the other rail- roads. 36. Regarding rehabilitation and new construction, four major products involving an investment of Mex.$741 million (US60 million) are being contemplated. Two of these projects consist of the re- construction of sections of the Chihuahua-Pacifico Railway (Chihuahua- Ojinaga and La Junta-Drake) and two others are new lines within the network of the National Railways. Of the latter, one would establish a direct connection between the cities of Guadalajara and Saltillo and the other link Mexico City with Zacatepec, as a first stage to an even- tual connection with the City of Acapulco. 37. The Secretariat of Public Works has prepared preliminary appraisals of the economic justification of the above projects as well as technical studies of the work involved. Both projects are said to contribute to improve the efficiency and earning capacity of the rail- ways. However, given the general financial situation of the railway network in Mexico, the priority of these projects should not be decided on their own merits but as part of a program to improve the overall efficiency of the railways and the transport system of M4exico (Cf. para. 26). SOCIAL SERVICES 38. During 1960 and 1961 investment in social services repre- sented about 20% of total public investment in Mexico. This percent- age contrasts with an average of approximately 13% invested in 1958-59 and reflects a tendency on the part of the Mexican authori- ties to spread to the lower income groups the benefits of economic progress. In the light of the extremely uneven distribution of income which prevails in the country and the gaps in health, education and housing facilities which now exist, this policy or trend is under- standable and also generally justified in terms of the upgrading in human resources which it will bring about. a. Public Health and Housing 39. The main agencies concerned with investment in public health facilities are the Secretariat of Public Health and two social security institutions, viz: the Mexican Institute of Social Security (wISS) and the Social Security Institute for Public Employees (ISSSTE). These two organizations possess their own resources and undertake con- struction of hospitals, clinics, and similar facilities for their mem- bers. Public housing is undertaken also by these two aencies as well as by the National Housing Institute (INV) and the National Mortgage Bank. The National Housing Institute depends on budgetary appropriations and some credit; its resources so far have been rather limited. The National Mortgage Bank obtains resources mainly through the issue of mortgage bonds and some external borrowing; it lends to states and municipalities for public works in general and for housing projects. This Bank recently entered into an arrangement by which, together with the Social Security Institute for Public Employees and several insurance companies, it will finance the rehabilitation of a section of the City of Mexico. 4o. The preliminary investment plans of the above institutions for the period 1962-64 amount to approximately Mex,.$.0 billion or twice as much as it was invested an 1959-61 for the same purpose. A substantial part of this investment is earmarked for hospital and other public health facilities to be built and financed by the Secretariat of Public Health and the two already-mentioned social security institutions. The pro- posed facilities are part of a rapidly spreading social security system under which members make contributions and have the right to receive certain medical services. The cost of these health projects is totally financed with the normal resources of the social security institutions. 1. The situation is rather different in the case of housing. Here the available resources of the several institutions are insufficient to cover the proposed or desired investment; as a result, the implemen- tation of the various projects presupposes substantial internal or external borrowing. An additional factor that deserves mention is that although all the institutions are concerned with the general problem of "housing" each is approaching it in a different manner (e.g., as regards technical specifications, magnitudes or subsidy granted to beneficiaries, outright sale or rental of the property, etc.) and each is trying to serve a different social group. No attempt has been made to use a unified approach to the "national housing problem", to put together existing resources and to set up priorities based on the needs of the various social groups. At the present time, e.g., the rural sector and the lower income strata of urban centers are those receiving the smallest share of state financed housing. In view of this situation it seems that although a strong case can be made for substantial expenditures in housing of social interest, as well as for some external assistance towards financing of such investment, a preliminary step should be a thorough study of the needs and of the best manner of coordinating existing resources and experience with a view to establishing a long- term national housing program. b. Education 42. As part of a plan to provide by 1970 free educational facilities to all children of school age, investment and expenditures in primary education have been expanding rapidly. (Cf. Chapter II, para.37) Investment in education amounted to Mex, "264 million in 1961 as against Mex.109 million in 1951. Since 1959, 11,500 new classrooms and 11,600 new teacherst posts have been created. This permitted the opening of primary school opportunities to over 1,000,000 children of school age. The number of students in all primary schools in Mexico is now 3,172,000. - 13 - 43. The expansion of the primary school facilities and the increase in the number of children completing the first educational stage places additional demands on the facilities for secondary, vocational and pre- paratory education. An index of the limitations existing in this respect is given by the fact that the Federal secondary schools can accept now only about 120,000 students and that regional technological schools, also controlled by the Secretariat of Education, provide space for only 30,000 students. To these facilities must be added some secondary schools controlled by the National University. All the available secondary school facilities cover probably less than 50% of the number of students gradua- ting from primary schools. 44. In view of these limitations the Secretariat of Education has prepared plans for the construction, improvement and re-equipment of several thousand primary and post-primary schools, including a number of elementary technical institutes and normal schools. The program, not overly ambitious in the light of present needs and expected growth in the demand for educational facilities, involves capital expenditures of hex. 1,273 million pesos (US0100 million) over the next three years. In terms of building facilities available and degree of planning al- ready undertaken, this program is feasible provided the necessary finan- cial resources become available. 45. Advanced education is provided by the National University in five departments and eleven graduate schools. The university also con- trols six secondary or preparatory schools operating in two shifts with a total school population of 24,000 students. The facilities of the university secondary schools are grossly insufficient and the state of repair and maintenance of the buildings requires urgent attention. The university itself was built eight years ago with a planned capacity of 27,000 students. At the present time the various school departments and graduate schools have a total enrolment of 70,000 students, so that every facility is taxed well beyond its normal capacity. 46. The National University investment program contemplates the construction of six new preparatory schools, plus expansions in practi- cally all the graduate schools. The total cost of the program, includ- ing some additional facilities such as a new library building and some laboratories, is estimated at Mex.".269 million (US"22 million.) OTHER 47. In reviewing the major Nexican public investment programs mention must be made of a so-called "National Border Pm gram," already under way, and of a number of important hydraulic works and public projects being considered by the Federal District. National Border Program 48. The rapid expansion of tourist receipts in Mexico (from US%275 million in 1952 to US5670 million in 1960) is largely explained by border tourism and purchases by U.S. residents on short visits to Mexican border cities. In 1960, of total gross receipts of UsD670 million, four-fifths or US03520 million resulted from border tourism and border trade and only USj$100 million resulted from tourism to the interior of the country. This extraordinary expansion has occurred in spite of the comparatively limited attraction of the Iexican border cities and without a concerted and well-planned effort to foster such tourism. The potential is given by the fact that within a short distance of the Mexican border live approximately 16 million U.S. citizens enjoy- ing a very high standard of living. 49. The circumstances referred to above constitute the basis for a program recently initiated under which a number of border cities (Tijuana, Ciudad Juarez, Matamoros, etc.) will be rehabilitated with a view to promote their economic development through the establishment of new industries and also by making them more attractive to American tourists. The general procedure adopted consists in building structures such as shopping centers, hotels, motels, office buildings, show places, etc., and offering them on lease or outright sale to private investors. In the case of non-recoverable investment such as school buildings, museums, etc., their cost will be charged to the income derived from commercial leases and to capital appreciation gains resulting from the rehabilitation scheme. Under these circumstances, it is estimated that the whole "National Frontier Program" can be financed with a revolving fund of approximately Mex.l,200 million or US100 million. The cha- racteristics of the program and its potential impact on the Mexican balance of payments contribute to give it a high priority. Department of the Federal District 50. The Department of the Federal District has substantial reve- nues (Mex.,1,348 million in 1960) and has traditionally operated on a balanced budget. Investment expenditures amounted to Myex.4S14 million in 1960 and to over Mex.1720 million in 1961. 51. For the period 1962-64 the Federal District is contemplating an investment program which includes hydraulic works designed to pre- vent the further sinking of the City of Mexico; a system of drainage canals designed to prevent the flooding of certain areas of the city and the construction of a number of city facilities, including paving and water supply. The total cost of this program is estimated at Mex. ,32,410 million (US$190 million) -- a figure which exceeds the current resources available to the District over the next three years. The priority of these projects is high and the engineering studies are well advanced. The Federal District is considering external borrowing of perhaps US350 million in order to implement the program. APPENDIX I - Table A: PUBLIC IN ESTiEi-jT, 1955-1961, FU'CTICAL B!"AKDOUW In I'illions of Pesos In C of Total Investment 1955 1956 1957 1958 1959 1960 1961 1955 1956 1957 1958 1959 1960 1961 .otal Investment 4.408 4571 5,628 6,190 6,532 8,376 8.7191/100.0 100.0 100.0 100.0 100.0 100.0 100.0 Basic Development 3,766 3,641 4,423 5.163 5,508 6,373 6,331 85.4 79.7 78.6 83.4 84.4 76.2 74.6 A. Agriculture 606 651 670 697 848 689 937 13.7 14.2 11.9 11.3 13.0 8.2 11.0 1. Irrigation 602 588 641 644 697 535 906 13.7 12.9 11.4 10.4 10.7 6.4 10.7 Large (533) (536) (542) (487) (596) (449) (804) (12.1) (11.7) (9.6) (7.9) (9.2) (5.4) (9.5) Small (69) (52) (99) (157) (101) (86) (102) (1.5) (1.1) (1.8) (2.5) (1.5) (1.0) (1.2) 2. Other 4 63 29 53 151 154 31 0.1 1.4 0.5 0.9 2.3 1.8 0.3 B. Manufacturing 1,738 1,289 1,736 2,090 1,987 2.794 2,609 39.4 28.2 30.8 33.8 30.4 33.5 30.7 1. Energy & Fuels 1,424 1,145 1,576 1,788 1,759 2,603 2,239 32.3 25.1 28.0 23.9 27.0 31.1 26.4 Electricity (368) (285) (294) (462) (763)(1,462)(1,000) (8.3) (6.2) (5.2) (7.5) (11.7) (17.5) (11.8) Petroleum and Gas (1,056) (860)(1,282)(1,326) (996)(1,141)(1,239) (24.0) (18.8) (22.8) (21.4) (15.3) (13.6) (14.6) 2. Steel 35 100 132 154 128 23 163 0.8 2.2 2.3 2.5 2.0 0.3 1.9 3. Coal 18 2 - - 12 11 26 0.4 - - - - C.2 0.3 4. Other 261 42 28 148 88 157 181 5.9 0.9 0.5 2.4 1.4 1.9 2.1 C. Transport & Comm, 1,422 1,702 2,017 2.376 2.674 2,891 2,785 32.3 37.2 35.8 38.4 41.0 34.5 32.8 1. Roads 591 556 788 848 1,043 828 1,060 13.4 12.2 14.0 13.7 16.0 9.9 12.5 2. Railways 662 807 850 1,029 1,118 1,360 1,084 15.0 17.7 15.1 16.6 17.1 16.2 12.8 3. Maritime 150 150 163 176 145 166 107 3.4 3.3 2.9 2.8 2.2 2.0 1.2 4. Pipelines 8 157 163 285 332 410 426 0.2 3.4 2.9 4.7 5.1 4.9 5.0 5. Other 11 32 53 38 36 127 108 0.2 0.7 0.9 0.6 0.6 1.5 1.3 -. Social 598 904 1,079 876 821 1,810 1,938 13.6 19.8 19.2 14.2 12.5 21.5 22.8 1. Urban & rural services 445 550 670 430 430 662 889 10.1 12.0 11.9 6.9 6.6 7.9 10.5 2. Public Health 21 108 150 194 153 519 643 0.5 2.4 2.7 3.1 2.3 6.2 7.6 3. Education & research 74 131 129 155 118 190 264 1.7 2.9 2.3 2.5 1.8 2.2 3.1 4. Housing 56 115 130 97 120 439 142 1.3 2.5 2.3 1.6 1.8 5.2 1.6 ontinued Table A: Continued In Hill ions of Pesos InLn _of Total Investment 1955 1956 1957 1958 1959 1960 1961 1955 1956 1957 1958 1959 1960 1961 III. Administration and Defense 45 27 126 151 203 193 220 1.0 0.6 2.2 2.4 3.1 2.3 2.6 1. Defense 8 8 10 12 12 15 15 0.2 0.2 0.2 0.2 0.2 0.2 0.2 2. Public Buildings 3 19 111 119 94 164 203 0.1 0.4 1.9 1.9 1,4 1.9 2.4 3. Other 34 - 5 20 97 14 2 0.8 - 0.1 0.3 1.5 0.2 - IV. Unclassified - - - - - - 231 - - - - - - Source: Direccion de Inversiones, Secretariat of the Presidency, Data in this table refer to investments authorized by the Secretariat of the Presidency and may differ from actual or realized investment. The differences,however, are not considered to be substantial. 1/ Preliminary figures. Total includes Mex$231 million invested at the end of the year and for which the sector allocation is not known. The percentage distribution given is based on the allocated total, viz. Mex$8,488 million. APPENDIX II C U R R E N T F 0 R E I G N E X C H A N G E A R N I N G S (195o-1961) A N D P R 0 J E C T IO N F 0 R 1 9 7 0 CURREIT FOREIGN EXCHANGE EARNIGS, SELECTED YEARS 1950-1961 AND PROJECTIONS FOR 1970 Proj. Annual Compound Rates of Chan:ge 1950 1956 1957 1958 1959 1960 1961 1970 Actual Pro-. 1939-59 1945-59 1950-59 1956-59 1959-70 (in millions of U.S. dollars) 4 % % % Total Current Earnings 8U 14 1.06 13379 1,457 1,520 1 2,259 20.0 7 7 1.0 4 Commodity Exports 493 807 706 709 721 739 802 1 101 10-4 7.2 4 4 -3.5 29 Major Commodities 339 605 469 400 394 368 n.a. 480 9.8 11.9 1.0 -10.7 1.8 Cotton (142) (263) (170) (190) (199) (158) n.a. (250) Coffee (45) (105) (109) (79) (62) (72) n.a. (75) Copper (25) (74) (37) (30) (30) (26) n.a. (23) Lead (70) (53) (52) (35) (34) (34) n.a. (30) Zinc (25) (43) (41) (20) (24) (30) n.a. (27) Sulphur (-) (14) (22) (23) (24) (28) n.a. (50) Petroleum & Fuel Oil (32) (53) (38) (23) (21) (20) n.a. (22) Other Commodities 154 202 237 309 327 371 n.a. 621 11.8 4.0 8.8 17.0 6.0 Precious Metals 51 La 51 33 36 3 -2.0 -2.0 -3.4 -7.2 Tourist Receints & Border Trade ?32 508 592 56q 637 670 708 1,032 12.7 13./, 11.5 _L8 4.5 Other, including "braceros" remit- tances 60 2 5 59 67 63 60 83 n.a. 0.8 S2 2.5 2.0 Source: Current Economic Position and Prospects of Mexico (WH-96a), June 20, 1960, except for 1960 (where the figures show actual results) and 1961 (which gives a preliminary estimate). Price assumptions underlying the indi- vidual projections of "major" export commodities, as given in WH-96a, should be adjusted downwards in the case of cotton, coffee, lead and zinc. However, in the aggregate the overall projection has been confirmed in 1960 and 1961 and appears to provide an acceptable indication of probable exchange earnings. STATISTICAL APPENDIX Table No. External Public Debt 1. External Public Debt Outstanding, September 1961 2.) Service Payments on External Public Debt, 1961-75 2a) Income and Production 3. Growth of Gross National Product and National Income, 1939, 1945, 1950-61 4. Gross National Product by Major Expenditure Components, 1957-61 5. Gross National Product by Industrial Origin, 1957-61 6. Main Agricultural Crops, 1958-61 7. Volume of Industrial Production, 1956-60 8. Production of Main Minerals, 1959-61 Money, Credit and Prices 9. Price Indices - Mexico City 1955-61 10. Money Supply, 1958-61 11. Financing by the Total Banking System, 1956-61 12. Summary Accounts of the Bank of Mexico, 1958-61 13. Consolidated Accounts of Private Commercial Banks and Government Related Institutions, 1958-61 Public Finance 14. Financing of the Public Sector by the Bank of Mexico, 1958-61 15. Federal Government Fiscal Performance, 1955-6o 16. Fiscal Operatiors of the Federal District, 1955-6o External Accounts and International Trade 17. Official Gold and Foreign Exchange Reserves, 1998-61 18. Balance of Payments, 1953-61 19. Main Commodities Exported, 1959-61 20. Composition of Imports, 1959-61 21. Tourism and Border Traffic, 1950-61 Table 1: 1EXICO - EXTERNAL PUBLIC DEBT OUTSTANLING INCLUDING UNDISBURSED AS OF DECEHBER 31, 1960 WITH MAJOR REPORTED ADDITIONS TO SEPTEiIBER 30, 1.961 (In thousands of U.S. dollar equivalents) Debt outstanding Major reported December 31, 1960 additions Item Net of Including January 1 - undisbursed undisbursed September 30,1961 TCAL DEBT 717,394 1,012,285 157,932 Publicly-issued bonds 18,372 18,372 - Privately-placed debt 360,466 483,034 38,000 IBRD loans 144.,501 186,689 15,000 U.S. Government loans 166,817 296,952 10,932 Export-Import Bank 149,210 273,655 o,932 Other 17,607 23,297 Nationalized properties 27,238 27,238 Statistics Division IBRD-Economic Staff December 1, 1961 Table 2: MEXICO - ESTIMATED CONTRACTUAL SERVICE PAYMENTS ON EXTERNAL PUBLIC DEBT OUTSTANDING INCLUDING UN- DISBURSED AS OF DECEMBER 31, 1960 WITH MAJOR REPORTED ADDITIONS JANUARY 1 - SEPTEMBER 30, 1961 /a (In thousands of U.S. dollar equivalents) Page 1 Debt out- Debt out- standing Payments during year standing Payments during year Year plus un- plus un- disbursed Amorti- In- disbursed Amorti- In- Total January 1 zation terest Total January 1 zation terest Total debt Publicly-issued bonds 1961 1,001,900 147,288 34,187 181,475 18,372 1,940 - 1,940 1962 975,243 1214,173 39,534 163,707 17,131 1,940 - 1,940 1963 851,960 118,096 37,922 156,018 16,081 1,940 - 1,940 1964 734,556 119,332 34,866 154,198 14,833 1,938 - 1,938 1965 615,942 112,797 29,801 142,598 13,613 1,942 - 1,942 1966 503,984 105,556 24,111 129,667 12,510 1,940 - 1,940 1967 399,054 79,842 18,609 98,451 11,196 1,938 - 1,938 1968 319,902 55,486 15,809 71,295 9,948 1,939 - 1,939 1969 264,963 46,930 12,951 59,881 8,556 1,941 - 1,941 1970 ZL8,527 36,417 10,759 47,176 7,109 1,943 - 1,943 1971 182,722 33,752 9,102 42,854 5,778 1,941 1,941 1972 149,363 30,641 7,740 38,381 4,230 1,941 - 1,941 1973 118,982 29,090 6,075 35,165 2,549 1,941 - 1,941 1974 89,956 26,988 4,500 31,488 672 672 - 672 1975 62,968 15,629 2,987 18,616 Privately-placed debt IBRD loans 1961 479,399 105,997 16,827 122,824 186,689 6,601 8,053 14,654 1962 373,402 76,102 16,088 92,190 195,088 7,183 9,519 16,702 1963 297,300 53,353 13,750 67,103 187,905 10,756 9,293 20,049 1964 2 3,947 38,178 11, 37 49,715 177,149 11,238 8,783 20,021 1965 205,769 30,561 10,407 40,968 165,911 12,838 8,230 21,068 166 175,208 25,813 8,933 34,746 153,073 14,174 7,59 21,768 1967 149395 25,110 7,521 32,631 138,899 14,520 6 908 21,1428 1968 124,285 22,776 6,837 29,613 124,379 16,287 6,186 22,1473 1969 101,509 17,920 5)462 23 382 108,092 16,680 396 22,076 1.970 8 58 1 ,019 4,7 22166 91 ,412 8,613 1,684 13,297 6j,g0 16 8 3,60 20,312 82,799 9,0A 4,2 13,283 972 4 2 14, 3 2,990 17423 73,761 9, 3,7 13,269 97 34 25 2,007 15,832 6127 95 1 3,251 l974 20,0 1 ,279 1,080 15,359 ,32 8,798 2,812 11,610 197 5,92 000 172 5,172 &,528 8,325 2,350 10,675 See footnote at end of table. Table 2: MEXICO - ESTIMIATED CONTRACTUAL SERVICE PAYMENTS ON EXTERnAL PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED A OF DECEMBER 31, 1960 ITH MAJOR REPORTED ADDITIONS JANUARY 1 - SEPTEMBER 30, 1961 /a (CONT.) (In thousand of U.S. dollar equivalents) Page 2 Debt out- Debt out- standing Payments during year standing Payments during year Year plus: un- plus un- n- Total disbursed Amorti- In- Total January 1 zation terest January 1 zation terest U.S. Government loans Total Export-import Bank 1961 290,202 23,960 .,682 32,642 273,655 22,486 8,387 30,873 1962 371,174 29,132 13,568 42,700 356,101 27,659 13,199 40,858 1963 342,042 50,668 14,795 65,463 328,442 50,668 14,795 65,463 1964 291,374 66,599 14,482 81,081 277,774 66,580 14,210 80,790 1965 224,775 66,077 11,122 77,199 211,194 65,979 10,579 76,558 1966 158,698 62,250 7,562 69,812 145,215 62,069 7,024 69,093 1967 96,448 37,495 4,180 41,675 83,146 37,229 3,651 40,880 1968 58,953 13,705 2,786 16,491 45,917 13,350 2,267 15,617 1969 45,248 9,610 2,093 11,703 32,567 9,162 1,590 10,752 1970 35,638 7,063 1,628 8,691 23,405 6,518 1,145 7,663 1971 28,575 6,065 1,253 7,318 16,887 5,420 792 6,212 1972 22,510 4,383 965 5,348 11,467 3,634 532 4,166 1973 18,12 3,373 768 4,141 7,833 2,515 364 2,879 197 14,75 3,239 608 3,847 5,318 2,268 240 2,508 1975 11,515 2,304 465 2,769 3,050 1,216 137 1,353 U.S. Government loans Nationalized properties Uther 1961 16,547 1,474 295 1,769 27,238 8,790 625 9,415 1962 15,073 1,473 369 1,842 18,448 9,816 359 10,175 1963 13,600 - - - 8,632 1,379 84 1,463 1964 13,600 19 272 291 7,253 1,379 64 1,443 1965 13,581 98 543 641 5,874 1,379 42 1,421 1966 13,483 181 538 719 4,495 1,379 22 1,401 1967 13,302 266 529 795 3,116 779 - 779 1968 13,036 355 519 874 2,337 779 - 779 1969 12,681 448 503 951 1,558 779 - 779 1970 12,233 545 483 1,028 779 779 - 779 1971 11,688 645 461 1,106 - - - - 1972 11,043 749 433 1,182 1973 10,294 858 404 1,262 1974 9,436 971 368 1,339 1975 8,465 1,088 328 1,416 See footnote at end of table. Table 2: MEXICO - ESTIMATED CONTRACTUAL SERVICE FAYiMENTS ON EXTERNAL PUBLIC DEBT OUTSTANDING INCLUDING UN- DISBURSED AS OF DECEMBER 31, 1960 1WITH MAJOR REPORTED ADDITIONS JANUARY 1 - SEPTEMBER 30, 1961 / (CONT.) Page 3 Includes service on all debt included in Table 1 prepared December 1, 1961 except for the following items for mhich no repayment terms were readily available: Privately-placed debt $ 3,635,000 outstanding December 31, 1960 38,000,000 contracted since January 1, 1961 U.S. Govt. lend-lease credit 6,750,000 outstanding December 31, 1961 Statistics Division IBRD-Economic Staff December 1, 1961 Table 2a: MEXICO - ESTI4ATED TCTAL SERVICE PAYMENTS ON EXTERIIAL PUBLIC DEBT /a (In millions of U.S. dollar equivalents) Year Estimated service on debt outstanding December 31,1960 June 30,1961 September 30,1961 1961 181 181 181 1962 161 194 206 1963 139 164 179 1964 124 151 165 1965 114 132 145 1966 102 117 123 1967 84 110 110 1968 68 80 80 1969 57 65 65 1970 4h 52 52 1971 ko 45 45 1972 36 k0 40 1973 34 37 37 197k 30 33 33 1975 17 19 19 /a The following sources were used for these figures: Service on debt outstanding December 31, 1960 - Table 2 prepared by IBRD on December 1, 1961, adjusted to exclude service on debt contracted subsequent to January 1, 1961. Service on debt outstanding June 30, 1961 - "Estimacion del servicio de la deuda exterior a un ano o mas del sector publico de Mexico al 30 de Junio de 1961" submitted by the Governmant of Mexico These figures have been adjusted on a pro-rata basis to ex,-lude service on that portion of the reported public debt which is assutn.ed to be held internally. They have also been adjustecd so as to retire the Plan B Railway Bonds by the contractual sinking fund rather than in one lump payment, as projected in the Mexican table. Service on debt outstanding September 30, 1961 - the adjusted figures used for service on dcbt outstaning Uune 30, 1961 plus cervice on the debts reported in "Creditos n.iovos del exterior obtenidos por Nacional Financiera, S.A. o con su aval a plazo de un ano o mas, Julio - Agosto - Septiembrz". Statistics Division IBRD-Economic Staff December 1, 1961 Table 3: GROUTH OF GROSS NATIONAL P,.ODUCT AND HATIONAL INCOME, 1939-1961 In current prices In 1950 prices National Index o Increase Years G.N.P. Income G.N.P. 1950=oo (Annual) 1939 6.8 5.9 20.5 49.4 1945 20.5 18.6 32.0 77.1 7.7 1950 41.5 37.5 41.5 100.0 10.3 1951 51.8 46.8 44.5 107.2 7.2 1952 58.3 52.0 45.0 108.4 1.1 1953 56.3 50.2 b.h 107.0 -1.3 1954 66.5 59.2 47.8 115.1 7.6 1955 8h.o 74.8 52.5 126.5 9.9 1956 94.0 84.o 56.0 135.4 6.7 1957 103.0 92.0 58.o 139.5 3.6 1958 11h.0 101.8 60.6 146.0 4.5 1959 122.0 109.0 63.4 152.6 4.6 1960 134.4 120.1 67.0 161.5 5.7 1961 140.4 n,a. 69.3 167.2 1. Growrth of Gross National Product (in real terms) 1939-45: 7.7% 1945-50: 5.4% 1950-60: 4.9% 1953-56: 8.0% 1957-61: 4.5 Source: Bank of '1exdco Table 4: GROSS NATIONAL PRCDUCT BY MAJOR EXPENDITURE COMPONENTS, 1957-1961 In billions of pesos As percentage at current market prices of Gross National Product 1957 1958 1959 1960 1961/ 1957 1958 1959 1960 1961 Consumption 86.8 96.1 101.6 112.4 121.22/ 84.3 84.3 83.3 83.6 85.2. / Government 4.2 4.7 5.0 6.2 n.a. 4.1 4.1 4.1 4.6 - Private 82.6 91.4 96.6 106.2 n.a. 80.2 80.2 79.2 79.0 - Gross Fixed Investment 15.5 17.3 17.8 21.1 22.2 15.0 15.2 14.6 15.7 15.,6 Private 10.1 10.8 10.9 12. 13.5el 9.8 9.5 8.9 9.2 9. Public 5.4 6.5 6.9 8.7 R.7./ 5.2 5.7 5.7 6.5 6.12 Inventory Change 2.6 2.9 3.0 2.9 n.a. 2.5 2.5 2.4 2.2 - Exports of Goods and Services 17.6 17.0 18.2 19.0 20.4 17.1 14.9 14.9 14.1 14.3 Less: imports of Goods and Services 19.5 19.3 18.6 21.1 21.6 18.9 -16.9 -15.2 -15.6 -15.1 Gross National Pro- duct 103.0 114.0 122.0 134.4 142.2- 100.0 100.0 100.0 100.0 100.0 Source: Nacional Financiera, S.A. Estimate / Includes inventory changes 3/ Estimate based on data compiled by the Secretariat of the Presidency _ More recent information originating in the Bank of Mexico (Cf. Tables 3 and 5) indicates that the rate of growth of GMP vas in fact somewrhat lower than shown in this table. Table 5: GROSS NATIONAL PRODUCT BY INDESTRIAL ORIGIN, 1957-1961 (In billions of pesos, 1950 prices) % Distri- bution % Increase 1957 1958 1959 1960 1961 1961 1960/59 1961/60 Agriculture 12.2 13.5 13.6 13.7 1h.1 20.4 0.4 3.0 Mining 1.4 1.4 1.4 1.5 1.4 2.0 2.7 -3.0 Petroleum 2.1 2.4 2.8 3.0 3.h 4.9 6.5 15.0 Building Constru- ction 2.0 2.0 2.1 2.4 2.4 3.4 12.7 1.0 Manufacturing 1-4.1 14.7 15.8 17.2 17.8 25.8 8.6 3.5 Electricity 0.7 0.8 0.8 019 1.0 1.4 9.8 9.5 Transportation & Communications 3.1 3.2 3.3 3.6 3.6 5.2 8.2 0.5 Trade 12.8 12.7 13.2 14.0 14.4 20.7 6.0 3.0 Other Activities 9.5 9.9 10.3 10.9 11.2 16.2 5.7 3.5 Total (1950 prices) 58.0 60.6 63.14 67.0 69.3 100.0 ..7 3.5 Total (Curent prices) 103.0 11).0 122.0 134.4 140.4 - 10.2 4.5 Source: Bank of Mexico Table 6: MAIN AGRICULTURAL CROPS, 1958-1961 (In thousands of metric tons) Harvested Value Pro- Area 1960 % of total duction (in 1000 harvested 1960 1958 1959 19601/ 19611 hectares) area (fil.Pesos) Cotton fibre 528 382 46o 4l5 890 7.5 2,800 Cotton seed 906 670 789 n.a. - - - Coffee 120 97 122 120 290 2.4 996 Sugar cane 16,252 16,300 16,416 15,218 285 2.4 788 Wheat 1,336 1,400 1,100 1,420 840 7.1 1,004 Corn 5,154 5,700 5,500 5,950 6,250 52.7 4,125 Beans 519 600 580 63h 1,400 11.8 750 Alfalfa )4,278 4,399 ,436 n.a. 95 0.8 364 Rice 252 235 251 n.a. 122 1.0 238 Henequen 123 147 148 n.a. 169 1.4 244 Tomatoes 355 255 359 n.a. 63 0.5 341 Other - - - - 1,464 12.4 4,159 Total - - - - 11,868 100.0 15,809 Source: Nacional Financiera, S.A. Bank of Mexico ilinistry of Agriculture 1/ Preliminary Table 7: VOLUME OF INDUSTRIAL PRODUCTION, 1956-1960 (Indices 1950 = 100) % Change 1956 1957 1958 1959 1960 1960/59 All Industries 151.8 168.9 181.2 193.5 214.2 10.7 Mining 102.0 108.9 108.6 108.1 110.7 2.4 Precious Metals 87.1 93.0 93,0 87.1 87.0 0.0 Industrial Metals 106.1 113.2 112.7 114.o 117.4 3.0 Petroleum Industry 177.3 200.0 218.4 257.9 286.5 11.1 Crude Petroleum 131.9 135.0 155.0 165.6 170.4 3.1 Petroleum Products 138.5 209.4 226.0 271.8 319.9 17.7 Electric Energy 176.9 191.1 205.8 221.0 245.8 11.2 Construction 164.1 181.3 179.9 190.2 222.5 16.8 Manufacturing 153.6 171.7 181.7 195.7 213.5 9.1 Consumer Goods 132.1 13.6 153.1 159.8 179.2 12.1 Production Goods 187.2 215.5 224.0 252.2 260.9 3.1 Source: Nacional Financiera, S.A. Table 8: PRODUCTION OF MAIN MINERALS, 1959-1961 % Change % Change Jan-July Jan-July Jan-July Unit 1959 1960 1960/59 1960 1961 1961/60 Precious Metals Gold kg 9,756 9,339 -4.3 5,)476 5,174 -5.5 Silver tons 1,371 1,385 1.0 803 747 -7.0 Industrial Metals Copper tons 57,274 60,330 5.3 36,889 31,178 -15.5 Lead " 190,680 190,670 0.0 118,571 103,706 -12.5 Zinc if 263,935 262,425 -0.6 157,957 153,277 -3.0 Iron " 535,320 521,352 -2.6 n.a. n.a. n.a. Manganese 76,925 71,856 -6.6 43,906 36,659 -16.5 Cadmium 574 1,181 105.7 643 432 -32.8 Antimony " 3,286 4,231 28.8 n,a. n.a. n.a. Graphite 27,837 34.,316 23.3 n,a. n.a, n.a. Mercury 566 694 22.6 n.a. n.a. n.a. Arsenic " 10,65 12,131 15.9 n.a. n.a. n.a. Tin 383 371 -4.1 n.a. n,a. n.a. Tungsten 75 119 58.7 n.a. n.a. n.a. Bismuth 239 272 13.8 n.a. n.a. n.a. Selenium " 3 -25.0 n.a. n.a. n.a. Non-Metallic Minerals Coal " 1,57.6,616 1,313,154 -16.7 1,033,000 1,020,000 -1.3 Sulphur 1,338,404 1,402,039 4.8 705,000 67)4,000 -4.4 Source: Nacional Financiera, S.A., and Bank of Mexico Table 9: PRICE INDICES - MEXICO CITY, 195-1961 Base: 1954 = 100 Wholesale Prices-210Commodities Food Prices Cost Annual General Consumer Production 16 Commodi- of Average Index Goods Goods ties Living WaFres 1955 113.6 114.2 112.1 118.0 116.0 100 1956 118.9 120.9 116.0 122.0 121.q 109 1957 124.0 126.6 120.5 129.3 128.6 11, 1958 129.5 133.7 123.8 1942.9 143.3 125 1959 131.0 134.7 126.0 147.8 117.0 138 1960 137.5 139.8 134.3 151.7 1542 152 1961 138,8 141.2 135.6 157.1 156.5* 156' March 1960 135.8 136.3 135.1 1)j6.7 18.9 - June 1960 138.0 11.4 133.2 150.3 153.0 - September 1960 140.2 144.3 1346.5 156.3 159.8 - December 1960 138.7 140.6 136.1 157.5 159.6 - March 1961 138.6 139.8 136.9 155.4 156.2 - June 1961 139,6 132.1 136.1 156.7 156.6 - September 1961 137.8 1)41.0 133.5 157.0 156.3 - December 1961 138.7 141.0 135.4 159.9 n.a. - Source: Bank of Mexico 1/ As reported by the International Monetary Fund * Preliminary ** First quarter Table 10: MONEY SUPPLY, 1958-1961 (In Millionsof pesos) Currency Checking Total Money Years and Months Total Bills Coins Accounts as % of GNP 1958 December 13,387 6,116 499 6,772 11.7 Average 12,354 5,33 480 6,531 10.8 1959 December 15,434 6,720 530 8,184 12.6 Average 13,882 5,952 513 7,417 11.h 1960 March 15,003 6,212 533 8,258 11.2 June 159301 6,159 537 8,606 11.4 September 15,658 6,291 544 8,822 11.7 December 16,909 7,310 561 9,038 12.6 Average 15,539 6,4l6 541 8,583 11.5 1961 January 16,498 6,829 564 9,105 11.6 February 16,513 6,765 568 9,180 11.6 March 16;h77 7,001 575 8,901 11.6 April 16,Sh 6,758 578 9,208 11.6 May 16,119 6,432 579 9,108 11.4 June 16,167 6,506 582 9,079 11.4 July 16,172 7,180 8,992 11.4 August 16,334 7,187 9,147 11.5 September 16,272 7,211 9,061 11.1 October 16,[92 7,262 9,230 11.6 Source: Bank of Mexico Table 11: FINANCING BY THE TOTAL BA'-KING SYSTLI. 195%-1961 (in millions of pesoo) Changes June 1960/ June 1961/ Outstandin- end of: 1956 1957 1958 1959 1960 1961 1959 Dec.1960 Total 19,658 22,46 6_ 39,38 41,7L1 8.119 2 To Enterprises and Individuals 16,655 18,839 22,003 27,000 34,027 36910 ,02 2 To Production 12, 14,12 16_77 20,158 26,058 2 L2 22 Industry 9,065 10,466 12,572 15,056 19,635 22,159 4,579 2,524 Agriculture 3,239 3,605 4,043 5,036 6,357 6,652 1,321 295 Hining 47 59 62 66 66 71 0 4 To Commerce 9 4.709 5,26 6.842 7966 8 1,124 62 To Federal Government 3,2 3,625 4,580 4269 5L364 4,831 195 -533 Source: Bank of Mexico Table 12: SIIIMMAY ACCOUHT" OF 'HE DAKOF 1EXICO, 1958-1961 (in millions of pesos) Outstanding end of: Changes Jan- Jan.- June Nzv. June Nov. 1958 1959 1960 1961 1961 1960 1961 1961 Assets 11,329 12,421 13,205 12,291 13,243 784 -914 38 Gold and Foreign Exchange 5.128 5,911 5,750 4,179 4,889 -161 -1,571 -861 Investment in Securities 3,612 2,858 2,878 2.430 2,409 20 -448 -469 Government 2,369 1,534 1,426 779 966 -108 -647 -460 Banks 599 858 890 1,143 829 32 253 -61 Enterprises and Individuals 644 466 562 508 614 96 -54 52 Credit 1,552 2,733 3,465 4,496 4,701 732 1,031 1,236 To Federal Government 68 67 517 417 417 450 -100 -100 To Banks 179 286 208 200 170 -78 - 8 -38 To Enterprises and Individuals 1,305 2,380 2,740 3,879 4,114 360 1,139 1,374 Other Assets 1,037 919 1,112 1,186 1,244 193 74 132 Liabilities 11,329 12,421 13.205 12,291 13,243 784 -914 38 Currency 6,938 7,602 8,212 7,442 7,700 610 -770 -512 Bills 6,423 7.054 7,630 6,835 7,069 576 -795 -561 Coins 515 548 582 607 631 34 25 49 Checking Deposits 2,013 2,352 2,470 2,219 2,266 118 -251 -204 Quasi-Honetary Liabilities 851 868 707 759 1,403 -161 52 696 In National Currency 130 119 92 116 860 - 27 24 768 In Foreign Currency 721 749 615 643 543 -134 28 - 72 Capital Accounts : Other Liab. 1,527 1,599 1,816 1,871 1,874 217 55 58 3curce: Nank ofP 'hxico Table 13: CONSOLIDATED ACCOUNTS OF PRIVATE CO*,ERCIAL BANKS AND GOVERNENT RELATED INSTITUTIONS, 1958-1961 (in millions of pesos) Outstanding end of: Changes Dec. Dec. Dec. June Dec.59 Dec.60- 1958 1959 1960 1961 -Dec.60 June 61 I. Assets Foreign assets 823 860 245 325 -615 80 Private institutions 827 833 224 281 -609 57 Goverment related inst. -4 27 21 44 -6 23 Claims on Government 2,143 2,669 3,844 3,678 1,175 -166 Private institutions 1,555 2,330 2,937 2,817 607 -120 Government related inst. 588 339 907 861 568 -46 Claims on enterprises & individ. 20,054 24,153 30,447 32,523 6,294 2,076 Private institutions 10,269 12,417 14,874 15,805 2,457 931 Government related inst. 9,785 11,736 15,573 16,718 3,837 1,1L5 Total (assets - liabilities) 23,020 27,682 34,536 36,526 6,854 1,990 II.Liabilities Monetary liabilities (checking deposits) 6,719 8,239 9,121 9,027 882 -94 Private institutions 6,544 8,076 b,952 8,867 876 -85 Government related inst. 175 163 169 160 6 -9 Quasi-monetary liabilities 14,831 17,410 22,709 24,131 5,299 1,422 1.In national currency 6,878 9,314 12,255 13,295 2,941 1,040 Private institutions 4,056 6,026 5,192 5,577 2,166 6d5 Government related inst. 2,792 3,288 4,063 4,418 775 355 2.In foreign currency 7,953 8,096 10,454 10,836 2,358 382 Private institutions 4,931 4,480 4,262 4,303 -218 41 Government related inst. 3,022 3,616 6,192 6,533 2,576 341 Bonds 4,080 4,251 5,666 6,366 1,415 700 Private institutions 929 1,002 1,351 1,818 349 467 Government related inst. 3,151 3,249 4,315 4,548 1,066 233 Capital accounts & other net -2,610 -2,218 -2,960 -2,998 -742 -38 Private institutions -3,539 -4,004 -4,722 -4,962 -718 -240 Government related inst. 1,229 1,786 1,762 1,964 -24 202 Source: Bank of Mexico Table 14: FINANCING OF THE PUBLIC SECTOR BY THE BANK OF MEXICO, 1958-1961 (in millions of pesos) Out- standing Changes at end Jan.-Oct. of Oct. 1958 1959 1960 1961 1961 A. Federal Government and other Govern- ment entities (excl. banks) 1,853 1,076 1,871 661 9,297 Investments in government securities 1,131 509 916 267 6,742 Internal debt bonds and "avaladas" 1,146 471 961 267 6,543 Railroad bonds -16 34 -162 2 69 Bonds of other state enterprises 1 4 117 -2 130 Credits 667 1,178 1,091 293 3,956 Federal Government - -1 450 3,006 3,523 CEIMSA 502 1,154 473 -2,754 - Official entities 165 25 168 41 433 Total investment and credits 1,798 1,687 2,007 560 10,698 Minus deposits and sales of securities 55 -611 -136 101 -1,401 Treasury deposits, net of overdraft 189 20 -125 126 -59 Deposits of government dependencies -202 13 135 -26 -243 Sales of securities to official entities 68 -644 -146 1 -1,099 B. Government Banks 158 310 57 409 1,084 Investment in securities of govern- ment banks 95 -47 472 -24 1,503 Credit to NAFINSA 31 263 -63 808 1,039 Credit to other government banks 92 51 -18 -41 224 Total investment and credits 218 267 391 743 2,766 Minus deposits and sales of securities -60 43 -334 -334 -1,682 Currency and deposits with Bank of Mexico -8 -31 -113 60 -200 Sales of securities to government banks -52 74 -221 -394 -1,)482 C. Total Financing of the Public Sector (A + B) 2,011 1,386 1,928 1,070 10,381 Minus Bank of Mexico's sales of government securities to private banks -312 -732 -1,102 -509 -3,951 D. Net Financing of the Public Sector 1,699 654 826 561 6,430 Source: Bank of Mexico Table 15: FEDERAL GOVERINMENT FISCAL PERFORMANCE, 1955-1960 (Millions of pesos) 1955 1956 1957 1958 1959 1960 Revenei/ 7,118 7,894 8,012 8,813 9,h4o 11,665 Expendituresl/ 6,441 7,507 8,396 9,770 9,926 12,103 Deficit(-) or Surplus 677 387 -384 -957 -h86 -438 Financing Increase in cash balances 274 222 -272 -186 87 46 Net changes in Government debt -403 -165 112 771 573 484 Source: Ministry of Finance 1/ Includes extrabudgetary receipts and expenditures Table-16: FISCAL OPERATIONS OF THE FLDERAL DISTICT, 1955-1960 (in millions of pesos) 1955 1956 1957 1958 1959 1960 I. Total Revenues 656.5 859.9 1,067.2 1,020.7 1,021.9 1,399.8 II. Total Expenditures 636.1 927.9 1,050.9 1,039.4 796.2 1,205.1 III.Deficit (-) or Surplus 20.4 -68.0 16.3 -18.7 225.7 194.7 A. Changes in Cash Balances 31.6 -65.5 17.5 -23.3 220.9 191.6 B. Changes in Public Debt Outstanding means increase) -11.2 -2.5 -1.2 4.6 4.8 3.1 Source: Public Accounts of the Federal District, Dan: of Mex-ico Table 17: OFFICIAL GROSS GOLD AND FCREIGN EXCHANGE RESERVES, 1958-1961 (in millions of dollars) End of Period 1958 1959 1960 1961 January 426 357 390 354 February 421 341 406 322 March 399 379 423 308 April 390 359 411 331 May 374 371 396 299 June 333 366 390 265 July 322 396 364 264 August 340 398 368 346 September 342 385 351 348 October 348 392 360 341 November 343 383 363 367 December 372 413 393 411 Source: Bank of Mexico Table 18: BALANCE OF PKYMEfTS, 1953-1961 (In millions of dollars) Jan-S ept Jan-S ept __________________1953 19i4:_ 197965 15 1 I. Current Account -91.3 -24.3 -154.2 -163.6 -31.7 -167.2 -112.3 -61.6 Credit 979.6- 1,057.7 11406.3 1,379.1 1,456.9 1,520.1 1,136.7 1,184.5 Exports (f.o.b.) 559.1 615.9 706.1 709.1 723.0 738.7 556.6 588.4 Non-monetary gold exports 51.9 45.2 51.9 51.2 33.1 48.1 33.5 29.3 Foreign travel and border trade 313.4 344.9 591.5 559.6 636.7 669.8 504.5 527.0 Braceros remittances 33.7 27.9 33.2 35.7 37.8 36.1 21.7 19.3 Other 21.5 23.8 23.6 23.5 26.4 27.5 20.4 20.5 Debit 1,070.9 1,082.0 1,560.5 _L42.Z 88.6 167.3 1,249.1 1.2k6.1 Imports (c.i.f.) 807.5 788.7 1,155.2 1,128.6 1,006.6 1,186.4 882.0 843.8 Foreign travel and border trade 141.2 173.2 242.2 237.6 295.7 296.8 217.3 238.0 Direct investment income 82.9 75.3 117.2 122.6 128.6 137.4 101.2 103.8 Interest on official debt 10.9 10.4 17.2 21.7 24.5 26.7 19.9 24.4 Other 28.4 34.4 28.8 32.1 33.2 40.0 28.7 36.1 II.Capital Account 87.0 81.1 192.3 90.4 150.0 231.9 103.6 171.8 Long-term Capital Movements 85.8 126.5 191.7 181.6 140.8 156. 64.0 178.5 Direct investments (net) 74.7 104.6 131.6 100.3 81.2 -7.6 -48.0 77.9 Trading in securities (net) -4.5 -6.7 -15.5 -19.6 -2.9 5.4 -7.8 -8.8 Official loans 15.6 28.6 75.7 101.0 62.6 169.4 119.8 109.3 Utilization (51.9) (78.7) (158.2) (238.9) (221.0) (336.6) (243.7) (237.3) Amortization (36.3) (50.1) (82.5) (137.9) (168.4) (167.2) (123.9) (128.0) Short-term Ca-ital Movements 1.2 -45.3 -1.6 -91.2 . - 75.5 39.6 -6.7 9and enterprises(net -18.0 -41.0 -32.5 -59.6 -4.8 -39.7 -21.0 -28.6 Private and official banks, excl. Bank of Mexico (net) 19.2 -4.4 33.1 -31.1 14.0 115.2 60.6 21.9 III.Errors and Omissions -21.7 -91.9 65.9 -13.8 -66.5 -62.5 -50.8 -194.7 IV. ChanKes in Bank of 1exico Position -26.0 -35.1 -27.8 -87.0 51.8 2.2 59.3 19. (Sum of I, IadII Source: bakof mexi/ Preliminary. Table 19: MIhlI GC,IODITIE3 EX'PORTED, 1959-1961 (in millions of dollars)- 0f0 fo Change fo Change % Change in % Change in in value in volume Jan-Aug. Jan-Aug. value Jan- volume Jan- 1959 1960 1960/59 1960/59 1960 1961 Au.1961/60 Aua.1961/60 Total Value of Commodities Exported 723.0 738.7 2.2 - 487.7 536.9 10.1 - 1. Agricultural Products 414.3 389.2 -6.3 - 251.6 246.3 -2.1 - Cotton and cotton linters 202.6 130.1 -21.0 -24.2 77.0 94.7 23.0 13.0 Henequen 7.4 3.9 -47.4 -54.0 2.4 3.5 44.8 59.6 Coffee 62.6 71.7 14.5 11.6 61.7 57.9 -6.2 -0.8 Tomatoes 23.8 25.5 7.2 4.3 21.5 13.2 -38.7 -32.8 Melons and Water Melons 5.9 7.8 32.2 42.4 7.8 9.6 23.2 -14.8 Fodder - all kinds 11.6 4.6 -60.4 -60.1 2.6 2.5 -4.6 -5.1 Peanuts 1.3 2.2 69.2 56.5 1.6 1.3 -18.8 -16.8 Vegetable wax 2.7 2.5 -7.4 -3.6 1.8 1.3 -29.5 -27.4 Honey 2.2 2.3 -4.6 -4.7 1.7 2./ 42.0 26.9 Cattle 38.0 33.2 -12.6 5.9 21.3 22.6 5.8 25.1 Meat - fresh or refrigerated 9.8 9.6 -2.4 -12.7 7.2 8.8 21.5 0.6 Shrimp - fresh or refrigerated 38.9 34.1 -12.4 8.2 17.3 21.2 22.1 6.6 Fish and sea-food - fresh 2.1 2.2 4.8 8.5 1.3 1.2 -4.3 -28.2 Other 5.4+ 29.5 547.0 - 26.4 7.1 -73.2 - 2. Minerals 132.2 137.7 4.2 - 95.6 89.7 -6.2 - Copper concentrates 1.0 0.9 -10.0 -38.9 0.7 */ -97.3 -96.9 Copper bars 28.9 24.9 -13.9 -17.3 18.1 14.8 -18.2 -24.0 Zinc concentrates 16.5 22.0 33.3 -8.0 14.6 14.8 1.5 5.0 Zinc bars 8.4 7.5 -10.7 -26.3 5.3 4.2 -19.6 -11.1 Lead bars 33.9 33.6 -0.9 -3.3 23.0 24.9 8.4 25.8 Nanganese (ores) 2.7 2.1 -22.3 -25.7 1.4 1.0 -25.0 -16.2 Langanese concentrates 3.0 3.4 13.3 14.9 2.9 1.9 -34.1 -31.1 Mercury 3.9 3.8 -2.6 8.5 2.4 2.2 -5.2 -3.4 Calcium fluoride 7.5 9.3 24.0 13.1 5.7 4.0 -28.7 12.0 Sulphur 23.9 28.2 -7.5 15.9 20.0 20.5 2.6 -13.3 Barium sulphate 2.3 2.0 -13.0 -12.0 1.5 1.0 -31.6 -30.0 Cointinued Table 19: (Co-tinued) % Change 'D Change % Change in ") Cbhanre in in value in volume Jan-Aug, Jan-Aug. value Jan- volume Jan- 1959 1960- _1960/59_ .190Z'9 1960 -1961 Aug,190A/60 Ay~j916-L0 3. Petroleum and Products 23.7 19. - 5 21.0 55.1 - Crude 0.2 1.5 650.0 822.2 0.7 7.9 949.7 691.6 Fuels 21.1 11.6 -45.0 -43.3 8.2 8.1 -0.7 -3.5 Natural Gas 7.4 6.7 -9.5 2.5 4.6 5.0 7.6 7.4 4. lianufactured Goods 86.2 134.8 5.4 - 88.0 126.9 44 2 a) Food __ 71 2 142.2 - 57.3 Refined Sugar 6.8 39.2 476.7 351.0 26.5 7.4 -72.1 -74.4 Drown Sugar 8.0 13.7 71.2 56.9 7.1 49.9 599.3 576.3 i4olasses 4.1 5.1 24.4 32.3 2,8 2.4 -13.7 -17.0 Fruit and vegetable - prep. 8.7 10.9 23 4.9 12.7 42.8 Other 1.8 2.3 27.8 - 1.4 1.1 -22.2 b) Textiles 29.9 33.7 12.7 20.8 31.1 49.1 c) Chemical Products 14.1 1S.0 13.5 10.9_14___0._ Pharmaceutical products 2.4 2.9 20.8 -5.1 2.0 1.9 -5.5 -15.5 Natural or synthetic hormones 7.4 8.1 9.5 38.0 5.8 8.7 50.6 31.0 Other 4.3 5.0 16,3 - 3.1 3.9 25.8 d) Other Industries 12.7 7 7.8 -18.2 Iron and steel manufactures 3.7 3.0 -18.9 14.0 2.3 0.4 -80.8 91.7 Printed material 2.6 3.1 19.3 12.7 2.0 2.5 28.4 122,1 Other 6.4 7.7 20.3 - 5.2 4.9 -5.8 - Non-classified products 61.8 57.2 7.7 3 .5 7.4 -7,7. Souree: B3ank of MeyJco 1. Under 20,000 dollars. Table 20: COMPOSITION OF IMPORTS, 1959-1961 (In millions of dollars) % Distri- January- July bution Jan- 1959 1960 1960 1961 July 1961 Total Imports 1,006.6 1,186.4 681.1 655.7 100.0 I. Consumer Goods 193.4 212.1 122M8 120.6 18.4 Foodstuffs and beverages 32.0 33.4 18.0 15.8 2.7 Other non-durable 33.3 38.7 22.2 20.9 3.2 Durable 128.1 140.0 82,6 83.8 12.8 II. Production Goods 813.2 974.4 558.2 535.1 81.6 A. Raw Materials and Intermediary Products 367.9 4h.0 235.1 220.9 33.7 B. Investment Goods 445.2 570.4 323.2 314.2 47.9 1. Agricultural (livestock, seeds, etc.) 11.9 11.1 6.6 6.5 0.9 2. Construction Material 33.3 68. 4 38.2 32.9 5.0 3. Accessories, spare parts, etc. 102.6 108.1 63.0 60,2 9.2 4. Machinery, equipment, vehicles297.5 382.7 215.2 214.7 32.8 a) for agriculture 37.9 43.1 24.1 25.2 3.8 b) for transport and telecommunications 80.5 125.9 73.2 67.0 10.3 c) for industry, commercezetc.179.1 213.7 118.1 122.6 18.7 Total Imports 1,006.6 1,186.4 681.1 655.7 100.0 Private Sector 879.7 975.4 564.0 533.6 8 Public Sector 126.9 211.0 117.1 122.1 18.6 Source: Bank of Mexico Table 21: TOURISM AND BORDER TRAFFIC, 1950-1961 (in millions of dollars) Receipts Receipts Visits to Total from bor- from Visits Interior Year Receipts der Traffic to Interior No.of Tourists 1950 245.9 123.5 122.4 408,123 1951 28h.o 15o.4 133.6 h5,h13 1952 287.3 166.2 121.1 462,354 1953 313.6 204.2 109o. 44o,991 1954 344.9 249.2 95.7 46,839 1955 445.3 316.1 129.2 572,99 1956 508.2 362.0 146.2 636,215 1957 592.0 419.3 172.7 711,809 1958 541.6 407.4 134.2 735,hoo 1959 636.7 494.9 141.8 749,390 1960 669.8 517.6 152.2 769,332 January-August 1960 448.8 341.1 107.7 536,759 January-August 1961 477.8 370.0 107.8 546,375 Source: Bank of Mexico