Announcement of World Bank Loan to Help Improve Mexico's Financial Sector on January 24, 1995

World Bank 1818 H Street, N.W., Washington, D.C. 20433, US.A.* Telephone: (202) 477-1234 BANK NEWS REL %SE 95/50LAC Contact: Ciro Gamarra (202) 473-8721 WORLD BANK APPROVES $23.6 MILLION LOAN TO5HELP IMPROVE MEXICO'S FINANCIAL SECTOR WASHINGTON, January 24, 1995 - The World Bank approved today a $23.6 million loan to Mexico to he p finance a financial sector technical assistance project. The loan will support actions in thr critical areas to improve Mexico's financial sector. Intensive prep ation of the project began more than a year ago, and during this period, the Bank has worked closely with the Mexican authorities on both immediate and longer term measures to improve the functioning of the financial sector. As part of tis effort, a reallocation of $1.6 million from a previous industrial restructuring loan was utilized in support of activities to strengthen banking supervision and to improve the regulatory framework for the new defined-contribution pension scheme. The technical Lssistance loan supports the government's efforts to improve the safety and soundness of the Mexican financial system during what will now be a more rapid opening to international competi on in the provision of financial services. The loan will so support changes in the Mexican regulatory framework that will permit development of a bzjader base of institutional investors, allowing a more liquid domestic securities markets. Tiese actions will help Mexico to improve, and utilize more effectively, domestic savings. Finally, the project will support the preparation of analyses of selected investment issues, including issues surrcnding the utilization of the private sector in infrastructure development and operation. The technical assistance project, coupled with parallel reforms undertaken by the government, will act to help reduce the cost of capital to all firms and to encourage the eficient development of Mexi o's financial institutions and securities markets. The project will include hiring external consultants to assist in the development of specific policies and Iegulations; commissioning of related studies; financing participation in seminars, advanced tiaining programs, and other human resource development activities; and procurement of necessary hardware, software, and equipment. NOTE: Money figur1s are expressed in U.S. dollar equivalents. -2- The project ill be implemented over three years by the Ministry of Finance and Public Credit, and will als benefit four commissions under the Ministry: the National Banking Commission, the National Securities Commission, the National Insurance and Bonding Commission, and the National etirement Savings System Commission. The World loan will be disbursed over 3 years. The government of Mexico will provide $7.76 million to cover the balance of project costs, which will total an estimated $31.36 million. The Bank 1a will be made to Nacional Financiera with the guarantee of the United Mexican States. It is for 15 years, including five years of grace, with a variable interest rate, currently at 7.09 t, linked to the cost of the Bank's borrowings. It also carres an annual commitment charge of 0.25 percent on undisbursed balances. -0-