International Bank for Reconstruction and Development
                       International Development Association                                     87343
                           International Finance Corporation
                      l\i1ultilateral Investment Guarantee Agency
                                  FOR OFFICIAL USE O.'iLY

                                  CONFIDENTIAL



                                                                                       EDS99-183
                                                                                      June 7, 1999
                                                                                      04:32:01 PM


  Statement by Ivan Rivera
  Date of Meeting: June 8, 1999

                           MEXICO- COUNTRY ASSISTANCE STRATEGY




  We welcome and fully support this CAS. It's holistic and thorough in the diagnostic of Mexico's
  significant development challenges, while being selective in the proposed World Bank Group
  interventions. Its analysis of the political economy of recent reform efforts in Mexico is
  commendable.

  Following are some comments:

  I.     Over all we have the impression this CAS lacks a driving force and proactivity to advance
  in poverty reduction and sustained growth. Even though identification of the issues is accurate and
  thorough, there is a kind of "wait and see" attitude. This can be illustrated by the very cautious
  approach to the very delicate issue of domestic bank restructuring, which is barely supported by a
  Financial Technical Assistance Loan.

   In the framework and challenges sections, we need the following clarifications:

   2.      On the political economy of reform, the diagnostic seems to imply political openness. and
   in particular that the opposition-led congress is slowing down the reform process. This is not
   always so. For example, political opening has accelerated decentralization. The Government of
   Mexico has always had a cautious and consultative approach to reform, which has turned out to
   be effective in the long run.


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   3.      We would like to know if the accelerated decentralization of the Mexican public sector is
   having a positive outcome. We wonder what is the effect of this decentralization on the quality
   of the Bank portfolio and on fiscal balance.

   4.      On the macroeconomic front, in Paragraph 3 7 it is asserted that the expanding current
   account deficit is being increasingly financed by foreign borrowing. We wonder if this is more a
   reflection of the contraction of domestic financing due to the slow resolution of the domestic
   bank restructuring problem ("stock problem") than to a more permanent change in deficit
   financing.

   5.     On the World Bank program and mix of instruments we have one question. If Mexico
   has been a cautious reformer and is even more cautious in these times of political opening and
   presidential elections, why does IBRD allocate such a significant amount of resources to
   adjustment lending?

   6.      Finally, the proposed CAS clearly identifies the idiosyncratic, programmatic as well as
   exogenous risks, but it falls short in explaining how to manage them, with the exception of the
   case of domestic financial sector deterioration.

   In sum, we support this CAS and wish the Government of Mexico and WBG the best in its
   implementation in these difficult and turbulent times .




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