World Bank Reviews Strategy, Launches Projects To Expand Health Coverage, Restructure Banks

WASHINGTON, June 22, 2001-The World Bank's Executive Board reviewed a two-year progress report this week on implementation of the Bank's assistance strategy in Mexico, and also approved two new loans to Mexico, respectively, $350 million to expand and improve health services to the poor, and $505 million to deepen reforms in the country's banking sector.

The report on Mexico's Country Assistance Strategy, in effect since June 1999, noted that the relationship between Mexico and the World Bank Group is, "at an encouraging high point," due to a "combination of country development progress and success in delivering assistance."

Mexico, the report says, "is now one of the fastest-growing economies in Latin America, an investment-grade borrower, and a model of financial and commercial integration." The report also cautions, however, that "formidable development challenges lie ahead," citing the stark contrasts between the country's rich and poor states, thriving urban centers and destitute rural areas, and between Mexicans able to compete with industrialized countries, and those for whom the benefits of globalization have not yet materialized.

The Bank's portfolio in Mexico is expected to begin 2002 with 23 projects, with disbursements in the past three fiscal years totaling $3.9 billion. Loans and analytical work have focused on social sustainability, including support for basic education and health services, and addressing the needs of the rural poor, and support for a viable macroeconomic framework which, the report says, has "placed Mexico among the best macroeconomic performers in the region." The Country Assistance Strategy Progress Report also highlights the Bank's support for private sector growth and competitiveness, improvements in infrastructure, agricultural productivity, environmental protection, and public governance.

"Mexico faces many challenges with its pending reform agenda, including fiscal reform, financial sector, labor, energy and decentralization," said Olivier Lafourcade, Director of the World Bank program in Mexico. "But Mexico's democratic maturity and its new level of openness, participation and accountability promises to give reforms a greater legitimacy and stronger sustainability."

In addition to reviewing the Bank's strategy in Mexico, the Bank's Board approved on Thursday a loan of $350 million for a Third Basic Health Care Project. This project, the third phase of Bank support to Mexico's large-scale effort since 1991 to expand health coverage to reach the rural poor, will bring health services to people living in rural and urban areas where these services are currently unavailable or inadequate.

"The first two phases of this project extended health services to 8.1 million people, mostly in small communities, who had no services before the program was launched," Lafourcade said. "This phase will expand coverage to another 13.1 million Mexicans, including 7.5 million indigenous people."

The Bank assistance will support the federal and state Health Secretariats as they modernize, simplify and bring more transparency to their roles in the regulation of the health sector, and development of health policy. Specifically, the project will assist state governments as they implement the decentralization process in which they have been assigned responsibility for public health care. This includes capacity-building at the local level, where the facilities are being established to actually deliver the basic health services package.

Overall, this effort seeks to increase access, quality and equity of health services provided to Mexico's indigenous people, and to people living in the country's poorest communities. It will also support development of a program to prevent and control HIV/AIDS in cities showing the highest incidence of the illness.

The Third Basic Health Care Project is a fixed-spread International Bank for Reconstruction and Development (IBRD) loan to be disbursed over five years ending in 2007. The loan matures in eight years.

The Bank's Board also approved a $505 million Second Bank Restructuring Facility Adjustment Loan to Mexico on Thursday, to support the second phase of the Government of Mexico's Bank Restructuring Program. It follows a previous IBRD loan, also worth $505 million and approved in December 1999, which supported the first phase of the same bank restructuring program.

The loan's broad objective is to foster a better functioning banking sector in Mexico, able to withstand external shocks and better able to lend to the private sector. It seeks to open access to groups and enterprises largely excluded from bank financing, including micro, small, rural-based and medium-sized enterprises.

"Broadening access to financial services to these under-served sectors will help reduce unemployment and poverty," Lafourcade said. "Over time, financial sector reforms supported by this loan should increase the supply of credit and make it available on affordable terms to small businesses and low-income households. That should have a major impact on Mexico's economy, as about 55 percent of Mexican workers are employed in firms with five or fewer workers."

The loan approved yesterday will support the following specific initiatives:

· Additional legal and regulatory reforms to strengthen governance in the banking sector, extend new capital and credit portfolio classification regulations to public banks, and provide an early warning system.

· Contribute to the resolution of banks still under supervision of the Instituto de Protección de Ahorros Bancarios (IPAB), including Bancrecer, Atlántico, and seven smaller banks.

The loan is expected to be disbursed in three tranches during 2002, the first when the loan goes into effect, and the other two linked to completed bank resolution transactions. It is payable in 10 years, with a 10 year grace period.