World Bank Approves $501 Million for Financial Sector in Mexico



Also available in: Spanish


Press Release No:2006/291/LAC

Contacts:

In Mexico: Gabriela Aguilar, (5255) 54-80-4252

Gaguilar2@worldbank.org

In Washington: Patricia da Camara, (202) 473-4019

Pdacamara@worldbank.org



WASHINGTON, March 2, 2006 – The World Bank’s Board of Directors today approved a $501.26 million loan to Mexico in support of a program that seeks to strengthen the financial system and reduce the risk of future financial crises.



“Prevention of financial crises is essential to poverty alleviation,” said Isabel Guerrero, World Bank Country Director for Colombia and Mexico. “A strong financial sector is key to boost growth and competitiveness, and reduce the risk of crises, which can have a devastating impact on employment levels and poverty incidence.”



The First Programmatic Finance and Growth Development Policy Loan will contribute to sustainable growth and poverty alleviation by: (i) strengthening market integrity and prudential regulation to reduce the probability of a systemic financial crisis; (ii) fostering the sustainable growth of a financial system and capital markets that address the needs of the productive sector and increase the overall competitiveness of the economy; and (iii) increasing the diversification of savings and investment instruments available to households and institutional investors.



In particular, the program will support the following activities:



Reduce poverty by fostering faster and more sustainable economic growth. A strong, efficient and more diversified financial system and capital markets can provide private enterprises - the engine of economic expansion - with more resources, to invest and expand.

Promote more equitable growth, which has a greater poverty impact. Strengthening corporate governance and the rights of minority shareholders, and generally fostering greater and broader participation in the equity market should lead to a more equal sharing of the fruits of economic expansion.

Support measures to fortify the system for housing finance, particularly at the lower-income end of the market, should help make home loans more readily available. Broadening access to mortgages enables more people to acquire their own homes, which provides them - in addition to the housing itself - with a means of accumulating wealth.

Promote more transparent, efficient and competitive administration of pension funds to strengthen them and make them more attractive as investments. This would contribute to providing more Mexicans with greater financial security in old age, as the elderly are much more likely to be poor.
“By strengthening the financial system, this loan will promote equitable economic growth, which in turn creates jobs and reduces poverty,” said Juan Carlos Mendoza, World Bank task manager for the project. “Growth has historically been a powerful force for poverty reduction by raising living standards, creating jobs and increasing the public resources available for social spending.”



The $501.26 million, fixed-spread loan from the International Bank of Reconstruction and Development (IBRD) has a repayment period of 15 years, including a five-year grace period.



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For more information on the First Programmatic Finance and Growth Development Policy Loan, please visit the project website.



For more information about the World Bank's work in Mexico, please visit: http://www.worldbank.org/mx