OPPORTUNITIES, ENTRY POINTS AND RESULTS Lessons from Bank support for the Reform of Mexico’s Ministry of Finance Mainstreaming E-Government Workshop - Module 3 Fernando Rojas, LCSPS Washington, DC, April 27, 2005

Fiscal Policy-Objectives and instruments Potential objectives Instruments Influence macroeconomic variables such as inflation, production, and employment Maintain a stable fiscal position over time. Help to foster savings, investment, and to smooth consumption over the long run. Improve the quality of human capital. Promote objectives in regard the distribution of income Public expenditure, its amount and composition. Taxes Subsidies Public debt administration Regulation Reform.

Functions of the MoF Principal functions Tasks Macroeconomic aspects of fiscal policy Design fiscal policy: Integration of Hacienda Cycle Management of macro variables: Single Data Warehouse Prepare and update medium-term vision of fiscal policy Support budget preparation Support tax policy Evaluation of sectoral policies Public debt Registration, Accounting, Authorization Negotiation Risk and estimation of vulnerabilities Budget Preparation of the budget – Use evaluation indicators Discuss expenditure policies and expenditures with executing agencies Discuss final version of budget with the Legislative Branch Execute the budget: Links with Single Accounting Center Design and management of the cash flow: Links with Treasury and Banks Treasury Collect funds into minimum number of accounts Reduce unutilized funds: links with Banks, Budget, Commitm. Floating debt management Tax policy Tax policy design Tax expenditure estimates and evaluation Tax administration Collection Tax evasion issues Accounting Budgetary and Financing accounting: CCU

Functions of the MoF Complementary Functions Regulation Banking activities Financial markets: Pilot BPR Monopoly regulation Foreign aid management State procurement Relationships with public enterprises Audit Support Functions Identify and rationalize processes Manage the database Manage personnel Manage technology

Examples of Basic and Advanced Reforms Area Basic reforms Advanced reforms Accounting Make the use of Generally Accepted Accounting Principles universal in the public sector Introduction of double entry accounting, clear registration and provisioning of debt and patrimonial accounting Expenditure Management Set maximum expenditure limits Contract with executing entities the provision of services Introduce a system of indicators aimed at measuring expenditure efficiency Manage the floating debt; multi-year planning Tax Management Estimate tax evasion Create the taxpayer account Regulation Banking system Natural monopolies

Making Change Happen The Implementation Dilemma Resistance and Barriers to Change   Psychological Structural Cultural and Political Project Initiative Many false starts Endless preparations Finger pointing Frustration and disillusionment Requests for more resources Disappointing Results; Change Slow to Happen