March 10, 2002

MEXICO, IDB SIGN US$1.6 BILLION IN LOANS FOR POVERTY-REDUCTION, DECENTRALIZATION AND LABOR TRAINING On eve of annual meeting of IDB and IIC Boards of Governors

FORTALEZA, Brazil –Authorities of Mexico and the Inter-American Development Bank today signed the contracts of three loans totaling $1.6 billion for an anti-poverty initiative, a decentralization program and a labor training and employment project.

The signing ceremony took place on the eve of the 43rd Annual Meeting of the Boards of Governors of the IDB and the Inter-American Investment Corporation, which will be held in this Northeastern Brazilian city March 11-13.

Mexico’s Finance Minister José Francisco Gil Díaz and IDB President Enrique V. Iglesias signed the contracts for a $1 billion loan for the Human Development Opportunities Program and a $300 million loan for a labor training and employment program.

Also participating in the ceremony was Rogelio Gómez-Hermosillo Marín, national coordinator of the Opportunities program.

President Iglesias and the director of Banco Nacional de Obras y Servicios Públicos, SNC (BANOBRAS), Tomás Ruiz González, signed the contracts for another $300 million loan, which will support the Program to Strengthen States and Municipalities.

The relationship between the IDB and Mexico has intensified and gained particular relevance. The Bank has supported the process of economic and social transformation in Mexico, responding to the changing needs of an economy that is consolidating its macroeconomic fundamentals, increasing its competitiveness, and seeking to reduce social backwardness to offer better development opportunities to its people. This is being carried out by assigning public resources in a manner that is transparent, responsibe, and effective.

Human Development Opportunities Program

A $1 billion loan, the IDB’s largest ever to Mexico, will support the consolidation and expansion of the Human Development Opportunities Program,, an innovative anti-poverty program being carried out the the Secretariat of Social Development (SEDESOL), which provides education, health and nutrition, and direct aid to millions of Mexican families.

These resources will support a $4.755 billion, six-year, multiphase project, developed by both SEDESOL and the Secretariat of Public Education (SEP) that will expand the program's coverage to urban areas, ensure the medium- and long-term impact of its aid to poor families, and improve its operating efficiency.

The program is based in actions aimed at the roots of extreme poverty and attempts to break the vicious cycle of structural poverty, which is transferred from generation to generation. The human development program promotes the co-responsibility of benefitting families, who are required to keep their children in school, utilize basic health services, and improve their nutrition.

The benefitting families are selected on the basis of clear rules and community-validated procedures. Another feature of the program coordinated by Mexico’s Social Development Ministry is that it works directly with the women in beneficiary families, trusting they will manage resources in the best interest of their children.

Independent evaluations have shown that, since its launching in 1997, the program has measurably improved the levels of schooling of its beneficiaries, their use of health services, the quality and quantity of their food, and the reduction of child labor. An independent assessment has concluded that the program is also cost-effective.

It is expected that these experiences can benefit other social programs in the region. The program was focused initially on rural areas that have the highest concentrations of extreme poverty in Mexico. In 2001 the program reached nearly 2.5 million families. Under the new initiative supported by the IDB, the Mexican government will expand the program’s coverage to urban areas. In its three-year first phase, the program is expected to reach one million additional families.

The program will also consolidate services in rural areas, where it will carry out studies to adapt the program to its new objectives and take measures to articulate the program with other social programs in order to multiply its impact. Diagnostic studies will be carried out to adapt the program to its new goals and steps will be take to coordinate it with other Mexican social programs to avoid the duplication of efforts.

Government Decentralization

A $300 million IDB loan will support Mexico’s process of decentralization and its efforts to enhance the financial and administrative management capacity of states and municipalities.

The resources will support the first phase of a nine-year, $2 billion program that will promote the administrative and financial modernization of subnational governments and prepare them to enter credit markets with better prospects. It will also finance infrastructure projects and financial and social services.

The first phase of the program, which will be carried out by BANOBRAS, will include a pilot project to support investment plans in 10 municipalities with high levels of poverty and develop new assistance techniques that may be replicated on a larger scale in subsequent phases of the program.

The new program will seek to encourage states and municipalities to undertake reforms to strengthen their financial structure and institutional capacity, offering them the incentive of obtaining resources to partially finance their investment plans.

By adopting financial best practices, subnational governments are expected to use public resources more efficiently and apply transparency in budget and spending decision-making, thereby guaranteeing greater transparency in budgetary and financial decisions. In this way, mechanisms will be put in place that ensure that investments address local priorities and can be evaluated according to their socioeconomic benefits.

Labor Training and Employment

Another $300 million IDB loan will support a nine-year, $1.8 billion program to promote workforce training and job placement and to increase Mexico’s strategic planning and operational capacity in the labor market sector.

The first phase of the program, which will be carried out by the Labor and Social Security Ministry, will enhance the efficiency and capacity of job placement services, increasing the number of unemployed assisted annually from 630,000 to 1.2 million. Services will include grants to the unemployed who seek training and job placement.

Under the program, the capacity of microenterprise and small- and medium-sized businesses to train workers will be significantly increased. Investments will be made to assist 100,000 companies a year, compared with 50,000 at present.

In addition, the Program includes training and job placement activities by states and municipalities. An innovative element is the introduction of distance training courses, social marketing campaigns, and demonstrations of sucessful models for providing information about persons receiving training.

In addition, the program includes other components to increase opportunities in the labor markets for women and vulnerable groups such as handicapped people and low-income youth. Some 35 percent of Mexican workers are under age 25.