Tough enough.

The United Nations Economic Commission for Latin America and the Caribbean expects Mexico to grow 3.6% in 2005 (in 2004 it grew 4.1%), while Chile and Uruguay will grow 6%, Argentina and Venezuela 5% and Brazil 4%. What is your view of these forecasts?

Argentina is coming out of a big decline and is recovering. In Mexico's case, we are growing, not recovering from a decline. Chinese demand is benefiting in particular countries that produce high levels of raw materials. That is the case in Argentina, Brazil and Chile, which benefit from high prices of exports such as meat, soy and other agricultural products. In Mexico, the percentage of our manufactured exports is very high--not even oil contributes significantly, which went from 90% of our exports to around 10%, which with higher [oil] prices could account for maybe 12% or 13% of exports this year. So, our economy is very different than the rest of South America, due to Mexico's trade opening and because of its links with the North American Free Trade Agreement.

What is the current government's legacy for the next administration? What has it achieved and what will the incoming government face?

There have been many changes that have been building throughout the last few years, financial reform, for example. This is very complex, and it manifests itself in capital markets by allowing the substitution of external debts for internal debts; by allowing financing of investments; by attracting foreign investment; and by developing the growth of the mortgage market. It's also contributing to consumer credit and business credit. Financial reform is also reflected in changes in development banking. The reform also involves the caja populares [savings instruments for people without bank accounts], which for the first time are arranging themselves in a system that provides organization and financing and lets them operate formally. This contributes to an increase in consumer credit. We also improved on poverty, thanks to social programs like Oportunidades and others such as Seguro Popular, which are strengthening and are having a clear impact on hunger, education and a better quality of life. We will also leave behind a stable economy that is going to let the next government build on everything that has taken place. We are leaving behind a government that can work on fewer resources. I can give you an enormous number of examples of the savings our people have achieved in terms of material resources in many of the ministries. We have also created an electronic government. In 2005, we will be working on digital signatures for government business; this, together with our payment systems, carries the country to an important level of modernity and this change is taking place at great speed, faster than what we have seen in other parts of the world.

Mexico's tax collection rate is 11.6% of gross domestic product. One of Fox's campaign promises was to raise this to levels similar to those of Chile or Brazil in his first year. Why did the administration's plan fail?

This index is not that low if you take into account the higher percentage of tax collection that comes from the tax on wages, which is accounted for neither in collection nor in its transfer. There are other considerations, which although not related would correct his figure. One example involves what [Mexican state-owned oil company] Pemex earns in revenues, which is charged to consumers and is not considered as an oil tax. Certainly, tax collection can and must rise, and for that to happen we need to carry out our proposed reforms, which until now hasn't been possible to get approved in the Congress.

What do you expect to come from Mexico's various new trade deals, for example the agreement with Japan?

It all depends on what comes about with dealing with an economy like that of Japan. Part of the impact of such deals, it is thought, will be an increase in agricultural exports. In addition, a reduction in tariffs such as those applied today on Japanese imports will make companies in that country more interested in establishing themselves in Mexico in order to export to Europe and North America.

It has been said that Mexico has finished seeking international accords. What's your outlook on increasing free trade between Mexico and the world?

We now have signed free trade treaties with the European Economic Community, with several Latin American countries, with Japan and with Canada and the United States. I believe that there is no other country in the world that has as many trade deals of such significance. Furthermore, China's gradual entrance into the World Trade Organization (WTO) is going to translate into greater trade between China and the rest of the world. President Fox's government has decided to continue with the policy of opening up internationally and liberalizing markets. [Currently] many tariffs are being reduced on many products from countries with which we do not have free trade agreements.

Many experts feel that it is highly possible that cash remittances coming from Mexicans abroad will diminish in the future. What will happen to the domestic economy if this occurs as predicted?

In the first place, it is not very clear that remittances have increased in recent years. What has happened is that much more money is being sent through banks, which is measurable, instead of being sent as cash. This has created an apparently enormous increase in remittances since it reflects lower costs, including commissions and exchange rate differentials, which in 1995 accounted for around 40% of a US$100 transaction; today it's at around 5%. There are incentives for people to send their money through formal channels and not as cash. What would a movement of US$16 billion a year mean for the economy? For families that receive the money, it's obviously an enormous addition to their income. For the economy, if you take into account income from non-oil exports, oil exports, income from services such as tourism, you see the amount is relatively small.

What does the Fox administration expect from Bush's second term in office?

The main thing under discussion at the moment is the issue of migration. But, regarding the Finance Ministry, which is where I come into play, I don't see any changes in the relationship between the United States and Mexican governments. The relationship has been excellent, with both [U.S. Treasury] Secretary O'Neill and with Secretary Snow. And now that both the president of the United States and the treasury secretary have announced that they are going to undertake important and substantial policies to correct the budget deficit, I believe that this is going to help us avoid the danger that U.S. interest rates could end up damaging Mexico's public finances.

Let's talk about that. How can Mexico shield itself from depending too much on the U.S. economy, considering above all the lower expectations for 2005? What about Mexico's debt profile going forward?

Trade dependence is extremely high but a little change is possible as a result of our international free trade agreements. In areas of finance, what we have done is to take advantage of the Mexican economy's investment-grade ratings to finance our external debt on longer terms and at lower rates. We have issued debt that will allow us to finance all of the federal government's public-sector debt in 2005 and cover some of the maturities in 2006. These are tied to terms and rates that are attractive for the Mexican economy. Other protective elements include the changes made to the economy's organization, including a floating exchange rate and free-floating interest rates in the capital markets. All of these elements cushion us from external shocks.

Another big issue is labor. Why haven't pending reforms been approved?

That's up to Congress. It's a reasonable reform, and it's a reform that is going to create better jobs and better salaries. Countries that have greater labor flexibility paradoxically are those that have higher employment and better salaries, but it remains to be seen how well this is received in the Congress.

Francisco Gil Diaz, Mexico's Secretary of Finance and Public Credit, has been in office for four years. The former student of Nobel Prize-winning economists Milton Friedman and Robert A. Mundell left his post as general director at Mexican telephone company Avantel to lead President Vicente Fox's economic team. A key figure since, Gil Diaz is known for his iron will, and for winning Wall Street's trust, as well as extending payment terms on the country's foreign debt. Gil Diaz spoke with LATIN TRADE Mexico Correspondent Marisol Rueda about Mexico's future, free trade and working with U.S. President George W. Bush.