Mr Zedillo hopes that the pension reform will increase the country's domestic savings and reduce its dependence on volatile foreign funds. But whether such developments will be enough to transform Mexico 's long-term prospects remains to be seen. Mexico has avoided some of the chief sins of the past. The country's monetary policy is transparent and non-expansionary, while under Mr Zedillo's predecessor money supply at times grew by more than 20 per cent more than inflation. By contrast, during 1995 and 1996, the first years of the Zedillo administration, monetary policy was among the tightest in the world.
Inflation is still a problem, however.
After having jumped by 52 per cent in 1995 in the wake of the devaluation, and by 27.7 per cent in 1996, inflation is expected to reach 17 per cent this year. But the figure is now far from the levels that made the government cripple industry with interest rates of 100 per cent and above. The country's banking sector is also a concern, despite the entry of the foreign banks. Although there have been innumerable government bail-out schemes, the banks are still saddled with a heavy burden of bad debt and are often unwilling to make fresh loans, so stifling economic activity. The banks' mortgage portfolios are a special worry.