across all market segments (commercial, mortgage and consumer) have been the macroeconomic environment and financial system reforms over the last six years.

Mexico’s macroeconomic fundamentals have strengthened considerably since 2000. Economic growth for 2001-05 has been lackluster, with the average real growth rate being volatile and averaging only around 2 percent per annum. This can be attributed to the global economic slowdown (especially US industrial production) over the early part of this period and to Mexico’s competitiveness challenges stemming from weaknesses in institutions, market incentives, physical infrastructure and an incomplete reform agenda<sup>16</sup> . However, at the same time, Mexico’s macroeconomic fundamentals have strengthened considerably, as evidenced by the attainment of investment-grade rating and uninterrupted access to international capital markets. Consumer price inflation has declined from 9 percent in 2000 to below 4 percent in 2005 in the context of an inflation targeting regime and floating exchange rate, while the fiscal and current account deficits as well as the gross public sector and external debt have been contained. A more stable macroeconomic environment has reduced financing costs and permitted the development of fixed-rate lending products and of domestic capital markets. Moreover, real GDP growth has picked up since 2004 and is expected to continue in the near future.

A comprehensive financial system reform agenda has been implemented over the last few years. The main objectives of the authorities have been to consolidate financial stability and enhance the role of the financial system in efficiently financing the private sector and allocating risks to those better able to bear them. According to the 2002-2006 National Program for Development Financing ( _PRONAFIDE_ or _Programa Nacional de Financiamiento del Desarrollo_ ), some of the specific goals of these reforms were to: (1) promote domestic savings, particularly popular and long-term savings; (2) further strengthen financial system regulation and supervision; (3) accelerate the modernization of the financial services industry; (4) facilitate the reactivation of bank credit; (5) deepen domestic stock and bond markets; (6) modernize development banks; and (7) consolidate the pension system. A summary of the main legal reforms introduced during 2000-2006 is presented in Box 1, while the most important ones are discussed in the relevant sections covering specific market segments.

|**Box 1: Selected Reforms to**<br>Law|**the Prudential Framework and Financial Infrastructure**<br>**(2000-2006)**<br>Main Features|
|---|---|
|**New Bankruptcy Law (****_Ley de_**<br>**_Concursos Mercantiles_, 2000)**|•<br>Introduced<br>a<br>single<br>insolvency<br>procedure<br>(conciliation/reorganization phase, which can be converted into<br>bankruptcy declaration)<br>•<br>Created a government expert body overseeing and facilitating<br>insolvency proceedings (_Instituto Federal de Especialistas de_|

> 16 This is reflected in various survey-based indicators (for example, the International Institute for Management Development’s _World Competitiveness Yearbook_ , the World Economic Forum’s _Global Competitiveness Report_ and the World Bank’s _Doing Business_ report) and in Mexico’s reduced global and US export market share in recent years. See, for example, Instituto Mexicano para la Competitividad (2005), IMF (December 2005) and BBVA Bancomer (2006Q1 and February 2006).

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