I will talk for a few minutes about Mexico and the economic and social importance of the budget in my country. Then I will speak about CIDE and our recent project on the budget.

Mexico has 95 million inhabitants and a GDP of between $500 billion and $600 billion, which gives us a GDP per capita of around $5,000 and $6,000 per year. If Brazil has to thank South Africa for not being the last of the least in terms of income distribution, we have Brazil to thank: they are first in Latin America, but we are right after Brazil in terms of having an unequal income distribution. So, of course, this per capita income figure doesn't tell you very much about our population.

I have to say that of these 95 million people, at least 40 million live in poverty and 20 million are extremely poor. The budget represents more or less 20% of GDP. Not counting payments on the debt, the budget becomes around 15% of GDP. The fiscal year starts in January and ends the 31st of December. The budget process begins within the government in February, but the budget is not made public until November. That's when the public and the Congress get to know what's in the fiscal package. This is on the 15th of November, when the government gives its proposal to the Congress, which has one month to analyse it and to vote on it.

The Congress cannot reject the budget. Mexico has never been a wholly democratic developed country. It has been an authoritarian regime, not as much as some South American regimes in the 1960s and 1970s, but an authoritarian regime where the role of the Congress in the budget process was minimal, basically because the Congress has been dominated for close to 70 years by the ruling party.

These things have changed in the last decade. Yet the institutional or the constitutional design for voting on the budget still gives very little room to the Congress. It's not only that Congress only has one month to analyse the budget and vote on it, but that they cannot reject it. They can make modifications, but these modifications have to be negotiated with the majority party - which is the party of the president, in a system that is very vertical. You very rarely hear that the voice of the party of the president is different from the government's voice.

If the budget is unacceptable to the Congress, there is no constitutional way to resolve the problem. If you get to the end of December and the Congress hasn't been able to reach agreement on the budget, the constitution has a blank there: we don't know what happens. In most other countries’ Congress, there is a measure that keeps the country moving. Such a measure would be especially important in a country like Mexico, where, as I told you, the budget equals 20% of the economy. In Mexico, that is one of the problems we are debating, what happens if there is no agreement.

To describe the budget in macro-economic terms, I will have to say that the Mexican government has been very busy since the middle of the 1980s and that our budget has been balanced for the most part. In this decade, the average deficit has been a little over one percent of GDP, and in many years during this decade, we even had a surplus. So we're a very good student from the perspective of the World Bank and IMF.

Of course, the macro aim of this policy is to contain inflation. Now out of this budget, 33% is VAT. So there is little or no margin to manoeuvre in at least a third of the budget. Of the rest, around 60% goes to social policy. In this decade, huge efforts have been undertaken to focus the biggest part of the budget on social issues, such as medication, health and the fighting of poverty.

A lot of effort still needs to be devoted to the impact of this budget. We spend a lot of time on education, on health, on working to fight poverty, but the impact of this fight is very, very low. I can say that in education and in poverty, if you looked at figures for the last 15 years you would be disappointed in how much Mexico has spent on these objectives. This is related, to a very large extent, to the very low capacity of the government of the administration to spend efficiently. Particularly on the poverty programmes, if you conduct an analysis, you realise that many of the allocations never reach the targeted groups. The allocations get distributed somehow to the regions, but, of course, they go to regions that have more political strength and have more capabilities to ask for those resources, or they just get spent somewhere in the bureaucracy and in the apparatus of government.

Mexico is a federation. There are three levels of government, the central government, the state government and the municipal government. We have 31 states and more than 2,500 municipalities, of which 80% are rural. The rural areas have very few inhabitants and are very poor. Out of this territorial organisation, the federation keeps around 70% of national income and distributes it through different programmes, mainly education and health; the state level keeps around 15% and the other 10% to 15% stays at the municipal level. When I say national income, I should say the public revenue.

These figures have changed a lot in this decade. Five years ago, the distribution would be 80% at the national level, 15% at the state level and five percent at the local level. This is the last point I would like to make before talking to you about our project. There has been a lot of political change in the last 15 years in Mexico and mainly it is at the local level. This level has been growing stronger and stronger. The federation is ceding a little bit of influence and giving more of its resources to other levels of government.

Political change has also led to other changes in recent years. For the first time last year, after the general elections, we had a Congress that was not dominated by the PRI, the ruling party. This meant that for the first time, government had to negotiate with other parties regarding the budget. Many of the issues that Mexicans would not talk about in the past were brought into the public scene. For the first time, we were finding out how much our high officials were earning, how much money is spent on defense or on the fight against drug trafficking. For obvious reasons, since Mexico has the United States as a neighbour, Mexico thinks more about national security and defence within its own country than about defense from exterior threats. Also, the United States puts pressure on the Mexican government to spend a lot of money on fighting drug trafficking. These are some of the issues we started talking about. The debate has been very politicised, very little serious or technical debate has occurred so far.

CIDE is a public, relatively small institution. We are about 60 faculty professors and about 300 students. We have three programmes of masters' degree and two programmes for BA's. Altogether we have a staff of 300, which means that we have a huge administrative work force of about 200 persons.

Most of our income comes from the federal government. We depend on the education ministry and the support of science and technology. The first question always raised, when I say this, is: to what extent can you be independent of the government? I have to say that, as far as our research programme is concerned, we are completely independent, which means that there has never been any public official threatening our budget or even getting mad at us, because we published something that is different from the government position or government figures.

However, the academic dissemination in Mexico is very limited. So if I'm a public official, what do I care if CIDE is saying something I don't agree with, if it might be read only by the professor's mother and the professor’s colleagues, or whoever studies municipal government, which is a very small community. We make huge efforts to write our articles in English and if we're very lucky, some of our colleagues in the U.S. read them. And that's our aim for some reason.

The big question here is, now that we have this programme where we will bring our information to the public, to what extent will we be able to keep our autonomy?

I have the hope and to a large extent, the confidence, that we will still keep our autonomy and this is because Mexican society and Mexican government have changed a lot lately. If you look at the press, for example, you will see that what has been published and said today on the radio, on TV and on the newspapers, would have been unthinkable ten years ago or in some cases a few years ago. So we have to think that if we do serious work that is supported by analysis, by hard evidence, we shouldn't worry that much about publishing features and numbers and data that contradicts or disagrees with the government’s data.

The programme started out of a very important infrastructure that CIDE has for research. We had, for at least five to seven years, professors and researchers working on different expressions of the budget. For example, we had, in the economics division, people working on macro-economics in Mexico, on investment infrastructure and on fiscal equilibrium. Sometimes the work was very theoretical because researchers want to be taken into account by their U.S. colleagues. Sometimes the work was applied economics that related to the public budget.

We have been working for the same period of time on fiscal decentralisation. For this, I have to say thanks to the Ford Foundation for their support. We have been talking about decentralisation of the budget and how our local government is capable of achieving this decentralisation of resources, to what extent they're doing a lot with very few resources, their innovation capabilities, their initiatives, and obstacles they face in order to use this money.

We have also been working on finance at a local level and for the same period, five to seven years, we've also been working on social policy. So the researchers were there, but we were not getting together with a common objective. This is one of the reasons why the budget project programme was supported by the authorities at CIDE. They supported the opportunity to have the researchers work with a common objective, thus having much more communication and exchange of the work and of their data.

Today we have about 15 researchers involved with the programme. We have a research programme that goes up to year 2002, a four year programme, where we're going to have a broad agenda of research that will fulfil the requirements of research at CIDE.

The research is not a problem for us: this is what we do every day. The change is that now we get together much more often, we exchange information and we have seminars where we explain to each other the advances in our work. We have three main concerns. One is that we want to translate our research into easily readable articles, in order to make them public and to make this research much more accessible.

A second concern is to develop indicators to measure public spending. That's something that is not developed sufficiently in Mexico. We know that the government spends a lot on education, but we don’t know how efficient we are at building a school, etcetera.

A third concern is transparency and accountability. As you know, Mexico has a huge problem of corruption, and some features of the budget are not public, or if they are, they're very, very aggregated, so that it's very hard to know exactly how money is allocated.

For instance, the Ministry of Defence is not supposed to give any accounts to anyone, not even to the ministry of the government that is supposed to control the budget. The only instance where this can be controlled is by the Congress, but there is a problem of competence, not theoretical competence, but of competence in the ability to analyse the budget.

So, helping educate Congress about the budget is one task of our programme. This should not be a problem as teaching is what we do all the time. This year, in the first year, we're also developing four research programmes. One is to analyse the budget at the state level, which is one of the areas that is analyzed very little in Mexico. For some reason we went from the federal government straight to the municipal government and there is very little work on the state level where, since 1995, there are huge federal allocations. We know, however, very little about how it's spent, to what extent it is controlled, and what amount of accountability we have at that level.

Other research that we conducted in the first year asked: What is the process of negotiating the budget within the federal government? How does, for instance, the education ministry deal with the treasury to have their programmes supported? This is inter-institutional research which might be of general interest in Mexico.

Many of the unions and the social organisations have representation, not in the Congress, but within these executive institutions. If you want more money to be allocated in these sectors, you won't go to the Congress as you would in the U.S., you would go directly to the government ministries.

So it is very important to study this negotiation, in order to understand public allocation of money. So that's one of the questions we're asking in this research.

The third question is concerned with social policy: asking to what extent this huge amount of money that is directed to health, education, and the fight against poverty, really reaches the targeted groups. So we're trying to build indicators, different from government indicators, in order to measure the impact of policies on the levels of poverty and so on.

The last research programme we're developing is at the local level, to study to what extent the public project helps or stops private investment into building infrastructure.

The second objective of our programme is also very much related to what we do every day, which is teaching. Of course, here we've been trying to aim less at the students, and focus on educating journalists, congress persons and members of NGOs.

So far we have organised two training courses. They are short training courses. We get together for two and a half days with 40 people. In the first course, we try to go through budget analysis in general terms and also new tools to analyse the budget. It's not only to teach the typical budget analysis, but to try to teach a little bit about the impacts of the budget as well.

We had one course that was organised in October, before the government published their budget proposal. There we had a very good attendance of journalists, and they were journalists of the main national papers.

We also had attendance from some NGOs, though not as much as we wanted, and some attendance from university colleagues and public officials. The problem of having such a variety in our audience is that it made it difficult to get through the training. Public officials wanted something more developed, much more technical, while journalists were constantly asking us to go back to basic definitions.

We tried to solve this problem in our second course. Our audience was mainly journalists and NGOs, but there we made a technical mistake. We organised the second course once the budget was issued by the government and was already being discussed in the Congress. The technical mistake was that, unfortunately, the journalists could not lose two days at that point to come into our course and see how CIDE was analysing the budget.

This problem can be easily resolved. One idea that we have is to try to make the training extended over time; instead of taking two full days, we could take three hours per day at a time, probably in the morning, when journalists are less occupied.

We're organising a training course concerning this particular budget. This third course is in March and is completely aimed at NGOs. We've been training NGOs since the beginning, but now have finally organised a training course especially for them, and we will have between 30 and 40 NGO participants interested in the matter.

We are also making training manuals. We're close to finishing four manuals on different basic classifications of the budget. For instance, who spends the money which is the administrative classification, and what are the different public agencies that are responsible for spending? Another manual is on all the laws and the rules that make spending in Mexico quite difficult, but of which very little is known.

We will also try to make the manuals available on the web page. Concerning a web page, we are building a database which we would like to make available on our web page and, of course, open to the public.

As far as the organization of the project, I represent the Department at CIDE which coordinates it. The 15 researchers that are involved in the project are each responsible for writing one piece and that’s it. So we also have a permanent staff that is related to our programme. This staff is comprised of three assistant professors that have masters' degree and have put their best effort into building this database. They also assist research.

The third part of our project concerns dissemination. Dissemination and public policy analysis are two activities that are new for us. And especially in this activity, we faced the most important challenges as far as learning is concerned.

The dissemination we developed included two brochures which we tried to disseminate through one of the journals in Mexico. Fausto Hernandez is the head of the economics department at CIDE and he is in charge of the dissemination activities. He is giving you a sample of the first brochure we produced. The objective of this brochure was to underline the importance of the budget for the reader of the newspaper.

We first went to the most influential newspaper which is a financial and political national newspaper that could be compared to The Wall Street Journal in the United States. It does not have the biggest circulation, but it is the most influential, in that it is read by public officials and Congress persons.

This paper said they would be happy to distribute our brochure but it's going to cost us a certain amount for each brochure. They were treating us as if we were a for-profit organization that was placing an ad. Of course, it was not in our budget to finance that. We went to another paper which is also very influential and our brochure went out on a Sunday with 100,000 copies. The paper didn't charge us directly, but did charge us for publicizing the brochure in advance. For example, we placed an ad asking that if you want to know how our government money is spent, search for the answer next Sunday by CIDE. We had to pay for that and we had to pay for the production of the 100,000 brochures themselves.

The impact is hard to measure, but on the day of its appearance, we had a lot of journalists and public officials calling us and asking us for interviews or to have us organise a training process. One very advantageous impact of this was that the Congress came to us and asked us for a training course that should start in the month of April.

Next Sunday we are issuing the second brochure, which is much more technical and probably a little more difficult to read. Here I have a draft. It’s basically about how Mexico’s money is spent. The first brochure was about why the budget is important and how it impacts your life. We faced a little bit more difficulty on next Sunday’s brochure than on the previous one because of the challenge of translating this information, which is very technical, to a form that is accessible and readable for the general public.

We are not completely satisfied with the results of our effort. We still have to see how it is received by the readers, but that's one of the biggest challenges we face in the dissemination project. In addition, we put the brochures in the spots where we know people can take them and read them, such as libraries and restaurants that are attended by middle class people.

The last part of the project is policy analysis. This is where we have had more difficulties, because there has been a problem of trying to do too many things at the same time, but also because although the government publishes information on its spending and social programs, its expression is, for the most part, very aggregated. For example, it is very difficult to know once money goes to the ministry of education, how the ministry distributes or allocates resources. If you want to make a detailed analysis or to create a good description of some of these social programmes, you need to know more detail. Although we have a good relationship with different ministries, they won't give you this detailed information or it would take them so long to give you this information, that by the time you have it, the information is no longer relevant.

That's one problem that relates to transparency. In Mexico, we could say not only transparency but punctuality is a problem. Eventually you can get the information, but you can get it only for years that are already past. It's very difficult to get it for the current year.

The other problem has been internal, in the sense that our pace of research and analysis is too slow to allow our work to have an impact on policy. What we're trying to do now is have the permanent team complete 80% to 85% of the analysis and just to give this draft to the expert, so that he spends less than a day looking at it. Then we can bring the information out to the public, call a press conference, and say something on a particular issue in a timely fashion. This may be difficult for you to understand, but if some of you have worked as professors in the past, you know that academic institutions have their own timing, which is sometimes different from consultancies that do this kind of quick analysis. Thank you.

QUESTION: I'm very interested in social policy indicators and my question is, how do you identify the targets of the very different social programme? Do you take it out of the legislation’s regulation or do you try to establish your own target?

FAUSTO HERNANDEZ: The challenge in Mexico is to target the expenditure. The social expenditure is huge in Mexico. For example, we almost, in relative terms, spend double the amount that is spent on social development in Brazil.

The target question is: Are we really reaching the poor? For example, there is a large subsidy on the national food or national bread (tortillas). This is eaten by everyone, rich and poor. A lot of money is spent on this kind of subsidy that reaches the middle and upper classes. Sometimes the subsidy is given to particular producers which are located in urban areas. So the subsidy doesn’t reach the rural areas, because these areas don't have a commercial tortilla producer. People in rural areas produce their own tortillas. So is this sufficient? Are you really targeting the poor? I can give you many examples like this.

One social program that is not working well is the program in which the administration created something like a credit card, that has 70 pesos credit on it (or seven or eight dollars a month). Using this card, poor families can get food in some specific stores. In order to get that 70 pesos, however, the mother has to prove that she is actually going to school.

We have realised that basic needs include education and health. How do you find out whether the poor in rural areas are going to the hospital or to school? This is a challenge.

QUESTION: If I interpreted you correctly, I think the different levels of government you outlined, the federal, state, and municipal corresponds to our national level, provincial level, and municipal level. It links up to the last issue you were talking about, in terms of weighted allocations. Because of uneven development, there are poorer provinces like Chiapas and in this country, like the Eastern Cape, which has a legacy of homelands and, therefore, is a much poorer province. Is this budgetary allocation targeted or weighted to reflect different conditions of various provinces?

Secondly, as the star pupil of the IMF and World Bank, how does this relate in terms of social sectors? In this country, increasingly we have privatisation, we have user fees for education, health, etcetera. Is this the case in Mexico? In terms of the different ministries, quite often, what makes sense to the financial ministry, in accounting terms, might - in the short term, bring in gains, but for other sectors like education, cause long term damage; for example, in the retrenchment of teachers or lay-offs.

In terms of the area you are situated in, the nexus between academia, the state and civil society, as well as in terms of your funding, the closer you get to critical civil society the more uncomfortable questions you will ask. In this country we might get the mild rebuke, in Zimbabwe it might be worse. What is the situation in Mexico, in terms of your funding, but also in terms of repression?

FAUSTO HERNANDEZ: Regarding the funding issue, that is a question for all public organisations that do research in Mexico. As long as you don't go public, and your work is kept to a very limited academic community, there is little concern on the part of the government.

Ninety percent of scientific and social science research is sponsored by government, as it is in France or Italy. The main sponsor of scientific development is the government. The question is whether the government accepts the impacts of this work, even if this sometimes goes against their interest. I would say yes, since the democratic opening in Mexico’s government is, to a very large extent, irreversible. It won't go back and is very likely to be accelerated.

Now there is a problem with civil society, in the sense that we've been, for 70 years, a one-pary state. Unlike South Africa, NGOs and other civil society organisations are not that developed. They’ve been growing a lot in the last 15 years, and Kim Brown from the Ford Foundation in Mexico can give you very surprising figures on how much these organisations have been growing.

The funding comes from different sources. A very large part, again, comes from the state, but also some from political parties and international institutions. I would say that there is little involvement of the society as a whole, in comparison to the United States, in funding these programmes. This lack of involvement is related to a very difficult tax structure. Thus the private sector is not very involved in funding NGOs. So we depend, to a very large extent, on external aid.

Regarding the question of the allocation for programs benefiting poor sectors of the country, the government has made an effort to clarify the criteria for allocating these resources. They have a very complex formula that measures how much money an area is going to get based on a measure of how poor the poor are, which considers not only their income, but the state of their housing and of the basic infrastructure in their region. This data is gathered by a statistical institution.

The problem with this is, firstly, that we can question from a technical standpoint how the poor are measured. This is one of the topics of research by one of our colleagues in the last three or four years. He is using an alternative criteria to measure the poor and he argues that his criteria is better than the government's. There is a very technical discussion on that.