Finance minister of the year 1999: José Angel Gurría – Staying tough in a crisis


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Plummeting oil prices, turmoil in world markets and natural disasters: José Angel Gurría's first months as Mexico's finance secretary were a baptism of fire. But his legendary powers of persuasion enabled him to make vital budget cuts to keep Mexico on track. By Brian Caplen

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With some trepidation José Angel Gurría Trevino walked into the office of president Ernesto Zedillo's chief of staff in early 1998 knowing that the post of finance secretary (minister) was vacant. At that time Gurría was foreign minister, a surprise appointment considering he had worked 20 years in the finance ministry. Now change was afoot. With Guillermo Ortiz having vacated the finance post to be central bank governor, the odds were on Gurría replacing him.

So he was taken aback when the chief of staff told him he was going to be minister of agriculture. Agriculture! Gurría said that he was extremely flexible but the only thing he knew about agriculture was what he had learned accompanying his wife to the food market.

It was a remark Gurría immediately regretted. Within seconds the chief of staff was on the phone to Zedillo recounting Gurría's reasons for not taking the job. "He says he can't take agriculture because he doesn't know anything about it."

Hugely embarrassed, Gurría quickly began to change his story. Perhaps he did have some expertise in agriculture after all and what he lacked he could soon learn. He would be honoured to accept the post.

"Go upstairs and tell the president yourself why you don't want to be agriculture minister," snapped the chief of staff.

Do what? In Mexico a minister doesn't tell the president to get stuffed. Gurría began thinking about how he was going to get out of this tight corner as he walked to the president's office. But the explanation did not come out well. After five minutes of Gurría's babbling and excuses, Zedillo decided to put him out of his misery. OK, he told him, you're finance secretary, all that about agriculture was a joke.

It was probably best to begin one of the toughest jobs in the world with humour. From then on there would be little to laugh about. Gurría's task was to keep the Mexican budget under control at a time when oil prices halved losing Mexico about 1% of GDP in fiscal revenue and when the emerging markets crisis was in full swing threatening Mexican stability. On his first day in office Gurría looked at the figures and told the president the budget would need to be cut - the first of three cuts that would be required over the following six months to keep fiscal discipline.

"It was a difficult way to land in a new job," recalls Gurría. "The situation was quite unprecedented. It was key to start early because if you begin adjusting the budget after spending has already taken place it just spills over into next year."

Through natural disasters such as floods and hurricanes the pressures on the budget then increased further. "Without the cushion we had from the early cuts we just would not have made it," says Gurría. "The PSBR [public sector borrowing requirement] would have increased substantially."

Then, after his 1998 endeavours Gurría presented a budget for 1999 that was described by one journal as "the most austere in nearly two decades". The results of his efforts are now coming through strongly with the public sector registering an overall surplus of Ps7.9 billion ($819 million) during the first half of 1999, an outcome that keeps Mexico on target for a deficit of 1.25% of GDP for the whole year. In the first half the primary surplus (total income minus expenditures other than interest payments) reached Ps98.3 billion, a 40.6% increase in real terms compared with the same period in 1998.

Imposing this kind of discipline has naturally brought criticism. As Gurría says, the budget for health, education and roads could be doubled and still the resources provided would not be enough. "Cutting it is something that is very painful and choosing the areas is politically delicate," he says. "You have to negotiate very carefully. We wanted to preserve social programmes and started by cutting investment but later we had to cut some current expenditure."

Gurría's philosophy has been to concentrate food subsidies on the poor rather than having across-the-board subsidies and to push the Progresa scheme - a strings-attached social benefits package. Thus, families are paid for sending their children to school rather than to work in the fields, pregnant women receive extra food provided they go for regular health checks.

Says Rachel Hines, managing director of Latin American capital markets at JP Morgan: "Gurría has been an important shaper of the Mexican economy for many years, going back to the days when he was chief debt negotiator. His role as finance minister is the culmination of all those years' experience."

Observers say the logic for making Gurría foreign minister was that during debt negotiations be became extremely well known internationally. "It was surprising for me too," says Gurría about his appointment as foreign minister, "but it reflected the president's view that the foreign office should promote Mexico's economic interests."

Gurría says one of the toughest things about the job was the need to be an instant expert on everything. In this context he recalls making a speech about nuclear non-proliferation only three weeks after being appointed.

The minister was educated in Mexico, Leeds (in the UK), Harvard and Southern California. One of his first jobs in government was to advise the Sandinista government in Nicaragua on bank restructuring. Apart from his work in the finance ministry he had spells as director general of Banco Nacional de Comercio Exterior and Nacional Financiera and as Zedillo's secretary of international affairs during the presidential campaign.

Today Gurría sees Mexico facing three problems - continuing external volatility, the uncertainties of being in an election period and the weakness of the banking system. Since he can do nothing about the first two, he's working hard on the third. "The banks in Mexico are safe and sound but they are not ready to be the locomotive of growth in the future," he says. "They need to strengthen their capital base and we need to strengthen Mexico's bankruptcy law."