One of the major absentees in the original proposal of President Peña’s energy reform was the implementation of a “sovereign fund” that would administer part of the oil revenues in order to invest in services with intergenerational benefits such as payment of pensions, public health, education and infrastructure. The energy reform proposal approved this week in the Senate now includes a trust fund named the Mexican Oil Fund for Stabilization and Development (FMPED), whose technical committee will be formed by the heads of the Secretariats of Finance (SHCP) and Energy (SE), the Bank of Mexico (Banxico) and four independent advisors. The FMPED will have the responsibility of “receiving all incomes, with the exception of contributions, that will correspond to the Mexican State, derived from allocations and contracts” in the oil sector. What is the outlook for FMPED and what is the role it will really have on national finances?
According to the reform, the SHCP will be in charge of constituting the FMPED and establishing the mechanisms for its functioning to annually transfer the same portion of oil revenues, measured as GDP percentage – that is equal to the one allocated for the federal budget. In the hierarchical order, it has been established that the payments of contracts should firstly be established; afterwards, the resources leading to the Funds of Stabilization of Oil Revenue and Stabilization of Income of Federal Entities; afterwards, the transfer to funds of Hydrocarbon Extraction, of hydrocarbons research, of energy sustainability and projects related with supervising the oil industry; afterwards, the priority will be to reduce financial liabilities of the public sector and, finally, allocating the financial remainder towards a pension system, infrastructure projects, science, technology as well as projects of renewable energy.
In contrast with the Mexican design, the Norwegian pension fund – the largest in the world – has the sole purpose of helping with the expenditure derived from the volatile oil income and act as a long-term saving tool that will enable the government to accumulate assets in order to face future financial constraints related to the aging of its population. The Norwegian government has tried to separate the expenditure from oil revenues with the purpose of complying with its goals. A curious aspect of the Norwegian law, which opposes FMPED, establishes that withdrawals aimed on covering budgetary deficits should strictly correspond to the real estimate with the aim of preserving indefinitely and in real terms (and not as GDP percentage), its value on an infinite period of time. Another relevant aspect consists in its governance structure, which is subject to a clear delegation of responsibilities among the political authorities as well as the operative administration. Whilst in Norway, oil is circumstantial, in Mexico, with or without an Oil Fund, it will remain as financial means used by the federal government.
It is possible to acknowledge that the FMPED has several differences when compared with the best international practices. For instance, attention is drawn on how FMPED will cover the shortfalls of the Federal Budget, which is increasingly important when considering that it will be 4.7% of GDP and that the deficit in the government might increase. An additional problem of the FMPED is that the accumulative amount of oil revenue destined for the public purse will be subject to the volatility of oil prices and/or to a sudden hydrocarbon production, variables over which the Mexican State has no control. Finally, two highly debatable aspects of FMPED will consist on the conflict of interests generated by the omnipresence of SHCP at presiding the fund’s Technical Council and being the main administrator of the allocations for the amounts destined to cover for remnants; and the weak subordination of FMPED to accountability mechanisms that might guarantee the use of oil resources with goals of intergenerational equity. Seen thoroughly, the new FMPED will simply be a new way of financing expenses that are currently covered by the oil revenues of PEMEX. Thus, there is nothing new under the sun.
CIDAC
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