Finance Minister of the Year 2014

Finance Minister of the Year, Global and Americas

Luis Videgaray, Mexico

At a time when very few emerging markets are passing structural reforms – and some developed countries are in gridlock because of a lack of political agreement – the changes that are being undertaken in Mexico are not only a rarity, they are overwhelming in terms of their scope and potential.

Over the past 18 months, Mexico’s Congress has reformed the country’s labour market, passed a constitutional change to curb the powerful public teachers union, stripped public officials of immunity from criminal prosecution, introduced a telecommunications bill that limits the quasi-monopolistic powers of the country’s biggest telephone company, increased competition and transparency in the financial sector, and, at the very end of December 2013, broke the 75-year state monopoly in the energy sector – a game-changing reform that many had thought would never happen.

Such reforms, says finance minister Luis Videgaray, will put Mexico on a much faster and more sustainable growth path.

“For the past 20 years Mexico’s gross domestic product [GDP] has grown at an average of 2%; this is remarkably low for an emerging market. The main purpose of these reforms is to achieve growth in a sustained manner. [Mexico’s] growth should be about 5% – that’s our goal. With these reforms we will be able to increase our potential growth rate for the next decade.”

Mr Videgaray is keen to stress that the country’s president, Enrique Peña Nieto, is largely responsible for bringing about the reforms. After taking office, Mr Peña Nieto made an unprecedented move by establishing the Pact for Mexico, uniting the country’s key political parties in a consensus about the needed reforms. This allowed him to negotiate in Congress, where no single political party had a big enough majority to pass the reform laws single-handedly.

If changes in the energy sector will have the biggest medium-term impact and new rules in education will probably have the longest lasting effects, the significance of new financial regulation should not be underestimated. In spite of being well capitalised and an early adopter of international Basel III capital rules, Mexico’s banking system has not served individual and business customers as well as it could have in the past.

Mexico’s banking penetration level is below the Latin American average and lower than is to be expected of a member of the Organisation for Economic Co-operation and Development (OECD), which groups the world’s developed countries and of which Mexico is one of just a handful of emerging market members. “Our banking system is quite strong, but unfortunately penetration in the economy is pretty low, about 26% of GDP, which is remarkably low for an OECD economy,” says Mr Videgaray.

Latin America’s average banking penetration ratio is 44%, with a peak reached by Chile of about 80%. Mr Videgaray stresses the significance of a deeper banking industry on the economy. Smaller businesses, for example, which generate three quarters of jobs in the country, currently have very limited access to financing.

The new rules will also increase competition and transparency in the marketing of bank products and services, and they will reinforce customers’ rights, for instance, to move their accounts from one bank to another and to change mortgages.

After passing these reforms, Mr Videgaray is adamant that their implementation should not let Mexicans down. “[The government’s] challenges ahead are, of course, about implementation. Reforms are changing the constitution and the laws and now these changes [must] have a meaningful impact on people’s lives.”

For more on Mr Videgaray and Mexico's reform agenda, see the finance minister's viewpoint, The thinking behind Mexico's reforms

Finance Minister of the Year, Europe

Michael Noonan, Ireland

With impaired loans in the banking sector at 27% and unemployment at 13%, no one is under any illusion about the challenges still facing Ireland. Nonetheless, having inherited an economy in recession and a government reliant on an International Monetary Fund (IMF) and EU bail-out in 2011, finance minister Michael Noonan has made extraordinary progress.

The year 2013 started with a sustainable settlement for the thorny problem of the previous government’s ill-fated rescue of Anglo-Irish Bank, now liquidated. Debts owed by the government to the central bank will be rolled over until 2038, with a much-reduced coupon payment. And the year ended with Ireland becoming the first eurozone periphery economy to exit its IMF/EU support programme, which will not be renewed following its completion in December 2013.

“We had planned to make a clean exit, we had built up sufficient cash buffers and we are fully funded out to the second quarter of 2015, so we felt we were in a good position,” says Mr Noonan.

Key to this transition was Ireland’s successful re-entry into global capital markets, with two bond swaps and renewed treasury bill issuance in 2012 paving the way for a four-year bond issue of €2.5bn in January 2013. Mr Noonan says the return of economic growth (by 0.4% quarter on quarter in the third quarter of 2013) has helped bolster investor confidence, alongside the government’s commitment to its own programme.

“We have exceeded our deficit reduction targets in every year and are set to do so again this year; income tax, VAT and excise are all running well ahead of budget targets; and we have passed 270 different policy changes which are very significant taken together,” says Mr Noonan. 

The economy has added 1000 net new jobs every month for the past 15 months, and the government forecasts 2% economic growth in 2014. The Irish Business and Employers Confederation believes even this figure is pessimistic, anticipating 2.8%.

The Irish government has also made strides in reprivatising bailed-out financial sector assets, including the sale of the insurance arm of Irish Life and Permanent, together with contingent convertibles and preference shares issued to the government by Bank of Ireland. These deals have raised €5bn in total, and Mr Noonan says the government remains committed to returning the banking sector to full private ownership.

Finance Minister of the Year, Asia-Pacific

Cesar Purisima, the Philippines

The Philippines economy in 2013 has achieved a virtuous cycle of confidence and investment, which is in part attributable to the actions of the country’s dynamic finance secretary Cesar Purisima. Mr Purisima has been awarded the regional Asia-Pacific award in recognition of the energy he has brought to the role and for his success in raising the profile of the Philippines in the eyes of international investors. 

With a focus on governance reform and fighting corruption in the Philippines, which has long been an impediment to the economy’s prospects, Mr Purisima has also brought a number of other changes that have pushed the Philippines into achieving investor-grade status. 

The country’s fiscal position has been improved through a combination of an increase in tax receipts, a reduction in interest costs and more efficient expenditure. A focus on tax collection and a clampdown on non-payment has helped raise the country’s tax receipts, and also as the population becomes more convinced that the current administration is transparent, and sincere in its efforts to root out corruption, there
is more of a willingness of people to pay their taxes. 

In May 2013, the ratings agency Standard & Poor’s upgraded the Philippines from BB+ to BBB- (investment grade). At the time the ratings upgrade was announced Mr Purisima said: “This investment grade rating is another resounding vote of confidence on the Philippines and an affirmation of what the markets already recognise – that our economy’s underlying soundness is on par with countries rated investment grade or higher.”

A few months later, in October, Moody’s followed suit and also upgraded the Philippines to investment grade. The current administration’s fight against corruption and efforts to bring about governance reforms were credited with the change in the outlook for the country’s economy. 

This positive story, however, has been blighted by the natural disaster that hit the country in November. Typhoon Haiyan killed approximately 6000 people, destroyed 500,000 homes and displaced approximately 3.5 million people. In the wake of the tragedy, Mr Purisima was appointed as the coordinator of the relief and recovery efforts. 

The overall impact of the disaster on the country’s economy is expected to be minimal and the main concern of the authorities is to focus on the people whose lives have been directly affected by the typhoon. Third-quarter growth in 2013 was 7%, the fifth quarter in a row for growth to be more than 7%. 

“This solid growth demonstrates the continuing resilience of the economy in the face of global economic challenges and natural calamities,” Mr Purisima said at the time of the announcement. It is expected this rate will slow slightly in the next few quarters as the effects of the typhoon take hold. 

Finance Minister of the Year, The Middle East

HE Sultan bin Saeed Nasser Al Mansouri, United Arab Emirates

The United Arab Emirates' economy has undergone a well-publicised trial by fire since the onset of the financial crisis in 2008, so as economic turnaround stories go, the UAE’s is undoubtedly one of the more impressive. Its economic activity has been picking up steadily since the trough in 2009 when economic activity contracted by -4.8%. The next year marked a return to positive growth of 1.7%, while real gross domestic product rose to 3.9% in 2011 and climbed even higher to 4.4% in 2012. 

What is more important is that this is sustainable growth, with much of it being fuelled by a successful diversification strategy away from oil and with an increased focus on manufacturing, transportation and aviation, healthcare, education and financial services.    

Furthermore, the efforts of this diversification strategy have already yielded notable results – the UAE's non-oil economy is forecast to expand by 4.5% in 2013, the fastest pace since 2008, according to data compiled by the International Monetary Fund.    

HE Sultan bin Saeed Nasser Al Mansouri deserves much of the credit for steering the economy back onto a healthy and sustainable growth path through his pro-development policies. As chairman of the Securities and Commodities Authority, the country’s capital markets regulator, he set up a dedicated working team in early 2013 that ensured the UAE’s successful upgrade from frontier to emerging market status in June 2013 by leading equity market index provider MSCI – something it had been striving to achieve for several years.

This team oversaw improvements to post-trade operations in the UAE’s securities market, improvements in its delivery versus payment model for the settlement of trades, as well as the introduction of a new regulation that will enable the offering of new products including stock borrowing and lending, short-selling, market-making and liquidity providers.  

The upgrade will significantly increase both the depth and liquidity of the market – opening the UAE’s exchanges to about $370m of new global investment flows, according to HSBC estimates. Indeed, some of the positive impact has already been felt, with the UAE equity market trading at its highest level in five years in mid-December.

Mr Al Mansoori has also been spearheading a big drive to boost the support extended to small and medium-sized enterprises (SMEs). In early 2013, the UAE’s Ministry of Economy approved a federal law that stipulates that government bodies and government-related entities must allocate 5% of their annual budget towards goods and services provided by local SMEs or entrepreneurs.

“Our government has adopted the policy of gradual transition towards a knowledge-based economy, which requires us to work with complete devotion in the development of SMEs,” said Mr Al Mansoori on the sidelines of Dubai’s Fourth SME and Innovation Forum in September 2013.

Finance Minister of the Year, Africa

Amara Konneh, Liberia

It says a lot about the sheer destruction caused by Liberia’s two civil wars that the west African country’s economic output, in real terms, is only now at the same level it was in 1989, the year conflict first erupted.

Liberia, which has been at peace since 2003, remains one of the world’s least developed countries and its institutions and infrastructure are weak, even by sub-Saharan African standards. But thanks to the work of officials such as Amara Konneh, its 41-year-old finance minister, its $2bn economy is once again buoyant, growing 8.3% in 2012 and almost as much last year. It has made impressive gains in other areas, too: between 2011 and 2013 it climbed eight places to 174 (out of 187) in the UN’s Human Development Index and has risen 10 positions in the World Bank’s last two Ease of Doing Business reports, taking it above Tanzania and Nigeria.

Much of this success has resulted from the government’s focus on developing its security services and attracting outside investment to revive industries that thrived before war struck. “As a post-conflict country, a major part of our strategy in the past five years was to ensure that peace and security were sustained,” says Mr Konneh. “Together with our development partners, we invested heavily in improving the national police services and the army.

“For the economy, the goal has been to resuscitate the traditional sectors, such as mining, forestry, rubber and palm oil.”

The efforts are paying off. Mining, which in 2006 accounted for just 2% of gross domestic product (GDP), now makes up 10% of the economy, thanks mainly to more than $1bn of investments in iron ore production by ArcelorMittal.

Mr Konneh, who started his role in February 2012, is trying to take Liberia through its next phase of development. He has implemented plenty of reforms, including pushing through measures to increase the use of the local currency in what is still a heavily dollarised economy. In 2012, he introduced the country’s first medium-term budget, which had a four-year outlook, arguing that Liberia could not carry out its policies while only preparing one year in advance. He says this will help ensure that his expansionary fiscal plans, which have led the budget deficit to rise from 0.5% of GDP to 5.5% in the past two years, do not get out of hand. 

“Because of our desire to invest in public sector programmes, a budget deficit is to be expected,” he says. “There is pressure on our budget. But it’s not because of irresponsible spending. We have serious infrastructure challenges that need to be addressed.”

Liberia has a long way to go and Mr Konneh, who fled to neighbouring Guinea as a refugee when he was a teenager to escape his country’s violence, has no illusions about the scale of the task. But there is little doubt that substantial progress has been made so far.