Mexico - State-level Public Expenditure Review : The Case of Veracruz-Llave

Abstract

The State of Veracruz-Llave, commonly known as Veracruz, is the third-largest Mexican state in terms of population, with 7 million, but growing only 1.05 percent per year, which is below the national rate of 1.85 percent. The population of the state is predominantly urban (59 percent) and young (44 percent is 19 years old and younger). Veracruz's indigenous population is the third largest of any Mexican state, and represents close to 10 percent of the state total. Veracruz is one of the poorest states in Mexico. It still is the fifth-largest state in terms of GDP. There are four problems from an economic and social development point of view: (a) inadequate access to communications and public services in rural areas, (b) low productivity of the labor force, (c) low diversification of industries in the northern and southern regions of the state, and (d) lack of a coordinated strategy among government agencies. The following policies address these problems: 1. Develop a coordinated strategy, under the umbrella of the state's six-year development plan, which would support economic growth while improving the ability of the poor to participate in it. 2. Invest in physical capital such as roads and water. Roads are strategic for economic and social development of rural regions. Nevertheless, the authorities need to find a balance between providing overly costly infrastructure to villages, and providing too little, so that the residents have no access to the transport system. Shortage of water in rural areas seriously harms the well being of the population. 3. Invest in human capital, in particular, improve the provision of technical training to rural areas, and improve the quality and relevance of basic and secondary education. In the global economy, workers need the capacity to learn quickly and take advantage of current information and emerging technologies. 4. Analyze the labor market in Veracruz, with a study of its relationship with economic development. 5 . Create a strategic plan for economic development that emphasizes diversifying into high-value industries, including in the northern and southern regions. The state can do little for the oil sector except to lobby for the energy reform, since it is by constitution controlled at the federal level. World market conditions offer little hope for a major comeback in sugarcane and coffee.