Summary: The aim of this study is to assess the current capacity of Mexico to deal with disaster risk and to identify ways in which the impacts of catastrophes on the economy can be reduced. The study analyzes the three main components of a comprehensive disaster risk management strategy: risk identification, risk reduction, and risk transfer and financing. Mexico is vulnerable to a variety of natural disasters, including earthquakes, hurricanes, and volcanoes. Despite the frequency with which these disasters strike, however, inadequate investment is made in mitigation efforts, and insufficient funds are set aside to pay for relief and reconstruction efforts. As a result, when a disaster occurs, the government is often forced to use funds that had been allocated to other programs, disrupting the operations of those programs. The effect is to reduce growth and derail important development efforts. The Mexican government could use mechanisms to manage risk so that ongoing programs are not disrupted following a disaster. Doing so involves identifying the risks the country faces, mitigating the damage caused by those risks, and transferring the risk to other parties (namely, insurance companies and the capital markets).
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