A girl stands in front of a mural as she waits for Spain's King Juan Carlos and Queen Sofia for the inauguration of a public library in a suburb of Medellin (Jose Gomez/Courtesy Reuters).

I wrote this op-ed for Bloomberg Views on the lessons for Mexico from Colombia’s wealth tax.

In 2002, strife-torn Colombia took a bold step that paved the way for vastly improved public safety. Now Mexico is struggling to subdue drug wars that have killed almost 40,000 people during President Felipe Calderon’s tenure. It’s time to try the Colombian remedy.

Part of Colombia’s success can be traced to Plan Colombia, the multibillion-dollar U.S. assistance package. That plan concentrated on beefing up military capacity, professionalizing the police and reforming Colombia’s judicial system. The desperately needed money and strategy helped pull Colombia back from the brink of chaos.

Just as important — and much less heralded — is a transformation within Colombia. The country’s privileged rallied together, not just to demand better security but also to shoulder responsibility. In 2002, newly inaugurated President Alvaro Uribe and Colombia’s elites negotiated a wealth tax. In the decade since, the tax has raised nearly a billion dollars annually for security. It also changed the nature of the fight, throwing the establishment’s weight behind the government in the battle for public safety. More than foreign security aid, this is what Mexico needs today: an investment by Mexico’s elites in the safety and well-being of all its citizens.

Click here for the full story.

Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.

Yesterday Mexico’s microfinance group Compartamos, backed by Accion International and the IFC, went public on the Mexico stock exchange. Where once only the largest companies and wealthiest elites had access, credit markets are now increasingly receptive to middle and even lower class Mexicans. The fantastic growth of mortgage-backed security industry in Mexico since 2000 has made house and even car financing increasingly available to the middle class. Government policy has pushed these changes, but it has also come from the market itself  “ specifically the quest of Mexico’s internationally-owned banks to develop new customers and new profits.

These banks have not reached out to Mexico’s lower classes, in large part because Mexico does not have laws like the U.S. Community Reinvestment Act, requiring lending in lower income areas. Instead, separate financial institutions are reaching out to the lower classes. These include microenteprise oriented banks (like Compartamos) as well as more traditionally oriented financial institutions like Banco Azteca (tied to Ricardo Salinas Pliego’s Elektra stores).

The combination of mortgages and microenterprise in Mexico means a vast increase in access to credit. This is important for Mexico’s future growth, and for addressing issues of inequality, poverty, and unequal opportunity. But, access to money is not Mexico’s only problem. Both of these new credit markets need substantial regulation in order to be both effective and sustainable. Credit to the middle classes is not an entirely new phenomenon. The mortgage and car loan market boomed in Mexico in the early 1990s, only to be devastated by the 1994 peso crisis. In fact, these loans represented a large percentage of the subsequent US$550 billion FOBAPROA government bail out of Mexico’s banks.

Mexico is unlikely to undergo an economic shock as severe as the 1994 crisis. The peso now floats, and government finances are more balanced and transparent. Financial regulation too is better, but still not strong enough. Imagine addressing the turbulence of the U.S. sub-prime mortgage market without the solidity of the U.S. Federal Reserve. Mexico will hit economic bumps at least as (and likely much more) serious than what the United States is now facing, and its current financial institutions are not well enough prepared. For Mexico to support both the microfinance and mortgage finance markets, increasing the strength and independence of its financial regulatory structures is key. Only with these institutions in place will the new found access to credit allow Mexico to grow and to flourish.