| | |  Business News | January 2009 
Mexico to Freeze Gasoline Prices, Boost Jobs Spending
 Andres R. Martinez & Jens Erik Gould - Bloomberg
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 |  | Mexico is not the exception. We are and will continue to live through a period of great difficulties in economic growth, investment and employment.
- President Calderon |  | | |
Mexico will freeze the price of gasoline this year, cut electricity rates for some industries and expand unemployment benefits as part of a financial stimulus to help the nation weather an economic slump.
The government and industries will increase spending on infrastructure such as roads, airports and sea ports to 570 billion pesos ($42.4 billion) this year, President Felipe Calderon said today in Mexico City. The price of heating gas will be cut by 10 percent and frozen for the rest of the year.
Mexico faces a significant challenge this year as the global financial crisis worsens, sapping demand for exports and threatening jobs, Calderon said. Recessions in the U.S., which buys 80 percent of Mexican goods shipped abroad, as well as Japan and Europe present a risk to Mexico’s economy, Calderon said.
“Mexico is not the exception,” the president said. “We are and will continue to live through a period of great difficulties in economic growth, investment and employment.”
The stimulus program announced today will also increase the amount of time the unemployed can receive health benefits, give aid to companies affected by the economic slowdown and allow the jobless to withdraw more money from their retirement accounts.
The measures come as figures show Mexico’s economy is weakening. Third-quarter economic growth of 1.6 percent was the lowest in five years. The country’s manufacturing index fell to a record low in December, the sixth straight month the index showed contraction. Mexican economists expect the economy to shrink by 0.1 percent in 2009 as demand for exports slump, according to the central bank’s most recent survey.
Gasoline Prices
The plan will reduce inflation and may have a “marginal” effect on the economic growth, Gabriel Casillas, an economist at UBS AG in Mexico City, wrote in a note to clients. Slower inflation gives the bank room to cut the benchmark rate, he said.
“Banco de Mexico will have no excuse not to cut interest rates at its monthly monetary policy meeting to take place next week,” he said.
Mexico’s inflation rate, which jumped to 6.2 percent in November, is set to end 2008 above the central bank’s forecast of no more than 6 percent. The central bank kept its key lending rate unchanged at 8.25 percent for a third straight month in November. It targets inflation at 3 percent.
Gasoline, which can only be sold by state-owned Petroleos Mexicanos, rose 8.4 percent from a year earlier to 7.60 pesos a liter for regular unleaded in November. The Finance Ministry instituted price increases last year because gasoline in Mexico was cheaper than the rest of the world.
Currency Woes
Gasoline in Mexico is now almost 40 percent more expensive than in the U.S. after an almost 70 percent drop in oil prices since a high last year, Casillas said.
Last year, the peso posted its worst annual decline in more than a decade as the global financial crisis roiled the nation’s financial markets. The currency fell 0.77 percent to 13.4838 per U.S. dollar at 2:58 p.m. New York time today.
The yield on the 10 percent bond due in December 2024 fell 16 basis points, or 0.16 percentage point, to 7.77 percent, the lowest since April 23.
Calderon set a goal last year of spending 2.5 trillion pesos in private and public money during his six-year term on infrastructure projects. He said today that he will expand a program that provides construction jobs for the unemployed, and the government will guarantee or provide as many as 65 billion pesos in loans for infrastructure projects this year.
Jobless people will have access to at least 15 billion pesos in aid, Calderon said. The government will increase the amount of money it contributes to people’s retirement accounts, the unemployed will be able to extend their health care benefits and withdraw from retirement accounts earlier, he said.
The government will spend at least 2 billion pesos to aid companies hurt by the crisis, in order to prevent them from firing workers, he said.
The package will also require government agencies to award 20 percent of projects and spending to small- and medium-sized companies in Mexico.
To contact the reporter on this story: Andres R. Martinez in Mexico City at amartinez28(at)bloomberg.net; Jens Erik Gould in Mexico City at jgould9(at)bloomberg.net |
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