| | |  Business News | August 2009 
Mexico States May Issue Bonds to Bolster Finances
 Jens Erik Gould & Carlos Manuel Rodriguez - Bloomberg
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August 07, 2009
Mexico’s state governments may issue bonds to lessen the impact of a decline in their revenue amid the global economic crisis, said Mexico City Finance Minister Mario Delgado.
The federal Finance Ministry is in talks with the governments of Mexico City and the country’s 31 states about the possibility of selling 26 billion pesos ($2 billion) worth of bonds backed by revenue that states receive from a rainy-day oil fund, Delgado said in an interview. The bonds would be backed by 13 billion pesos in assets, he said.
“This would allow us to partially resolve the problem we have,” Delgado said. “We have to solve how to finish this fiscal year.”
Mexico transferred 15 percent less than was budgeted to states in the first half of the year because tax collection and oil revenue fell. Debt at the state level, which equals 205 billion pesos, may exacerbate Mexico’s fiscal pressures and boost chances that agencies will cut the country’s rating and attach a negative outlook, Gabriel Casillas, chief economist for Mexico and Chile at UBS AG, said in a report last week.
The federal Finance Ministry said yesterday it is discussing with state and local governments how to boost revenue and may dip into rainy-day funds to provide assistance.
Standard & Poor’s cut the outlook on Mexico’s debt to “negative” from “stable” in May, following a similar move by Fitch Ratings in November. A downgrade would be the first since the aftermath of the 1994 peso devaluation. S&P rates Mexico’s foreign debt BBB+, the third-lowest investment-grade rating.
Budget Deficit
Mexico’s budget deficit, which includes the servicing of debt from a 1990s bank bailout, will reach the equivalent of 3 percent of gross domestic product this year from 2.1 percent in 2008 and in 2007, the government predicts.
The gap may swell to as much as 6 percent of GDP by 2015 because state oil company Petroleos Mexicanos may fail to bring enough new wells on-line to offset a decline in output at its Cantarell field, Morgan Stanley said.
Government revenue this year will fall short of the budgeted amount by 480 billion pesos, the largest gap in the country’s history, Finance Minister Agustin Carstens said on July 23. To make up the difference, Mexico will draw on oil hedges contracted last year and rainy-day funds and also reduce spending by 85 billion pesos.
Latin America’s second-biggest economy may have contracted 10.4 percent in the second quarter, the government said last week.
To contact the reporter on this story: Jens Erik Gould in Mexico City at jgould9(at)bloomberg.net; Carlos M. Rodriguez in Mexico City at carlosmr(at)bloomberg.net |
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