DEBT: IDB calm about Mexico’s state debts
The furore triggered by the revelation the state government of Coahuila had been concealing its borrowings from the state congress should start to die down. The InterAmerican Development Bank (IDB), recently published a study that concluded that although state debts in Mexico have increased in the past decade, they do not represent a systemic risk.
Coahuila has been punished by having its credit rating chopped down to a just investment-grade BBB-, from A+.
The IDB study found that state and municipal debt in Mexico was equivalent to just 2.4% of GDP compared with 13% in Brazil and 19% in the US. The IDB did note that states like Coahuila, which had resorted to short-term borrowing, needed to reinforce their finances. Coahuila increased its net debt almost 3,000% between 2006 and 2010. The neighbouring state of Tamaulipas (like Coahuila, controlled by the Partido Revolucionario Institucional which expects to regain the presidency in 2012) increased its debt by 2,000% in the same period. The other big borrowers are Chiapas, a poor southern state, Quintana Roo (whose only real asset is the resort of Cancún); Nuevo León, a major industrial state in the north, and Veracruz, the country’s third most populous state.
In the 2012 budget, the federal government has inserted a requirement that sate governments report on their rate of borrowing and debt to the state congress every quarter. The federal government is also unhappy about state governments using pledges of federal money as security for borrowings. It wants to limit the use of federal money to debts taken out with local lenders and to exclude credit from international lenders.
Mexican states’ borrowings
% increase between 2006 and 2010
Coahuila 1,868
Tamaulipas 1,186
Chiapas 834
Nayarit 465
Quintana Roo 434
Source : Reforma
