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 Business News | September 2005 
Mexico Plans 1st Budget Surplus in at Least a Decade
 Bloomberg
President Vicente Fox submitted to lawmakers today a plan to generate a budget surplus for the first time in at least a decade and pay down external debt for a third straight year in 2006, his last year in office.
Fox proposes total spending next year of 1.88 trillion pesos ($176 billion), about the same as this year after discounting for inflation, to produce a surplus equivalent to 0.2 percent of gross domestic product, according to a statement emailed by the Finance Ministry. His budget plan assumes economic growth will accelerate to 3.6 percent from a target of 3.5 percent for this year, and that the price for Mexico's Maya crude oil will decline from record high levels to average $31.50.
The 63-year-old president said he wants to leave Mexico's economy, Latin America's largest, in good shape for his successor. Mexico suffered peso devaluations after four presidential elections from 1976, a pattern that was broken when former President Ernesto Zedillo handed over power to Fox in 2000. The last peso crisis in 1994 sparked Mexico's worst recession in six decades.
"The next administration will benefit greatly from a stable economy and healthy public finances," Fox said yesterday during a speech in Monterrey, Mexico. "We'll avoid what happened in the past, when economic activity would slow considerably in the last year of government, making the new administration get off to a slow start," Fox said, according to transcripts by his office.
Record high oil prices are helping Mexico, the world's six- largest crude producer, increase spending without creating bigger deficits. Fox will face the challenge of convincing legislators that they can't ramp up expenditures expecting oil prices to remain this high, said Alfredo Thorne from JPMorgan Chase & Co. The price of Mexico's Maya crude almost doubled this year and hit a record $54.19 per barrel on Sept. 1.
"It'll be a tug-of-war between congress, which will want to boost expenditures in anticipation of the elections, and the Finance Ministry, which wants to save as much as possible from the oil windfall to pay debt," Thorne, head of Latin American economic research, said in a phone interview from Mexico City.
Spending, Taxes
Lawmakers last year raised the estimate for the price of Mexican crude exports in the 2005 budget to $27 a barrel from the $23 originally proposed by the government. The actual price averaged $39.13 this year, according to Bloomberg data, giving Mexico expected revenue of about $9 billion, Thorne said.
Assuming an average price of about $30 a barrel in 2006 would be "prudent," Thorne said.
Federal spending rose 4.1 percent in the first seven months of this year to 1.04 trillion pesos ($97.7 billion), helped by a 15 percent surge in oil revenue. Tax collection fell 0.6 percent in the period. The government said today it expects to trim the fiscal deficit to 0.2 percent of gross domestic product this year from 0.3 percent in 2004 and 1.1 percent when Fox took office.
Mexico last had a balanced budget in 1996.
Fox also asked legislators for permission to pay down $500 million of foreign debt for a third straight year in the budget plan he submitted today, according to the Finance Ministry. Mexico's net international debt was $70.4 billion as of July 31, and international reserves were $59.3 billion as of Aug. 26, below a record high of $62.1 billion in February.
Private-sector economists are less optimistic than the government about this year's economic growth.
The Mexican economy probably will grow 3.1 percent this year and 3.5 percent in 2006, according to the average estimate by 35 private-sector economists polled by the Mexican central bank between Aug. 26 and Sept. 1.
To contact the reporter on this story: Adriana Arai in Mexico City at Aarai1@bloomberg.net |
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