| | |  Business News | November 2008 
Mexico Ready to Increase State Spending
 Adam Thomson - Financial Times
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 |  | The biggest winner in next year’s budget would be public security, which stands to receive about 34 per cent more than it did this year.
- Javier Guerrero |  | | | |
Mexico’s Congress was expected on Wednesday to vote through a budget that could increase government spending by 16 per cent, as part of a strategy to spend its way out of the fall-out from the US downturn.
The lower house’s budgetary commission unanimously approved next year’s spending programme just after 8am on Wednesday. The bill was expected to go to the full house for final approval by early afternoon.
“It is a responsible budget that strengthens social spending and infrastructure and, above all, sends a clear message to international markets that we are prepared to spend, and to spend in the areas that most need it,” said Javier Guerrero, a legislator for the opposition Institutional Revolutionary Party (PRI) and a top-ranking member of the budgetary commission.
Mr Guerrero confirmed that the budget would involve a fiscal deficit equivalent to roughly 1.8 per cent of gross domestic product, the largest in at least six years, and said overall government spending would rise by 16 per cent next year.
The decision to pass one of the country’s most Keynesian-inspired budgets in years comes in response to mounting fears about what the US downturn could mean for Mexico’s economy. More than 80 per cent of Mexico’s exports go to the US, equivalent to about 22 per cent of the county’s gross domestic product.
At the same time, the fall in oil prices has created a second front of concern given that close to 40 per cent of Mexico’s government revenue comes from oil.
Earlier this week the FT confirmed that Mexico has taken steps to hedge almost all of its oil exports next year at prices ranging from $70 to $100 a barrel and at a cost of about $1.5bn through derivative contracts. The country’s finance ministry, which at the time refused to comment on the deal, has confirmed the news.
Economists have praised the ministry’s foresight for taking out the hedge, and say that it will provide much greater stability in public finances over the coming year.
Mr Guerrero said that the biggest winner in next year’s budget would be public security, which stands to receive about 34 per cent more than it did this year. Mexico finds itself in the midst of a bloody war against the country’s drugs cartels, and the number of deaths related to drugs violence has increased more than 50 per cent since last year.
The PRI legislator said that the other areas that most stand to gain were infrastructure, particularly roads, which would receive about 14 per cent more than this year; and social spending, which will increase 16 per cent barring any changes during the full house vote. He said that one of next year’s infrastructure projects would be the construction of an oil refinery.
Luis Flores, chief economist at Mexico’s Ixe financial group, described the budget as “very positive... it tells the world that our public finances are strong enough to be very flexible in tougher times”. |
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