| | |  Business News | November 2009 
Mexico Approves Budget With Two-Decade High Deficit
 Adriana Lopez Caraveo & Thomas Black - Bloomberg
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November 17, 2009
 |  | Mexico is looking for responsible government that carries out its duties, and promotes equality and economic growth.
- Luis Videgaray |  | | |
Mexico’s Congress approved the 2010 budget today that includes 3.18 trillion pesos ($244 billion) of spending and the widest deficit in more than two decades.
The lower house of Congress voted 437 to 25 in favor of the spending bill that results in a deficit of 0.75 percent of gross domestic product, excluding debt from state-owned oil company Petroleos Mexicanos, or Pemex. The shortfall including Pemex debt will be 2.75 percent of GDP, the widest since 1989, according to Gabriel Casillas, chief economist at JPMorgan Chase & Co. in Mexico City.
The Congress earlier this month approved tax increases for the revenue side of the budget to keep deficit spending in check and help Mexico avoid a drop in its sovereign-debt rating. Standard & Poor’s said in May it might reduce Mexico’s BBB+ debt rating as Pemex’s production drops and tax revenue sinks during Mexico’s worst recession since the 1930s. Mexico’s economy shrank 9.2 percent in the first half of 2009 from a year ago.
The budget bill, which now goes to Mexican President Felipe Calderon for signing, shifts 96.6 billion pesos of spending to infrastructure, agriculture, education, health and social programs from Calderon’s original proposal. The funds were taken mostly from executive-branch operational spending.
“Mexico doesn’t want obese government,” said Luis Videgaray, a legislator from the Institutional Revolutionary Party and the head of the house budget committee. “Mexico is looking for responsible government that carries out its duties, and promotes equality and economic growth.”
Spending Cuts
The bill outlines reductions in operational spending by capping salaries, eliminating positions through attrition, consolidating supply purchases and limiting the use of third- party consultants and services. The legislation mandates that savings the government achieves must be reported to the Congress every three months and posted publicly on the Finance Ministry’s Web site.
Under a “national program for public spending reduction,” the bill would require Calderon to submit on March 15 a report on how to cut spending, including elimination of duplicate jobs and reducing salaries of high-level officials.
Oil Target
Congress didn’t provide funding for Luz y Fuerza del Centro, the government-run electricity company that Calderon shut down in October citing its inefficiency, showing legislator support for the move. The Federal Electricity Commission, the larger of the two state-run electricity companies, took over Luz y Fuerza’s operations.
The legislation increases estimated revenue by raising the forecast for next year’s average oil price to $59 a barrel from $53.90 in Calderon’s proposal.
The lower house of Congress, the only legislative branch that needs to approve the spending budget, missed a Nov. 15 deadline mandated by law for approving the bill. To comply technically with the deadline, legislators extended an earlier session until today.
Annual economic growth in Mexico averaged 2.4 percent over the past eight years, according to the International Monetary Fund. Finance Minister Agustin Carstens, 51, said in an interview on Bloomberg Television Nov. 5 that he sees a “good chance” Mexico’s economy will grow above 5 percent by 2012.
The peso slipped 0.4 percent to 13.0595 per U.S. dollar at 9:21 a.m. New York time.
To contact the reporters on this story: Adriana Lopez Caraveo in Mexico City at adrianalopez(at)bloomberg.net; Thomas Black in Monterrey at tblack(at)bloomberg.net
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