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Senate Passes Bill to Control Local Government Debt

April 19, 2013

The Senate passed a bill that would give the federal government power to regulate state debt - it passed with 100 votes for and only eight against. The bill now goes to the lower house of Congress for approval

Mexico City, Mexico – Mexico is set to more closely monitor state and municipal debt after the Senate passed a bill on Tuesday giving the upper house and the federal government the power to oversee local spending and to sanction government extravagance.

The Senate passed the bill, which includes a constitutional change, with 100 votes in favor, eight against, and three abstentions. The bill is now set to go to the lower house of Congress for approval.

According to Democratic Revolution Party Senator Armando Ríos Piter, total state and municipal government debt has more than doubled over the past 5 years and is over $33 billion. Eight municipal governments and the state of Jalisco have defaulted on their debts.

The reform will grant the Finance Ministry the power to oversee federally backed loans to states and municipalities including the power to set up strict fiscal rules, including debt limits and a road map to reduce budget deficit. It also prohibits states and municipalities from borrowing to cover current spending as opposed to investment. Additionally, all new loans are to be approved by a two-thirds majority in state legislatures, after a study on the purpose of the loan and the government’s ability to pay it back.

Institutional Revolutionary Party Senator David Penchyna Grub said that the reform would stop out-of-control borrowing. "Now states and municipalities will not be tempted to demonize the tool of debt, which in a developing country is a fundamental tool."

Source: The News