Mexican states indebtedness threaten Mexican national economy
2011-12-18
Posted by: badanov
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By Chris Covert
One of the most reviled politicians in southern Mexico is Partido Revolucionario Institucional (PRI) Ulises Ruiz, former governor of Oaxaca state.
Ruiz has been hammered repeatedly in the local and national press for his heavy hand on the state levers of power, which included accusations he used intimidation to win election in 2004
His actions as governor included moves against the Noticias de Oaxaca news daily, demonstrating in stark terms the power a PRI politician has in his domain outside the normal areas he had as governor. In this case, PRI's traditional nexus of a labor organization was used against the publication to stop its distribution in Oaxaca,
Mostly it is in Mexico's mainstream and independent left that he had gained the most notorious reputation as accusations flew about his treatment of indigenous Indian populations within Oaxaca.
Oaxaca was one of the three states in Mexico in 2010 which did not go PRI, due in part to the reign of Ruiz. His rule has been an embarrassing stain on effort to polish the image of PRI.
So, a few days ago when an auditor for the new non-PRI governor of Oaxaca submitted a report to the Oaxaca chamber of deputies on massive state spending irregularities during Ruiz's term as governor, it was unwelcomed news, especially in light of the recent problems in Coahuila state.
The report stated that in 45 separate audits of Oaxaca state finances some 507 irregularities were found, of which 20 were resolved, 300 were pending and 187 were sent to an investigating agency for possible prosecution.
The amount involved in this scandal is said to be as much as MP $4 billion (USD $288,000,000), Already four complaints have been filed with the state attorney general for investigation and prosecution of Ruiz and unnamed individuals.
As the news daily Reforma described it, PRI politicians attending the hearing made noises in protest of the news as it was being delivered. The spectacle inasmuch as it received scant national press attention has to be an embarrassing one for the hopes of a PRI with a newly polished reputation.
Ruiz's successor, Gambine Cue, a Convergencia party member, is currently governor, and has a political motive for bringing out the excesses of the Ruiz administration, even if it is the start of his administration. Convergencia is usually aligned with Partido Accion Nacional (PAN) and is generally considered to be conservative in the Mexican political spectrum.
As such, Cue's concern for the financial health of Oaxaca is a growing one in Mexico amongst Mexican PAN members and conservatives.
Oaxaca's problem has not been in contracting debt, however. Indeed, amongst the 32 Mexican political entities it is in the bottom five when it comes to per capita state debt.
Oaxaca's problem and a growing problem with several of the other states is in transparency, priorities and spending. If the charges that seem to be arrayed against Ruiz are as true in those other states, the one-two punch of state government spending and state debt may become a national issue before the next national president is even in office a year.
Last week, Laura Rojas, a PAN Mexican Chamber of Deputies coordinator held a "Debt Expo" forum in Mexico City where the facts about state spending were laid out.
This interest in state government spending at the national level took on a stark relief with the excesses of Coahuila state under the auspices of now deposed PRI leader Humberto Moreira Valdez. In many ways the excesses of that era which will lead to unprecedented and painful austerity in Coahuila state services and in state revenue, could well affect Mexico nationally.
It effects could well reverberate into the US as well.
Mexico maintains a federal revenue sharing system with the states and individual municipalities, whereby those entities get their share of federal monies and must share their local fees and tax collections. The share states receive is based on agreement, as long as a state imposed tax or fee either does not interfere with the federal government or exceeds it. In exchange, states and municipalities give up some of their autonomy in exchange for revenue. That system has been modified somewhat in recent years as the Mexican federal government has asked states to pay more for their share of security costs, and whatever autonomy is regained or maintained is paid for through state revenues.
Zacatecas state is a good example. A decision by the Secretaria de Defensa Nacional (SEDENA), the controlling agency of the Mexican Army to deploy three newly raised rifle battalions in 2011 came with two costs: one financial and one political.
Zacatecas was required to build several bases to house the new troops with its own funds, while SEDENA pays for the costs of the deployment. It is unclear if any part of those costs include logistics, but it is very clear those costs do include the states' part of joint federal and state counternarcotics operations.
As reported in the El Sol de Zacatecas news daily last fall, the state chamber of deputies decided to borrow the money to pay for improvement/reinstatement in its water and sewage system as a revenue source. The fees collected in such a system cannot go to the federal government as the service is unique to a geographical area. It thus came with a cost of autonomy, the cost borne by the federal government.
During the forum, Sra. Rojas laid out six growing problems that are and will eventually affect Mexican localities.
- Federal revenue given to the states has grown 34 percent since 2000, from MP $786,585,000,000 (USD $56,634,120,000) to MP $1,290,051,000,000 (USD $92,883,672,000) in 2011.
- Between 2003 and 2008, Mexican states have raised at most 17 percent of their revenue, through taxes and fees. The rest is made up through federal revenue sharing. The state that raised the most is Chihuahua at 17 percent, followed by Nuevo Leon at 14 percent, Quintana Roo at 12 percent , Baja California at 11 percent and Tamaulipas at nine percent.
It should be noted that of the top five states with the highest raised revenue four are states that border the US while the fifth borders Guatemala and Belize.
The states with the lowest percentage of revenues raised in the state are Tlaxcala, Veracruz and Guerrero, with only 3 percent; Aguascalientes, Colima, Michoacan and Veracruz with four percent and Morelos, Nayarit, Tabasco and Yucatan with five percent.
The entity with the largest amount of raised revenue is Distrito Federal where 40 percent of its revenues are through taxes and fees. - In the five years between 2008 and 2011 state debt has grown almost 40 percent, an average rate of 13.1 percent per annum. According to the Mexican national finance ministry, the total debt of the states has grown from MP $141,400,000,000 to MP $197,111,600,000, a 39.4 percent increase.
Those figures are not totally up to date since revelation of the debt Coahuila state has amassed, a number which has certainly increased the percent of increase significantly. - Coahuila's debt load is 2.6 times the federal revenue it receives. The national average is .07 times. The three Mexican states with the next largest ratio of debt to federal monies it receives are Quintana Roo 1.7 times, Nuevo Leon at 1.5 and Chihuahua at 1.2.
Again, all the largest states with the greatest amount of debt relative to federal revenue are border states. - The national ratio of debt to internally generated revenue is 2.6. For Coahuila state the ratio is 12.6 times state revenues. The three states with the next highest ratio of debt to state revenue are Quintana Roo with 5.4, Nayarit with 5.2 and Sonora with 5.1.
Sonora, Coahuila and Quintana Roo are border states, with Sonora and Coahuila sharing their northern borders with the US. - Most interesting revelations are on the spending side. In most Mexican states spending is not an open matter for the press. So when a state chamber of deputy authorizes spending, which is public record, how the spending gets done is often shrouded in secrecy.
Even so, Rojas said according to the available figures, 68 percent of total revenues, state and federal are spent on personnel such as the payroll, phones, travel, per diem and various items for state employees.
That spending has grown very slowly, less than one percent per annum according to the Mexican national finance ministry and to the Fitch financial rating service. However, total state spending on bureaucracies grew by six percent per annum.
Mexican senator Juan Bueno Torio held a similar press conference last Wednesday to clarify the financial situation of the states and municipalities.
According to Senator Bueno Torio, 2,000 of 2,400 municipalities are in dire economic straights due to debt.
Since 2005, three states have had percentage increases of indebtedness in the triple digits. Those states include Coahuila at 465 percent, Nayarit with 159 percent and Chihuahua with 128 percent.
Of the MP $287.588 billion (USD $20,706,336,000) in total state debt, MP $41.429 billion went to municipalities, MP $23.307 billion went to state agencies and MP $6.114 billion went to municipal agencies. The rest, the great lion's share went to state government.
In Coahuila state 98 percent of the contracted indebtedness went to state government, with the rest to state agencies, municipalities and municipal agencies. Chihuahua state is worst with 99 percent while Michoacan was slightly less at 97 percent.