LatinFinance - March/April 2013 - 54

Mexico sub-sovereign debt

short-term credits do not require guarantees.”
However, Mexico’s banking regulator has been requiring
lenders – typically commercial banks – to report all financial
operations including short-term debt since 2012, he adds.
Revenue sharing-backed loans to sub-sovereigns make up
around 20% of Banorte’s portfolio. Banorte, BBVA Bancomer
and Interacciones hold the bulk of Mexico’s state debt.

Call for change

acquired the short-term debt during their administration, the
governor should take care of the debt without passing on the
debt to the next government.”
The cost of the Pan American Games was excluded from
budget because the organizing committee – an agency of the
city of Guadalajara facing its own budget constraints – could
not make a significant contribution to the games, Valencia says.
“The state government had to support the event without
having the budget for it,” he says.

Some say Mexico should rethink the way the federal government
taxes and distributes funds to states and municipalities. The
Bond market opportunity
federal government holds the monopoly on tax collection for
Bank financing makes up 80% of state and municipality
personal and corporate income as well as consumption taxes.
funding, says Banorte’s Chávez-Presa. Around 58% comes
State governments rely on federal transfers from the
from commercial banks, 22% via development banks, 15%
revenue sharing scheme. Some observers say the Mexican
via the capital markets and 5% by trusts and other financial
intergovernmental transfer
instruments. This means
system should be rea growing opportunity
examined to prevent states
for states to consider the
Rising tide of debt
and municipalities from
domestic bond market for
Debt outstanding of largest state and municipality borrowers (pesos, m)
resorting to short-term
financing.
80,000
borrowing.
“There is a great
Veracruz
Quintana Roo
Jalisco
Baja California
But others say the
opportunity for states
70,000
federal government
and municipalities
Sonora
State México
Coahuila
Distrito Federal
60,000
funding is ample and that
to issue in the local
Tamaulipas
Michoacán
Chiapas
some local governments’
markets,” adds S&P’s
50,000
Nuevo León
Chihuahua
weak financial
Brandazza. “Not only
40,000
management is what
with guarantees from
leads to short-term debt
Banobras but with the
30,000
problems.
issuance of plain vanilla
20,000
Messmacher says the
bonds.”
government does not plan
A few Mexican states
10,000
to revisit the distribution.
have already turned to
0
The current 30% of federal
the domestic capital
2000
2002
2004
2006
2008
2010
Sept
taxes that go to local
markets for funding.
2012
Source: Mexican ministry of finance
government came out of
Oaxaca sold a 1.947
negotiations that took
billion peso domestic
place in the 1980s.
bond with partial
But Congress was poised in February to look at limits for
guarantee from Mexican development bank Banobras in 2011.
states’ short-term debt as well as measures to strengthen
The 15-year bond was priced at TIIE plus 135 basis points with
financial discipline and improve guidelines for local
proceeds marked for infrastructure investment and to repay
governments to limit indebtedness.
existing debt.
“The recent default cases in unsecured short-term loans are
The Oaxaca deal was an important transaction in size with
a result, among other things, of long political transitions and
Banobras playing an important role in these issuances,” says
political rivalry,” says Chávez-Presa.
Martínez. “We hope they continue doing so.”
“Bad coordination between outgoing and incoming
Valencia says Jalisco did not consider the bond markets
administrations, especially when another party is elected, do
to fund the Pan American games because it trusted the
promote these public quarrels.”
city of Guadalajara and the federal government to provide
the state with sufficient financial resources. Debt laws also
No budget
restricted domestic market financing for infrastructure-related
Jalisco’s congress, for example, voted not to include the debt
investments.
in the 2013 state budget, arguing that the loan was taken out
In the end, Jalisco’s congress approved a 2.4 billion peso
by a National Action Party (PAN) governor and was thus the
loan on January 15 to cover the unsecured loan and other debts
responsibility of the previous administration before it left office. arising from the Pan American games. Following the agreement,
René Valencia, communications director at Jalisco’s finance
the ministry of finance paid Banco Interacciones directly, under
ministry, tells LatinFinance: “If the outgoing government had
an advance of 2013’s federal funds to the state. LF

54 LatinFinance

March/April 2013

LatinFinance - March/April 2013

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