Tuesday, August 21, 2012

Yucatán state and municipal debt continue to rise, with predictable consequences for many

News Analysis -
Critics allege financial mismanagement by outgoing PRI governor, who overshot every annual budget and spent $11.5 billion dollars in five years; meanwhile, trash goes collected in some neighborhoods

Mérida, Yucatán --
Last week the city of Tekax de Álvaro Obregón, a municipality of about 25,000 people in this state, had to let go 300 employees. It chose to notify the affected workers in an unusual way. When they went to local ATM machines to draw out their direct-deposit pay, the money wasn't there. Tekax has promised that it will cover their last two weeks of employment, but that's it. Their jobs are over, along with other benefits which they had accrued.

The city of Mérida hasn't paid its trash collection bill of late, at least what it owes to one private contractor. The Yucatan Times reported on the case Aug. 6. In a city and state where Dengue fever is a constant problem, and the Ayuntamiento (municipal government) continually lectures on the need to keep one's property and surroundings clean, that does not bode well for public health.

Given the debt structure and spending habits of the state and some of its municipalities, neither event should come as a surprise. Over a year ago, a local analyst calculated that "the Yucatan today owes $5.44 billion pesos ($450 million US), and has authorized the borrowing of another $3.67 billion pesos ($300 million). The grand total of state sovereign debt, actual or imminent, is over $9 billion pesos – about $750 million USD." I translated the analyst's concerns about mounting government debt, which are available here: Yucatán's Public Debt: Mortgaging Future Generations? (Aug. 2, 2011). The U.S. equivalents, by the way, were based on a then exchange rate of 12 pesos to the dollar. At the current rate of around 13-1, the U.S. dollar value of Yucatan debt would be lower. But the pesos which have to be repaid obviously remain just the same.

In any case, it seems that those 13 month old estimates are going to prove pretty accurate when the current administration of PRI governor Ivonne Ortega Pacheco comes to a close in a few weeks. And since another PRI governor will replace her, nothing is likely to change much.

Mérida's highly partisan daily, Diario de Yucatán - no friend of PRI governments - reported on the worrisome numbers in an Aug. 17 special report. The report is based upon public filings required of all government entities, so there's no reason to doubt its accuracy (Cuantiosa deuda oficial).

The numbers are significant. Computed in U.S. dollars (worth about 13 pesos each), the state owed all of its creditors combined an aggregate $414 million as of June 30. A sizable chunk of that, about $175 million, is due to banks in the form of long term notes. When the state periodically returns to the well for another draw, those same banks are quite willingly to cough up more. But the economic consequences of this borrowing will likely be felt by Yucatecans for years to come, as the local analyst noted last year when he worried in his TYT article about the mortgaging of many future generations.

The Yucatán owes other obligations as well, including a billion pesos (almost $77 million) in ordinary trade debt and current payables (such as to the trash collector who got tired of waiting for his check). When you can't pay your daily living expenses, so to speak, the underlying economic soil more likely consists of sand than rock. And the state has collected over $20 million in taxes which is due Mexico's I.R.S. (the Hacienda, as it's called). Much like U.S. employment taxes - withheld from the employee's paycheck, but owed to the government - that money has to be handed over at some point. It's not clear why it hasn't been. That should be an automatic monthly or quarterly process.

Yucatán cities have their own money worries. Mérida owes almost $6 million (US) in long term debt, and Valladolid is on the line for $3.3 million. If those numbers don't sound particularly impressive, bear in mind that many U.S. local governments must operate 100% from tax revenues, and are barred by law from running in the red or incurring anything other than ordinary, due-on-presentation trade debt.

Considering this a state where almost half of the population lives below the poverty line (Increasing poverty and rising state debt result in poor economic report for Mexico), one has to wonder where all the borrowed money is going, and just how it's being spent. Yucatán is a poor state in a yet poor country (Enrique Peña Nieto's biggest challenges will be economy and environment, not drug cartels), and the job market here is one of the very worst in the nation (Yucatán has educated labor force, but no jobs). It doesn't appear the cash is being used to jump start the local economy.

"Unprecedented spending" by current state administration, with 30% annual budget overrides
In an Aug. 19 Diario article (El gobierno actual, con abultada deuda), another analyst blames the financial mess on the administration of Ivonne Ortega Pacheco, who, it should be noted, holds a high school diploma (some months ago the governor announced she was studying law at a local university - an undergraduate major in Mexico, not a professional post-graduate program as in the U.S. - and that she had only 19 more levels of examination to pass before receiving her bachelor's degree).

Perhaps that's the problem. The governor's PRI administration managed to exceed the approved state budget by about 30% every year she held office, according to the second article. Between August 2007 and June 30, 2012, it spent a record $11.5 billion dollars. Little wonder the Yucatán has had to visit its bankers so often, in a state where 48% of its citizens scrimp out the most minimal existence.

Dec. 2 - Nine of the 13 Mexican states which have the highest public debt are, or were immediately before the most recent elections, in the hands of PRI governors.
Nov. 30 - Ivonne Ortega Pacheco will collect her reward from PRI - for gross mismanagement
Oct. 3 - A spendthrift Yucatán looks for cash anywhere, anyway

The two PRI bosses who ran state and municipal government here in recent years: Yucatán governor Ivonne Ortega Pacheco (r) and former Mérida mayor Angelica Arajuo (l). This photo was taken in October 2011, when they appeared together at the grand opening of a controversial public works project which had sparked a mini street riot - the construction of a road underpass.

Although no elective office is immediately ahead of Ortega Pacheco, she is rumored to be on president-elect Enrique Peña Nieto's short list for a possible cabinet position or ambassadorial appointment. What the PRIsta lacks in education and career history she more than makes up for in absolute devotion to the tricolor banner.

Aug. 25 - Cancún's city council has authorized an emergency $100 million peso ($7.7 million dollar) bailout loan, so that it can pay off municipal suppliers and common creditors. The line of credit from giant banker HSBC supposedly will be paid back in 180 days - a goal unlikely to be met, given that the city needs the money in the first place. But the mayor promises the loan will not be converted into long-term debt.
Aug. 24 - Mérida faces "environmental catastrophe," warns official
Aug. 23 - La zona oriente de Mérida, un auténtico basurero
Aug. 22 - Trash piles up in Mérida
Aug. 22 - Isla de Mujeres faces economic crisis and cash flow shortage; personnel cuts on the way to make ends meet (Aug. 26); and as many as 150 will get their pink slips by week's end (Aug. 29).

Nov. 8 - Mexico's tax authority, the Secretaría de Hacienda y Crédito Público, has published stats indicating that Jalisco is among the six most heavily indebted entities in the nation. The state itself owes about 18.6 billion pesos, and its aggregate municipalities some 8.1 billion, for a total debt of 26.7 billion pesos, or $2.053 billion USD (based upon a 13 peso dollar).

Mérida, August 2012


  1. So the garbage is piling up in my street in centro, but hey, we got an underpass, and to see Shakira for free...

  2. Shall I take that comment largely tongue-in-cheek, Stewart?

    I like the underpass, too, and think it was a sensible use of municipal revenues; that particular glorieta (traffic circle, for those not familiar with them) was a major mess until the improvements were made.

    The Shakira concert was a different deal altogether. I attended, and I thought it was rather a bore (plus I was threatened three times with expulsion by Ayuntamiento security thugs, the last time with arrest, if I took ONE more photo . . . but I kept shooting on the sly). Overall, I think the concert was a big waste of city money, and I said so at the time (http://mexicogulfreporter-supplement.blogspot.mx/2011/11/shakira-21-million-peso-ticket.html).

    On a broader note, the $11.5 billion DOLLARS spent by Yucatan in the last 60 months really is a huge sum of money, especially when you consider that the minimum wage in Mexico is about $135 a month. It's clearly not state or municipal workers who got rich off all that cash. The infrastructure improvements in Merida's core are nice, but their reported cost are but a tiny grain of sand compared to that sum.

    My opinion is that the local economy today is little changed from 2008, at least based upon what merchants and businessmen tell me. So at the end of the day, the question remains: where did all those pesos (30% over budget) go? And why can't the city/state meet even their current payables? If your steamship line didn't pay for its fuel as delivered, I bet it would soon find its vessels drifting in the middle of the Caribbean. Perhaps that's where Yucatán is as 2012 comes to a close.

    1. You're really bringing me down about Mexico, Edward.

      Canadian Mexico Lover

    2. If you're already familiar with Mexico (it looks like you are), and you love it, I doubt that anything I report will change your feelings. In any case that's not my purpose. My purpose is to report the "other side" of the news that very few English language sources ever report, especially with respect to state and local matters (one reason I often write about the security mess in neighboring Quintana Roo state).

      I think it's unfortunate that both sides of the story don't get covered in English. Example: A few days ago the same Mérida newspaper which published the depressing financial reports discussed above, Diario de Yucatán, featured a big front spread about how the city retains its popularity with U.S. and Canadian expats. Several were interviewed, and they gave all the standard reasons: tropical climate, a laid-back, easy-going lifestyle, almost no serious crime, etc. Those things are all important considerations, to be sure, but they're hardly the only ones.

      For people who have sold a home up north, and may be contemplating a permanent move here, together with an investment of much (or all) they have in life in local real estate, the negative factors reported in this article might well be very important. They certainly would be to me (I own no property here, and I have no intention of acquiring any).

      If trash doesn't get collected, if rain water stands in streets for days because they have no storm sewers, if the state is heavily indebted and the city can't pay its bills, if people come to blows over city improvement projects, if bitter partisan politics infects every aspect of life at every moment (much more so than in the U.S., in my opinion), if you can't get a parcel package delivered in two months that would have arrived in central Africa in two weeks (!), if corruption remains ubiquitous - wouldn't most people want to know about such things?

      And to top it all off, real estate developers and speculators are literally laying in wait for expat arrivals. New projects are sprouting up all the time, with units priced so high they make many U.S. properties look like a steal by comparison. I've read at least half a dozen Spanish language articles in the past year about local developers who are convinced that the peninsula will be flooded by expats fleeing northerly latitudes. They may be right. And if they are, those folks had better get out their check books. "Cheap" Mexico is anything but.

      In sum: it's nice never to have to scrape a windshield, and a cold beer tastes great on a muggy afternoon. Above all, Mexicans are some of the finest and most decent people I have ever met, despite the dysfunction which affects so many levels of their society. But this place is a good stretch yet from cielo, and anybody thinking about a move here had better be aware of that.

    3. It was indeed intended entirely tongue in cheek! I also like the underpass, which has definitely improved things for those driving on Prol. Montejo. For those exiting onto Circuito, or those driving on Circuito, I am not so sure, as I rarely ever passed that way before the improvements.

      I did not attend the concert, as I was out of town, so had no personal experience, but looks to have been a huge waste of public money to me.

      The garbage not being collected, huge holes in the streets not being repaired, etc, are serious issues, and it would be very nice to know what happened to the money that was presumably budgeted for these things, and all the other cash you mention. I understand that according to Angelica, everything was perfectly balanced when she left the building... although this is hearsay, whether or not she has actually stated this I am not sure.