Tuesday, July 23, 2013

Mexican state, local debt leap, while Enrique Peña Nieto announces plans to get more workers on real payrolls

News from the economic front: the entire Yucatán peninsula is operating in red ink

Guadalajara -
The long term debt facing Mexico's 31 states and one federal district rose 480% during the last 12 years, the federal government has reported.

In 2000, those entities owed 90.731 billion pesos. By 2012, aggregate state debt had risen to over 434 billion pesos. Ignoring inflation, and applying a current exchange rate of 12.5, the former figure was $7.258 billion USD, and the latter is $34.72 billion. Aggregate municipal debt has risen to 43 billion pesos - about $3.44 billion US dollars.

Out of control local entity debt presents a serious threat to the national economy as a whole, which is weathering heavy seas this year. Banixco raises storm flag warning on Mexican economy. It's a topic which MGR has covered before in this story: Increasing poverty and rising state debt result in poor economic report for Mexico.

The 11 most heavily indebted Mexican states are Chihuahua, Coahuila, the Federal District (Mexico City), Tamaulipas, Morelos, Zacatecas, Nayarit, Veracruz and all three states which comprise the Yucatán peninsula: Campeche, Quintana Roo and Yucatán.

The per capital debt of Q.R. state is now the highest in Mexico. Each one of its 1.47 million residents owes 13,600 pesos - almost $1,100 USD. Altogether Quintana Roo owes lenders 19.99 billion pesos, or $1.6 billion dollars.

Yucatán's state debt skyrocketed under the previous Institutional Revolutionary Party administration of governor Ivonne Ortega Pacheco, and is now approaching $1 billion dollars. Yucatán's Public Debt: Mortgaging Future Generations? Pacheco serves as the national secretary general of PRI. The state has faced one cash crisis after another since her term ended in late 2012. Spendthrift Yucatán looks for cash anywhere, anyway. Last summer, the capital of Mérida was so financially strapped it couldn't afford to pay municipal trash collectors. Yucatán state and municipal debt are rising, with predictable consequences for many.

In the past Mexican states have had no problem borrowing from banks and large institutional lenders, almost without limitation. Their promissory notes were secured by pledges of federal revenue sharing funds which they receive annually from the central government. But a newly enacted constitutional amendment now prohibits loans which exceed 20% of such funds. The federal amendment has been widely praised by economists and business leaders, given the lack of fiscal self-discipline shown by many states in recent years.

In other economic news, the Peña Nieto administration has announced a National Crusade Against Informal Employment. About 30 million Mexicans - almost 60% of the currently employed labor force - work in the informal economy. That's another way of saying that they're self-employed and earn a mere subsistence income. Included within their ranks are street vendors and small retailers, domestic and agriculture workers and home based businesses. Most such workers are males between the ages of 25 and 44, but many are far younger. They receive no benefits from any quarter, and enjoy none of the legal protections employed workers have. They are without an economic safety net.

Peña Nieto's goal is to move those workers into jobs with guaranteed wages and collateral benefits - and of course, to collect the employment taxes on their earnings to fund those benefits. Doing so will be a daunting, long term task, for economic and sociocultural reasons. But the PRI administration is convinced it will make Mexico a more competitive nation in the long run. On that score there can be virtually no disagreement. Gross economic disparity still a hard fact of Mexican life.

The government's program, announced Monday by secretary of labor Alfonso Navarrete Prida, aims to get 200,000 workers onto business payrolls by the end of 2013. The director of the country's social security administration, who spoke during the same presentation, said that his department hopes to expand its coverage network and offer protection to more workers in years ahead. Small enterprises and family businesses will be prodded to register with federal agencies such as the internal revenue service, known as the Hacienda, and with social security, which administers federal labor benefits.

July 29 update - Based on a report today by Mexico's National Council for the Evaluation of Social Development Policy (CONEVAL), 71.4 million of the country's 118 million citizens - 60.5% - are not entitled to social security benefits. 53.3 million - that's how many Mexicans live in poverty. In large part that's due to the "informal employment" economy the new administration is trying to change.

Aug. 21 - Sluggish Mexican economy worries foreign investment experts
Mar. 11 - Enrique Peña Nieto's three smart decisions

Over 60% of Jaliscans earn less than subsistence income
Mexican governors raise their salaries, while almost half the nation remains in poverty
Ending poverty key focus of incoming PRI government
Enrique Peña Nieto's biggest challenges will be economy and environment, not drug cartels

"Unprecedented spending" by Gov. Ortega Pacheco, with 30% annual budget overrides, complained Mérida's main newspaper in August 2012

© MGRR 2013. All rights reserved. This article may be cited or briefly quoted with proper attribution or a hyperlink, but not reproduced without permission.

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