Mexico cuts spending on oil shock, shelves tainted rail project

Reuters
By Michael O’Boyle and Luis Rojas

Mexico’s government cut its 2015 budget by nearly 3 percent on Friday after a drop in global oil prices hurt public finances, and it is shelving a tainted $3.75 billion high-speed train tender as part of its austerity measures.
Finance Minister Luis Videgaray said the cuts were intended to reassure global investors that Mexico will keep its finances in order and he promised they would not derail an economic recovery this year.
“We have to take decisions because our budgetary reality has changed,” Videgaray told a news conference.
He said the government was shelving, for now, a project to build the rail link betweenMexico City and the central city of Queretaro.
China Railway Construction Corp (CRCC) had looked poised to clinch the contract even after its original winning bid was revoked when it became engulfed in the scandal.
Pena Nieto’s family and Videgaray bought homes from a government contractor that was part of the consortium that won the original train tender, raising concerns about corruption and conflicts of interest.
Analysts worry that Mexico’s political crisis could further undermine implementation of a raft of major economic reforms seen as key to helping stem a slide in domestic oil output and bolster growth.
The finance ministry still expects the economy to grow between 3.2 percent and 4.2 percent this year, Videgaray said. But in a client note, Barclays said it sees the cuts leading to a 40 basis point reduction in growth.
Videgaray said Mexico would cut spending by 124.3 billion pesos ($8.29 billion) this year, equal to 2.6 percent of the 2015 spending plan. The government uses oil revenues to fund about a third of its budget. Strategists said Mexico’s cuts were a bid to insulate its financial markets from the current bout of global volatility. Foreign investors now hold more than 2 trillion pesos ($133 billion) of debt, nearly 40 percent of the stock.
“They are thinking about the huge amount of money that has entered Mexico and they well know that if they don’t manage public finances properly, foreigners could get worried,” said Salvador Orozco, a strategist at Santander in Mexico City.
A hike in U.S. interest rates, seen later this year, could spur a reversal in a tide of investment that has flooded into emerging markets in recent years.
Videgaray said the government would rely on austerity measures, but not tax hikes or more debt. A brand new multi-billion dollar airport project for Mexico city will not be affected, he said.

3 comments

  1. I keep getting e-mails in my computer in basket from financial advisors of an impending U.S. stock correction of up to 50 percent, and advised to transfer my 401K funds into gold, so that it will be protected from federal taxes. Also that Obama has had passed a law where the feds could transfer my bank savings account into bank certificates , where they may not be available for taking the money out , or in limited amounts.

    Seems all countries are awash with deficit spending. How long can this continue?

  2. Actually the government should be spending more money in making people and business safe. There was a full page letter placed in a major Mexican newspaper by a group of businesses that the president and elected officials are not fulfilling their oath to support their duties of following the Constitution to make the country safe for people and businesses.

    The roads are blocked for commerce, corporate trucks are being hijacked ( over 250) and the merchandise stolen. Even worse, the number of valves illegally installed in the national gas pipelines has resulted in the loss of gasoline in the $1 billion plus amount.

    Will Mexico be shut down by the drug cartels??? Will the government react?? Will Mexico get another president ?

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