Administration Struggling with 1999 Budget Proposal Because of Global Financial Crisis & Weak Oil Market

SourceMex Economic News & Analysis on Mexico, September 16, 1998 | Go to article overview

Administration Struggling with 1999 Budget Proposal Because of Global Financial Crisis & Weak Oil Market


President Ernesto Zedillo's administration has encountered significant difficulties in drafting its proposed 1999 budget because of the turmoil in global economic markets and the continuing weakness in crude-oil prices. By law, the administration must present its budget proposal to the Chamber of Deputies by mid-November.

In testimony before the Chamber of Deputies, Finance Secretary Jose Angel Gurria Trevino said the Secretaria de Hacienda y Credito Publico (SHCP) has not decided whether to propose new taxes to enhance the government's revenues but he pledged to maintain strict discipline in public finances.

Gurria's comments echoed earlier statements by deputy finance secretary Santiago Levy, who told reporters that the government's 1999 budget proposal would be "austere."

Administration & Congress announce cooperation accord

Mexico's economic instability has been fueled by disagreements between the executive branch and members of opposition parties in Congress regarding economic proposals offered by President Zedillo. The main point of disagreement has been the proposal to transfer the liabilities in the bank- rescue fund (Fondo Bancario de Proteccion al Ahorro, FOBAPROA) to the public debt (see SourceMex, 08/26/98).

In early September, the Zedillo administration and leaders of the five parties represented in the Chamber of Deputies reached an agreement that could resolve the FOBAPROA dispute. In a five-hour meeting at the Secretaria de Gobernacion (SEGOB), Cabinet secretaries and legislative leaders agreed to create two FOBAPROA commissions to reconcile various positions on the bank-rescue fund. One commission would examine legal questions, while the other panel would look at financial aspects of FOBAPROA.

The Cabinet members and legislative leaders also agreed to consider nine points related to Mexico's banking and financial system, including measures to ease the debt burden for small and medium-sized business and mortgages.

"We decided to expedite a solution to our disagreements," said a statement from the participants. "The Mexican financial system must remain solid to face the negative impact from external markets."

Fourth reduction in 1998 budget still possible

Levy and other administration officials said the uncertainty in world financial markets and weak global oil prices could force the administration to reduce the 1998 budget a fourth time this year. The Zedillo administration implemented budget cuts in January, March, and July (see SourceMex, 01/21/98, 03/25/98, 07/15/98).

"We have not ruled out a fourth budget reduction this year," said Levy.

At the same time, the SHCP official said President Zedillo's economic Cabinet does not want to make any "hurried" decisions and will wait to see how the global financial markets evolve in the coming weeks.

In an interview with the daily newspaper Excelsior, Energy Secretary Luis Tellez offered reassurances that any further budget cuts would leave social programs intact. "We have an adequate cushion to meet our country's social needs," Tellez said.

The administration made those same claims in July when the third budget reduction was announced. However, an analysis of cuts by the daily business newspaper El Economista showed that the administration made unannounced reductions in the budgets for key departments, including the foodstuffs agency (Compania Nacional de Subsistencias Populares, CONASUPO), the Secretaria de Desarrollo Social (SEDESOL), the Secretaria de Educacion Publica (SEP), and the rural assistance program Programa de Educacion, Salud, y Alimientacion (PROGRESA).

The newspaper calculates that the administration cut 1.2 billion pesos (US$119 million) from the four entities despite its pledge "not to touch programs that help people. …

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