Videgaray Says Mexico to Hedge 2016 Oil Exports, Limit New Debt

4/18/2015 Bloomberg Business

luis videgarayMexico will hedge its 2016 oil exports to protect against lower prices even with crude near a six-year low, and the nation has little room to increase its debt to avoid spending cuts, Finance Minister Luis Videgaray said.

“There are certainly lower prices that can happen and could represent risk, so yes we will hedge,” Videgaray said in an interview Saturday in Washington. “Certainly it will not be a hedge at the price we were able to get for this year’s hedge, but we’ll take what the market gives us.”

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Three Keys to Understand the 2015 Budget Debate in Mexico

By Christopher Wilson and Pedro Valenzuela

mexican pesosEach fall, Mexico’s Congress debates the adminstration’s budget proposal. It was sent to Congress by the Peña Nieto administration in September, and a final version must be passed no later than the end of October to authorize revenue streams and by November 15 to detail expenditures. This is the first budget debate since Mexico’s 2013 fiscal reform was implemented, offering an important opportunity to analyze the impact of the tax policy changes on public income, and consequently, also on expenditures. The administration’s proposal represents a real increase of 1.2%, which, according to the government, will provide the funds to implement the structural reforms and fund new infrastructure and social programs. As a result of the increased spending and a dip in petroleum revenue, the government will continue to run a deficit, and Mexico’s public debt will continue to grow. Each of these three issues—tax collection, public expenditure, and the national debt—are explored in this article, all in context of Mexico’s structural reforms and brightening yet somewhat volatile economic prospects.

At the time of publication, the revenue proposal, which must be passed by both houses of congress, had been approved by the Chamber of Deputies and was in committee in the Senate. The Senate is expected to move the bill to the floor and approve the final version during the last week of October. The Chamber of Deputies made moderate changes to the executive proposal, including an increase in the expected exchange rate from 13 to 13.4 pesos per U.S. dollar and a drop in the expected reference price for oil from $82 to $81 dollars per barrel. After the ley de ingresos, or revenue law, is passed, attention will turn to the ley de egresos, the budget of expenditures, which only needs to be approved by simple majority in the lower house.

Read the article here.

This article was also published on Forbes.com. A shorter, Spanish version of this article is also available.

Mexico weighs taking on Pemex pension liabilities

07/30/14 Financial Times
piggy bank with coinsMexico is poised to increase its public debt at a time of sluggish economic growth, as the government considers taking some of Pemex’s giant pensions liabilities on to its own balance sheet.

The move comes amid a sweeping reform of the energy and power sectors that will see the state oil company as well as utility CFE transform into “state productive enterprises” by the end of next year, competing with private investment.

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Mexico’s Pemex sees record demand for latest debt issuance

06/26/14 Reuters

pemex2Mexico’s state-run oil company Pemex said on Thursday it had record demand for its latest local debt issuance which was oversubscribed nearly four-fold.

Investors aiming to purchase three separate Pemex debt offerings worth a total of 15 billion pesos ($1.15 billion) pledged 57.5 billion pesos, or 3.8 times the amount issued, Pemex said in a statement.

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A new offering for Mexico’s hopeful college grads: student loans

education - pile of booksSmartPlanet, 6/4/2013

Unlike in the U.S., where student loans are run of the mill, few Mexicans have access to the financing that could help them pay for a college education. Mexicans aspiring to middle-class status increasingly see university education as a must. Yet an over-saturated public university system accepts just a fraction of applicants, and many aspirants lack the means to pay for private college. That’s where FINAE, an institution specializing in financing higher education, comes in.

In a credit market for higher education still in its infancy, FINAE is serving a population that traditional banks have mostly ignored: students who are the first in their family to attend college, whose families fall into a bracket with middle-class aspirations, if not income. Parents think about education like an inheritance, says Celia Guerra, director of financial aid at Mexico’s private Universidad Panamericana, which facilitates FINAE credits. She says parents tell her: “Since I don’t have money, all I can leave my children is an education so that they can get ahead on their own.”

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Mexico upgrade could only come after reforms approved, reviewed: S&P

increase bar chartReuters, 5/23/2013

Standard & Poor’s could decide to boost Mexico’s debt rating only if the government approves a raft of ambitious reforms and the measures are effective, credit analyst Joydeep Mukherji said on Thursday. Mexico’s major parties signed a pact last year to push long-sought measures through the country’s divided Congress, including reforms to boost the country’s paltry tax take and raise production at ailing state-owned oil monopoly Pemex PEMX.UL.

Earlier this month, Fitch Ratings upgraded Mexico’s sovereign foreign currency credit rating by one notch to BBB-plus, pointing to the country’s solid economic foundations and welcome progress on reforms. But S&P’s Mukherji said his agency would only consider an upgrade after the reforms were approved and could be evaluated for their impact.

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From Mexico, Some Lessons for Europe

globe - blueThe New York Times, 4/9/13

I was in Mexico City in the summer of 1981, just out of high school, when Mexico’s president, José López Portillo, announced he would defend the peso “like a dog” against speculative attacks. His approach to economics was unorthodox but creative. He tried to raise oil prices by sheer force of will — firing the director of the state oil company Pemex for having the temerity to reduce the price of Mexican crude as oil plummeted on international markets. He froze dollar accounts in local banks to try to stem capital flight.

But the canine defense didn’t work. In 1982, interest on foreign debt swallowed almost two-thirds of the country’s export revenue. In February, Mexico’s currency started plummeting. In August, Jesús Silva Herzog, Mexico’s finance minister, flew to Washington to tell Paul Volcker at the Federal Reserve and Donald Regan at the Treasury Department that Mexico could not make its coming payments to American and other foreign banks.

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