Mexican President Proposes Moderate Spending Increase for 2019 -- Update
December 15 2018 - 11:07PM
Dow Jones News
By Juan Montes
MEXICO CITY -- Mexico's new President Andrés Manuel López
Obrador unveiled Saturday a budget proposal for 2019 that calls for
a moderate increase in spending without raising taxes or the
country's debt.
The $289 billion budget plan allocates less money than had been
expected for some of Mr. López Obrador's flagship investment and
social programs in order to reach a surplus before debt payments
equal to 1% of gross domestic product.
"We are trying to be very conservative," Finance Minister Carlos
Urzúa said at a news conference after submitting the budget plan to
Congress.
Government spending is set to rise 6.1% in real terms from what
was approved for 2018, with revenue estimated to increase by 6.3%
-- also in real terms. Mr. López Obrador says his administration
aims to reduce corruption in the awarding of government contracts
and be more efficient in tax collection.
"It doesn't contain any big surprises," said Barclays chief
Latin America economist Marco Oviedo, who added that revenue
projections at 21.2% of gross domestic product "are very
optimistic."
Mexico's new administration expects the economy to grow 2% next
year, in line with market expectations. The budget assumes an
average price for Mexican oil next year of $55 a barrel, above the
current price of $52 a barrel but below the $62 average expected
for 2018. About 20% of government revenue comes from oil.
The budget is seen as an important test for the new president
and comes at a moment when investors are concerned about Mr. López
Obrador's policies after he canceled the $13.3 billion Mexico City
airport project, triggering a complicated negotiation with the
project's bondholders.
The peso has weakened some 4.5% since the decision to scrap the
airport project, trading around 20.20 to the U.S. dollar, while
government bond yields have jumped.
At first glance, the budget proposal looks realistic and
reflects fiscal prudence, said Benito Berber, chief Latin America
economist at Natixis. "It seems that the government eliminated
previous social programs and decreased current spending in order to
prioritize López Obrador's flagship social programs and investment
projects," he said.
Mr. López Obrador, a leftist with a nationalist view of the
economy, took office on Dec. 1 after winning the election by a
landslide in July. He wants to lift the country's economic growth,
which has been stable but modest in recent decades, by giving the
state a bigger role in the economy through more public works,
expanded social programs and higher wages for workers.
He has long maintained that government austerity, reallocating
existing funds and combating corruption would free up enough money
to support government spending.
As part of the austerity drive, Mexico's Congress recently
approved a law centralizing all government purchases at the finance
ministry. The purchase of computers and refurbishment of government
offices will be forbidden.
Some of the president's key programs will receive less money
than expected. An apprenticeship program for 2.3 million young
people was expected to cost $5 billion, but the budget earmarks
just $2.2 billion for it. A 930-mile tourist train in the Yucatán
Peninsula will receive only $297 million next year, and a plan for
free internet in public spaces just $30 million.
It wasn't immediately clear whether some of the programs are
being scaled back, or if more money will be assigned in coming
years.
The budget includes cuts in the salaries of top bureaucrats and
in government expenses. The president slashed his own salary by
half, while Supreme Court judges offered to cut salaries for new
justices by about 35%. Government austerity is one of Mr. López
Obrador's rallying cries, and he pressured judicial and legislative
officials in recent weeks to cut their own wages.
Petróleos Mexicanos, the state oil giant where Mr. López Obrador
wants to significantly boost oil production, is getting a budget
increase of some $3.6 billion. The president also wants Pemex to
start building a new refinery in his home state of Tabasco, for
which $2.5 billion has been earmarked.
The budget requires congressional approval by year's end, but
few changes are expected because Mr. López Obrador's party has a
comfortable majority in both the Senate and the Chamber of
Deputies, lawmakers say.
The budget calls for lowering value-added and income taxes along
the border with the U.S., fulfilling one of Mr. López Obrador's
campaign promises. Mr. Urzúa, the finance minister, said it would
cost about $2 billion a year, less than what many economists have
estimated.
Write to Juan Montes at juan.montes@wsj.com
(END) Dow Jones Newswires
December 15, 2018 22:52 ET (03:52 GMT)
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