Is Mexico Facing “Liquidity Problems?” by Don Quinines

Mexico isn’t in a deep debt hole yet, but it’s certainly digging. From Don Quijones at wolfstreet.com:

When it comes to debt, everything is relative, especially if you don’t have a reserve-currency-denominated printing press.

At 49% of GDP, Mexico’s public debt may seem pretty low by today’s inflated standards. It’s a mere fraction of the debt loads amassed by bigger, richer economies such as Japan (229% of GDP), Italy (133%) and the United States (104%). But when it comes to debt, everything is relative, especially if you don’t enjoy the benefits that come from having a reserve-currency-denominated printing press.

In Mexico’s case it’s not so much the size of the debt that matters; it’s the rate of its growth. In the year 2000 the country had a perfectly manageable debt load of roughly 20% of GDP. Today, it is two and a half times that size.

Last year alone the Mexican state issued a grand total of $20.31 billion in new debt, the largest amount since 1995, the year immediately after the Tequila Crisis when the country needed an international bailout to rescue its entire banking system from collapse. The money it received also helped repay a number of giant Wall Street investment banks that had gone all in on Mexican assets.

There are plenty of reasons behind Mexico’s current debt issues. Top of the list is the dramatic reversal of fortunes of the country’s shrinking oil giant Petróleos Mexicanos, A.K.A. Pemex, which until a few years ago provided as much as one-third of the Mexican government’s national budget. After decades of “bad management, lack of vision, negligence, abuse and in many cases, corruption,” in the words of Mexico’s Business Coordinating Council, Pemex is now bleeding losses and buckling under €100 billion of debt.

If Pemex is unable to service its debts, Mexico’s government will have to step in, again. The problem here is that Mexico’s government is also struggling to rein in its own debt addiction, with some states already on the verge of bankruptcy. One state governor, Javier Duarte of Veracruz, did so much fiduciary damage during his mandate that he’s now on the run after allegedly misappropriating vast sums of public funds.

To continue reading: Is Mexico Facing “Liquidity Problems?”

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