Mexico's President Unveils Emergency Spending Program To Combat Financial Crisis
MEXICO CITY, Oct. 15, 2008
AP) President Felipe Calderon on Wednesday unveiled plans for 53 billion pesos ($4.4 billion) in emergency spending on roads, schools, hospitals and an oil refinery next year to help Mexico combat the world financial crisis.
In a televised address, Calderon assured Mexicans the nation's banks are solid and haven't slowed lending to companies or individuals, despite a global credit crunch that has sent stocks here tumbling and seen the peso weaken to a record low against the dollar.
The $4.4 billion in additional investment for 2009 would be used "to build infrastructure projects that will bring direct social benefits to millions of Mexicans and help keep our economy on track," Calderon said.
The proposal, which was sent to Congress on Wednesday, "is not a financial rescue package, but will focus on strengthening the motors of our economy" to mitigate the negative effects of the crisis, he said.
The proposal includes 10 billion pesos ($837 million) for energy projects, including a new oil refinery. The refinery will be the first built in almost 30 years, he said.
The plan calls for spending 26 billion pesos ($2 billion) on building roads, houses, schools and prisons. It also would support small- and medium-sized businesses by expanding their credit and allowing them to bid in government projects.
Calderon said Mexico faces a 28 billion pesos ($2.3 billion) decrease in public income next year due to a drop in remittances, falling oil prices and a slowdown in tourism.
The emergency spending would be financed by changing Pemex's accounting rules, which if approved by Congress, would give the federal government an extra 78 billion pesos ($6.2 billion), he said.
Last month, the government sent Congress a $270 billion budget that assumed Mexican crude oil prices would average around $80 a barrel.
Oil income makes up about 40 percent of budgeted revenue.
Earlier Wednesday, Mexico's central bank moved to auction off $2.5 billion in reserves to prop up the struggling peso.
Bank of Mexico President Guillermo Ortiz said the bank received 59 bids of $1.7 billion. Of those, 31 were accepted for a total sale of $998 million. The bank will continue auctioning off the rest of the designated reserves on Thursday.
Ortiz said Mexican currency markets on Monday had fluctuations not seen since 1995, when the country was mired in its own banking crisis. But he emphasized that today, "Mexico's banking institutions are solid."
Wednesday's dollar auction came hours after the peso dropped below a record 14 to the U.S. dollar. It recovered to around 12 to the dollar after the bank's announcement, but was still down significantly since closing last week at 11.1 to the dollar.
If the peso falls more than 2 percent in value from the day before, the bank said it will auction off an additional $400 million more a day. Mexico's international reserves were at $84 billion on Friday.
Mexico's Treasury Department said in a statement late Wednesday it was lowering its 2008 economic growth outlook to 2 percent from 2.4 percent. It also revised its GDP growth forecast for 2009 from 3 to 1.8 percent.
Mexico's economy, long dependent on its northern neighbor, had weathered the global crisis relatively well until the peso's fall. The drop was the first strong sign that Mexico was in for a bumpy economic future.
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