Dramatic spending cuts in Mexico amid falling oil prices

World Today

Falling global crude oil prices have forced the Mexican government to cut public spending including the elimination a high-speed train project.
CCTV America’s Franc Contreras filed this report from Mexico City.

Dramatic spending cuts in Mexico amid falling oil prices

Dramatic spending cuts in Mexico amid falling oil prices

Falling world prices for crude oil have forced the Mexican government to cut public spending, including the elimination a high-speed train project. CCTV America’s Franc Contreras reported this story from Mexico City.

The government of Mexican President Enrique Peña Nieto had hopes that a high-speed train connecting the massive capital of Mexico City to the central city of Queretaro would be a symbol of growth for the country. The government said its decision to drop the project was based on falling world oil prices that had slowed down growth in Latin America’s second largest economy.

One third of Mexico’s federal budget came directly from the sales of crude oil so when prices fell that meant less income for government spending and for 2015 it also means less growth. The Mexican Central Bank announced it was lowering growth projection for 2015. Instead of achieving three to four percent of GDP growth, the Central bank projects Mexico will only grow between 2.5 and 3.5 percent in 2015.

Mexico is seeking ways to cushion its economy from the effects of falling oil prices. Referring to the cutbacks, Mexico’s Secretary of Treasury, Luis Videgaray called it an $8.3 billion dollar “adjustment” in public spending.

“We must act preventatively now and make this an opportune, orderly and integral adjustment. Doing this will give financial markets certainty, by showing that we are being responsible and stablizing the economy to protect it against more volatility,” Videgaray said.

The government will cutback $15 billion dollars on spending for the state-run oil company Pemex. Immediately putting plans to upgrade refineries on hold. Some analysts called it one of the biggest budget cuts ever for Pemex.

In light of the government’s cutbacks and lower growth forecasts, CIDAC Economist Ana Moreno expects foreign investors will likely become more cautious.

“If I was an investor, I would be a little more reserved. More than anything because Mexico has a history of making wrong decisions in terms of public policy,” Moreno said. “Still, the government has sent posititve precautionary signals, with measures aimed at showing that things are not all that bad here.”

Many observers say government cutbacks are clearly aimed at raising investor confidence, while at the same time decreasing fears that politicians might be tempted to relax fiscal discipline just ahead of July’s midterm elections.


American Univ. Economist in Residence Manuel Suarez-Mier explains the future of oil in Mexico

American Univ. Economist in Residence Manuel Suarez-Mier explains the future of oil in Mexico

American Univ. Economist in Residence Manuel Suarez-Mier explains the future of oil in Mexico

CCTV America’s Phillip Yin interviewed American University Economist in Residence Professor Manuel Suarez-Mier about the future of oil in Mexico. He discussed the privatization of Pemex, the impact of falling oil prices and the possibility of emerging state funded oil companies.

CCTV America’s Phillip Yin interviewed American University Economist in Residence, Professor Manuel Suarez-Mier, about the future of oil in Mexico. He discussed the privatization of Pemex, the impact of falling oil prices and the possibility of emerging state funded oil companies.