UPDATE 2-Mexico to present plans to rein in state debt in Feb

Tue Jan 15, 2013 3:37pm EST

* Further crackdown on state and local finances planned

* Official data underestimate total state, local debt

* Officials see no systemic risk to economy from debt (Recasts, adds details)

By Krista Hughes

MEXICO CITY, Jan 15 (Reuters) - Mexico's government will seek to rein in excessive borrowing by states and municipalities in a bill planned to go before Congress next month, Mexico's finance minister said on Tuesday.

Some Mexican states have seen their debt balloon in recent years but although official figures often understate the total, state and local government debt remains relatively small for the size of Latin America's second-biggest economy.

Finance Minister Luis Videgaray said debt did not represent a systemic risk to the economy but it was a key aim of the new government to put state finances on a sustainable footing.

The reform, which would be submitted to lawmakers once Congress resumes on Feb. 1, would place limits on excessive borrowing while also recognizing that most local governments have not racked up too much debt, he said.

"The objective of the bill will be to reduce the cost of borrowing contracted by municipalities today in a responsible and correct way," Videgaray told reporters in Mexico City.

Although overall state and local government debt is less than 3 percent on average of their gross domestic product, some states owe three or four times more than their annual federal government transfers, the main source of income.

State and municipal debt registered with the finance ministry has doubled in less than four years. One state, Jalisco, and eight local councils, including Acapulco, are officially in default after missing repayment deadlines.

But the finance ministry figures understate the extent of the problem by not including short-term debt to banks and money owed to suppliers, experts say.

Central bank figures show state and local government debt to banks is 17.9 billion Mexican pesos ($1.42 billion) higher than the amount registered with the finance ministry, while the banking regulator has separate data showing an even wider gap.

Jalisco's failure to repay a 1.4 billion peso loan in December came as a surprise because finance ministry figures show its debt is moderate at 2.8 percent of state GDP. But the loan was not included in the data as it was short-term.

Ratings agencies responded with credit ratings downgrades which will make future borrowing more expensive.

Mexico has already passed reforms to increase the transparency of local government books after increasing concerns about failure by some to disclose debts.

In 2011, the northern state of Coahuila was found to be massively in the red, sparking rating downgrades and a political scandal.

Coahuila remains the most indebted state, with debt worth 7.9 percent of its GDP and 300 percent of federal transfers as of September 2012, according to the finance ministry.

But Chihuahua, Nuevo Leon, Quintana Roo and Veracruz also have debt worth more than their annual transfers. ($1 = 12.6567 Mexican pesos) (Additional reporting by Luis Rojas and Michael O'Boyle; Editing by James Dalgleish)