| MEXICO CITY
MEXICO CITY Nov 6 When Samuel Chacon took over
as mayor of the southern Mexican border town of Tapachula last
month, he found the equivalent of about 40 cents in the
council's bank account and debts of more than $38 million.
"We have a debt from Telefonos de Mexico and they cut all of
the phone lines of the city council," Chacon told local radio.
In a move aimed at preventing such surprises, the Mexican
Congress o n T uesday approved a new law that will shine a
spotlight on the murky world of state and municipal finances,
closing loopholes allowing potential misuse of public funds and
forcing governments to track spending, publish budgets online
and reveal their debts.
State and municipal debt registered with the finance
ministry has more than doubled in the last five years to 404
billion Mexican pesos ($31.10 billion), although it remains
moderate by international standards at an average 2.7 percent of
gross domestic product.
"(This law) establishes mechanisms that will allow auditors
access to fiscal information with the aim of sanctioning corrupt
practices and the misuse of resources," said PRI Senator
Francisco Yunes, who heads the chamber's economics committee.
The law will impose jail terms of up to seven years and
fines of up to 25 million pesos for officials who hide or change
information in their public registries.
Current laws do not require states to report all their
obligations, something that will end when standardized financial
reporting for all levels of government is phased in over the
next two years.
According to consultancy Aregional, which specializes in
public finances, only 130 of Mexico's almost 2,500
municipalities would be able to meet the new rules in time.
A finance ministry audit last year turned up 50 billion
pesos in unregistered state and municipal debt, most of it in
the northern state of Coahuila, which was found to be in the red
by 37 billion pesos rather than the 8.5 billion on the books.
Fitch Ratings analyst Humberto Panti said there could be
another 20 billion to 30 billion pesos in undisclosed debt
hiding in the budgets of states and municipalities, which have
enjoyed a large degree of leeway in reporting revenues,
expenditure and debt.
Some states did not report obligations like money borrowed
for a year or less and debts owed to suppliers and contractors.
"In that sense this initiative will make everything public,
all the debt that entities have, and to us it's very positive."
Supporters of the new law also say it will help tackle
corruption and misuse of funds by creating a paper trail for all
official payments, requiring employees, suppliers and
contractors to be paid by bank transfer and not cash or check.
Mexico scores just 3 out of 10 in watchdog Transparency
International's index on perceptions of corruption, ranking
100th of 183 countries surveyed.
The change will also make it harder for states and councils
to employ informal workers, who experts estimate cost the
country $75 billion annually in taxes and lost business,
exacerbating an already-low tax take.
Many states do not fully use their right to levy taxes such
as property vehicle tax and are highly dependent on transfers
from already-strained federal government coffers.
Finance ministry data shows seven of Mexico's 31 states have
debt worth more than their annual federal grant. They include
Coahuila and neighboring Nuevo Leon, the second-biggest regional
economy and a former model for business development, which
ratings agencies expect may have to restructure debt in 2013.
Mexico's IMCO competitiveness institute said the new law
could go further in setting minimum disclosure standards, such
as publishing the terms and interest rates of loans, but gave it
an overall mark of 8/10.
In its latest review of state finances, IMCO found examples
of debt and pension obligations reported together in one budget
item and large sums assigned for "additional expenditure and
provisions" with no further explanation.
"The risk of carrying on like this is that we end up like
Greece," IMCO Director-General Juan Pardinas said. "At the
moment state finances are fine and there is room for some states
to borrow more, but if we keep up this lack of transparency we
can't guarantee the health of state finances."