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UPDATE 1-Mexico lawmakers say to raise 2012 budget deficit
October 19, 2011 / 10:37 PM / in 6 years

UPDATE 1-Mexico lawmakers say to raise 2012 budget deficit

* See lower growth, weaker peso ahead

* Fitch sees no problem with deficit size

By Miguel Angel Gutierrez

MEXICO CITY, Oct 19 (Reuters) - The finance committee of Mexico’s lower house is set to approve a budget plan that will seek a higher deficit than that proposed by President Felipe Calderon’s government, committee members said on Wednesday.

The committee will vote to allow the 2012 budget deficit to reach 0.4 percent of gross domestic product, two members of the body said, before a final showing of hands in the committee.

The government has proposed a deficit set at 0.2 percent of GDP, excluding investment by state oil monopoly Pemex. Last year’s deficit cap was 0.5 percent.

Lawmakers would also vote to back a lower growth forecast and change the expected currency exchange rate in 2012 to 12.80 pesos per dollar, from 12.20 per dollar in the government’s proposal, the lawmakers said.

“The federal government proposed estimated economic growth for 2012 of 3.5 percent. We are thinking it will be less, 3.3 percent,” said Sebastian Lerdo de Tejada, a deputy with the opposition Institutional Revolutionary Party (PRI).

The part of the budget that deals with economic forecasts is due to be voted on by the finance committee later on Wednesday, ahead of a vote in the lower house on Thursday.

“There is an agreement about those numbers,” Luis Mercado, a deputy with the ruling National Action Party (PAN), told Reuters.

Lawmakers from the PRI are the strongest faction in the lower house of Congress and wanted to boost spending next year to help offset an expected slowdown in global growth.

Mexico is struggling to recover from a deep recession in 2009. Weaker growth in its main trading partner, the United States, has not helped.

Past budget debates have been carefully monitored by credit rating agencies watchful that Mexico’s blend of new revenue and expenditures was prudent and sustainable.

Two years ago, Fitch Ratings and Standard & Poor’s both cut Mexico’s credit rating in the wake of a budget battle, but all ratings agencies have Mexico on a stable outlook currently.

“The size of the deficits at this point -- provided that they are kept at a moderate level -- is not going to fundamentally change our view on the rating,” said Shelly Shetty, head of Fitch’s Latin America sovereign ratings group.

“We obviously don’t foresee any negative factors at this point for the rating.”

But Alfredo Coutino, Latin America director for Moody’s Analytics, said it was unwise for Mexico to expand its budget deficit when investors are closely eyeing government commitments to fiscal prudence given Europe’s debt crisis.

“This sends a bit of a negative signal to capital markets and international investors,” Coutino said. “This is irresponsible in that it is the exact opposite of what other countries are doing in restraining spending.”

The PRI, which ruled Mexico for 71 years until 2000, is now leading early polls to retake the presidency next July.

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