by Ivan Castaño
Mexico’s short and long-term sub-national debt
levels have skyrocketed since the 2009 global recession,
triggering several rating downgrades and forcing the federal
government to act before the situation deteriorates further.
Cause for Concern
Underreported debt loads by Mexican state governments has alarm bells ringing. The federal government and banks are moving to contain the damage.
In comparative terms, Mexican state debt levels may not be
that high. But the lack of transparency about local government
books and banks’ exposure to such entities is a
cause for concern at a time when sub-sovereigns are spending
more despite limited flexibility in how they can meet their
Tax authorities’ recent discovery that several
regions have underreported short-term liabilities served as a
wake-up call and encouraged both banks and government officials
to respond after several high profile restructurings, most
notably the State of Cohahuila.
Banks’ increased exposure to municipalities and
states has left some analysts wondering whether this has the
potential to become a more widespread problem, both for banks
and the government.
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