Mexico: Turning point

Mar 1, 2013

Mexico’s state finances are set for an overhaul under a new economic reform plan. But short-term borrowing is causing concern

By Mariana Santibáñez

When the the State of Jalisco was selected to stage the 2011 Pan American Games, it was seen as an opportunity to boost the local economy in this part of western Mexico, the heart of tequila country and home of Guadalajara. It was a chance to bring in tourist pesos, modernize local infrastructure, and perhaps even give the state a shot at hosting the Olympic Games.

Debt default was not on the agenda.

But then in December, the state missed a payment on a 1.4 billion peso ($110 million) loan. Banco Interacciones – a Mexican bank specializing in the sub-sovereign sector – had extended the loan, part of the 7.5 billion pesos Jalisco needed to host the event.

The road to Jalisco’s default last year was strewn with stories of inter-party bickering and fiscal mismanagement in a system that sorely lacks transparency. The tale has been repeated,...

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“The crisis has been a setback for reserve diversification."

Jan Dehn, Ashmore Investment Management