With Oil Revenue Dropping, Mexico Announces Budget Cuts
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Version 0 of 1. MEXICO CITY — Faced with declining prices for its oil exports, Mexico’s government announced $8.3 billion in budget cuts, slashing the budget of the state oil company. It also effectively canceled a bullet train project at the center of a conflict-of-interest scandal that has weakened Enrique Peña Nieto’s presidency. Finance Minister Luis Videgaray said the cuts were aimed at strengthening confidence in public finances at a time when flows to emerging markets are declining. “We must act preventively today,” Mr. Videgaray said. Concern over falling oil prices has been putting pressure on the peso, which has dipped sharply over the past month. Taxes on the oil company Pemex are the biggest single source of revenue for the government, accounting for about a third of federal spending. The 2015 budget was based on the price of oil at $79 a barrel, and the price of Mexican crude has fallen to just over $40 a barrel now. But at the same time, the biggest share of the cuts announced on Friday, almost half, will fall on Pemex. Among the other savings that Mr. Videgaray announced was the indefinite suspension of a high-speed train that Mr. Peña Nieto had hoped to build between Mexico City and the growing industrial hub of Querétaro. The $3.7 billion train was intended to be an emblem of Mr. Peña Nieto’s vigorous economic leadership. But instead it has brought him only embarrassment. The train contract was initially awarded in November to a consortium led by the China Railway Construction Corporation, which was the only bidder after other companies complained that they had not been given enough time to prepare. The contract was quickly canceled, and the government began to prepare a new tender. Days later, a Mexican investigative team reported that one of the minority bidders in the consortium, a company called Grupo Higa, had built a luxury home for Mr. Peña Nieto’s wife in Mexico City’s most expensive neighborhood. The first lady, Angélica Rivera, a former television actress, said that she was buying the house with a mortgage from Grupo Higa, but agreed to sell it. Grupo Higa also built a weekend home on an exclusive golf course that it sold to Mr. Videgaray on credit in 2012, shortly before he became finance minister. He paid off the mortgage last year, he told reporters after The Wall Street Journal first reported on the deal. Analysts welcomed the budget cuts, which were larger than many expected. “On the positive side, this means that the government has a buffer against weaker prices, or a weaker economy,” said Rodrigo Aguilera, Mexico economist for the Economist Intelligence Unit, a company in London that analyzes risk. |