Mexico approves 13 percent spending boost in 2009

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Mexican Congress approves 13 percent spending increase for 2009 in bid to spur economy, jobs

Mexico's Congress approved a 13 percent spending increase in its 2009 budget Wednesday, a bid to jump-start an economy suffering from a global credit crunch and the U.S. economic slowdown.

The lower house of Congress overwhelmingly passed the 3 trillion peso ($231 billion) spending portion of the 2009 budget in general terms, although lawmakers were still discussing some fine points.

It is an increase of more than 13 percent over last year, including about 44.5 billion pesos ($3.4 billion) in infrastructure spending. President Felipe Calderon had announced an emergency infrastructure spending plan of about that amount to spur growth and employment.

The Senate does not need to approve the spending bill.

Both Congressional chambers have already approved the revenue portion of the budget, including a 1.8 percent deficit.

Mexico has aimed for near-balanced budget in recent years, but crisis in the financial markets and the plunge in oil prices has prompted the government to rethink its strategy.

On Monday, Fitch lowered its sovereign credit rating outlook for Mexico "negative" from "stable" amid concerns about the potential effects from a U.S. recession, reduced capital and financial market flows and lower oil prices.

The revenue budget projected average oil prices of $70 a barrel, down from the $80 in Calderon's original proposal in September.

Some lawmakers have questioned how the government will afford the spending budget if oil prices don't recover. On Wednesday, the market basket of Mexican crude traded at an average of $39.73, according to state oil company Petroleos de Mexicanos.

Oil is Mexico's biggest source of foreign income and finances about 40 percent of federal spending. A plunge in the value of the peso -- 25 percent since August -- will also hurt oil revenues.

The country has also seen a sharp drop in its second largest source of foreign revenue: remittances from Mexicans living abroad. The government says many Mexican immigrants in the U.S. have lost their jobs during the economic downturn.

The Treasury Department, however, has said it is confident Mexico will be able to keep up spending levels, largely because of $5.6 billion in a stabilization fund that absorbs windfall oil revenue.

Mexico also has a much smaller market in derivatives, which are investment instruments that amplified the U.S. credit crisis.

However, the financial burden on Mexican families is getting steadily heavier.

From January to September, average interest rates on bank credit cards in Mexico rose 10 percentage points to 41.78% — more than triple the rate in the U.S. rate.

Credit has always been more expensive in Mexico than the United States, said Rafael Amiel, Latin America director at Global Insight, a consulting firm. Capital is scarcer in Mexico, and thus, banks can charge more for it, Amiel said.

Fewer banks mean less competition. And banks charge relatively high fees for services such as wire transfers and bill payments, allowing profits even though banks loan less money.

Mexicans tend to use non-bank loans, including store credit cards, far more than bank-issued credit cards, according to Mexico's Financial Services Consumer Protection Commission.

And rates are higher partly because many Mexican customers are high-risk, first-time borrowers.

"I believe banks are covering a little bit for a higher risk than that in the U.S.," said Bernardo Garza, credit marketing manager for GE Money Mexico, part of General Electric.

The company administers cards for Home Depot, Woolworth and other chains in Mexico at interest rates of 35% to 70%.

"But on the other hand, I also believe … that banks and also financial institutions who offer cards see an opportunity there and are trying to get the most out of it," Garza said.

Wal-Mart of Mexico's credit cards are administered by the Spanish-owned bank BBVA Bancomer. Wal-Mart spokesman Antonio Ocaranza said he could not comment on the interest rates set by the bank. BBVA Bancomer declined comment.

But Wal-Mart of Mexico also has its own fledgling bank, which offers lines of credit to customers at a 59% annual percentage rate.

"That's pretty low for this type of product," Ocaranza said.

Costco of Mexico's marketing director, Abelardo Navarrete, said the company's credit card rate of 53.31% is reasonable.

"The market conditions are different," Navarrete said. "Credit interest in the U.S. is always below Mexico's. The risk of credit cards in the U.S. is always lower than Mexican risk."

Costco's credit card is financed by Banamex, the Mexican subsidiary of Citibank, and Navarrete said Costco had no role in setting the interest rates. Banamex did not respond to requests for comment.

In recent years, the number of mortgages and car loans also has soared in Mexico, at rates much higher than in the United States.

Ford, for example, is offering a five-year, 17% loan on a Focus sedan in Mexico City, and that is with a 25% down payment.

Hawley is Latin America correspondent for USA TODAY and The Arizona Republic