Mexican Math Doesn't Add Up

Sep. 1.09 | About: iShares MSCI (EWW)

Oh look, the nice people at S&P are noticing that Mexico's post-oil budgetary math doesn't add up. Apparently if you develop an air pocket in something (oil) that represents 40% of your state's income it could impact your credit rating. Whoa, there's a shocker.

S&P may cut Mexico’s BBB+ status before the end of the year, depending on how Calderon and legislators address ways to boost tax collection when they discuss the 2010 budget next week, Schineller said in an interview. That’s more important in assessing the country’s capacity to pay debt than any increase in the budget deficit, which economists say may widen to 3.5 percent of gross domestic product from 3 percent this year.

...Mexico’s contracting economy, a 50 percent drop in oil prices over the past year, and declining production by the state oil monopoly have exposed lawmakers’ failure to raise taxes and reduce dependence on petroleum for 40 percent of revenue. S&P wants Mexico to address this without resorting to temporary measures aimed at getting it through next year, Schineller said.

And here is the tragedy, of course. This didn't need to have been so bad if there had been a little budgetary planning:

Government spending rose 50 percent from 2004 to 2009 as oil revenue surged on higher prices.

More here.