S&P Affirms State of Tlaxcala, Mexico 'MxA-' Rating

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S&P Affirms State of Tlaxcala, Mexico 'MxA-' Rating
    NEW YORK, Feb. 13 /PRNewswire/ -- Standard & Poor's today affirmed its
mx-single-'A'-minus national scale rating on the State of Tlaxcala, Mexico.
The outlook is stable.
    The rating reflects:
    -- An increasingly diversifying economy with growth rates close to the
       national average;
    -- Strong financial performance;
    -- Federal transfers per capita above the national average;
    -- No outstanding debt and future plans for a small issuance of new debt;
       and
    -- A very progressive management.
    Factors offsetting these credit strengths include:
    -- A gross state product (GSP) per capita significantly below the national
       average;
    -- The limited revenue and expenditure flexibility afforded to the state
       under the National System of Fiscal Coordination; and
    -- A moderate level of unfunded pension liabilities.
    Located in central Mexico, Tlaxcala is the smallest state in the country,
with a land area of 3,914 square kilometers and approximately 961,912
residents.  The economy of the state continues to diversify with the arrival
of textile, auto parts, and domestic appliances manufacturing companies.  The
employment base is also diversified with the 14 leading employers accounting
for about 3.1% of the total employed population.  The state's GSP has steadily
increased over the past few years, reaching MxP21.9 billion (MxP9.4=US$1) in
1999, up 3.45% from the prior year in real terms.  However, on a per capita
basis, the state's GSP continues to be well below average at MxP22,783, or
52.8% of the national average.  In addition, the unemployment rate for the
state has continued to decrease and is now close to the national average.
    Tlaxcala's financial operations continue to be positive, though the state
has limited revenue and expenditure flexibility due to its heavy dependence on
the federal government for revenues.  In fiscal 2000, own-source revenues
accounted for only 4.9% of total revenues, with the remaining 95.1% coming
from federal sources through participation payments and Ramo 33 revenues.
Expenditures; however, are mostly tied to operating expenditures and transfers
to municipalities and decentralized entities, leaving only a small portion for
capital expenditures.  In fiscal 2000, the state had capital expenditures of
MxP189.5 million, or 4.4% of total expenditures, which represented a 29.8%
increase in real term over the prior year.
    The current administration implemented a series of reforms destined to
both increase the amount of own-source revenues and add transparency to public
administration.  The state implemented a new 2% hotel tax and new fees for the
sale of alcoholic beverages, which together are expected to increase revenues
in 2001 by about MxP3.5 million.  In addition, the state has also had
independent audits for fiscals 1999 and 2000 completed, and an updated
actuarial report of its pension system.
    The state currently has no direct or contingent debt. The state's law of
public debt severely limits the amount and maturity of the debt issued by the
state.  Among the reforms included in the law currently being evaluated by the
state legislature is a reform that would change the current limitations on
debt issuance.  In fiscal 2001, the state plans to issue about MxP50 million
in new debt to finance part of a highway project.  Even after including the
issuance of additional debt, per capita debt levels are extremely low at
MxP51.9, or less than 1.1% of total 2001 revenues.
    Tlaxcala recently completed an updated actuarial report of its pension
system.  According to this report, the system's unfunded pension liability is
estimated at MxP2.3 billion, or about 50.7% of the state's 2001 budget.
However, the report estimates that the system will have sufficient funds to
cover its pension obligations until 2012.
    OUTLOOK:  STABLE
    The stable outlook reflects Standard & Poor's expectation that even under
more permissive debt legislation the state will maintain its balanced budget
structure and conservative debt policy.  It also reflects the expectation that
the state will fully exercise its taxing authority and that it will continue
to fund its mandated services, including education and health.
SOURCE Standard & Poor's
http://www.standardandpoors.com/ratings
CONTACT:
Horacio Aldrete-Sanchez, Mexico City,
+52-55-5279-2042, or Antonio Huerta, Mexico City,
+52-55-5279-2041, or Malachy Fallon, Dallas, +1-214-871-1402, all
of Standard & Poor's