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| S&P Affirms Puebla, Mexico 'mxA' Rating; Outlook To Positive |
NEW YORK, Nov. 15 /PRNewswire/ -- Standard & Poor's today affirmed its
mx-single-'A' national scale rating on the State of Puebla, Mexico. The
outlook has been changed to positive from stable.
The rating reflects:
* A reasonably diversified economic base with growth rates above the
national average;
* Strong financial performance;
* No direct debt and very low overall net debt; and
* Strong management
Factors offsetting these credit strengths include:
* Per capita wealth and income levels, though improving, still below he
national average;
* The state's unequal pattern of development, with a strong and dynamic
state capital and economically depressed regions in the northern and
eastern portions of the state;
* The limited revenue and expenditure flexibility afforded to the state
under the Mexican system of local government finance; and
* A moderate level of unfunded pension liabilities that might represent a
burden for the state in the future.
The state of Puebla (population 5.1 million) is in the central portion of
the country. The state's economy has traditionally been focused on
manufacturing, trade, agriculture, and services. The city of Puebla, the
state capital, is the largest city in the state (1.5 million people) and a
regional economic center. The capital city has greatly benefited from its
proximity to both Mexico City and Veracruz, which is one of Mexico's largest
ports. A large Volkswagen manufacturing plant in the state has attracted
related industries to the city of Puebla's metropolitan area. In addition,
many garment-manufacturing companies have located throughout the state, mainly
in the city of Tehuacan, in the southeast portion of the state.
Puebla has not been exempt from the current international recession. The
automotive and textile sectors in particular have seen some decrease in their
total output. For example, Volkswagen has slowed down its production cycle as
a result of the decreased demand for automobiles in the U.S., which is its
main export market. Furthermore, a recent Volkswagen strike threatened the
company's future investment plans in the state. However, the company
eventually reached an agreement with its laborers and is currently planning to
invest about $1.5 billion over the next few years, despite the uncertainty of
the current economic environment. Perhaps of a greater concern is the textile
sector, which in the first six months of 2001 saw a 6.5% decrease in
employment, and is the major employer in some of the most economically
depressed areas of the state.
The gross state product was MxP164.6 billion in 1999, up 5.25% from the
prior year. Despite having growth rates above the national average for the
past three years, Puebla's economy still presents a significant level of
income distribution inequality, with a rich and dynamic state capital, and
pockets of extreme poverty in the northern and southern regions of the state.
On a per capita basis, the gross state product was only MxP32,228, or 75% of
the national average. However, the sustained level of foreign investment has
improved income levels during the past few years. In fact, the gross state
product per capita has increased, in real terms -- a cumulative 40% during the
past four years.
The revenue-sharing system that has been in place since 1980 has made
Puebla heavily dependent on the federal government for revenues. In fiscal
2000, 96% of the total revenues of the state came from federal transfers.
However, with federal transfers per capita of MxP3,554, the state was slightly
below the national average of MxP4,038.
The financial operations of Puebla have been positive during the past few
years, though margins are usually small because any operating surplus is
immediately used to cover capital expenditures. The state has consistently had
operating surpluses, and has had overall surpluses in the past three years. In
fiscal 2000 the state reached an operating surplus of MxP2.3 billion, or a
high 12.8% of operating revenues, and an overall surplus of MxP302 million, or
1.6% of total revenues. For fiscal 2001, the state presented a balanced
budget.
Overall debt levels in Puebla continue to be very low. The state
currently has no direct debt, and the state-guaranteed debt is low and well
structured relative to other rated entities worldwide. The outstanding
overall debt is equivalent to only 0.53% of the gross state product, and 4.69%
of total 2000 revenues. Per capita debt is a low MxP172.98.
The state's contingent liabilities are limited to its pension obligations.
An independent actuarial study estimated that the pension system has enough
reserves to cover its pension obligations through 2017. However, in an effort
to reduce the short-term pressure of this liability on the state's budget, the
current administration has submitted a reform of the pension law that is
expected to increase the pension reserves to cover pension payments until
2035. The reform, however, does not solve the structural problem of the
state's pension fund and is estimated to be less far-reaching than the pension
reforms implemented in other states.
OUTLOOK: POSITIVE
The outlook reflects the expectation that the state will maintain its good
financial position and solid debt policies, which should enable it to develop
infrastructure projects without incurring a disproportionate debt burden. It
also reflects the expectation that a reform that guarantees the long-term
viability of the state's pension system will be approved by the state congress
in the near term. Finally, Puebla's ability to weather the current economic
recession will also be evaluated before considering any rating action.
SOURCE Standard & Poor's
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CONTACT:
Horacio Aldrete-Sanchez, +1-525-279-2042, or
Victor M. Herrera Jr., +1-525-279-2010, both of Standard & Poor's
Ratings Services, Mexico City
