16 January 2007

Sliding oil prices jeopardize Mexico's budget

Former president Vicente Fox - he seems so out of memory these days - in many ways righted Mexico's financial situation and ushered in a period of macroeconomic stability. He even drove down the country's budget deficit. He received high praise, but University of Guadalajara political science professor Marco Antonio Cortes shrewdly observed: "He deserves credit, but not all of the credit that's been attributed to him.

"He's been lucky."

Lucky enough to ride an upswing in world oil prices. Oil - more specifically, Pemex profits - floats the Mexican government. Fox took advantage of high prices to rectify government finances - even though Pemex is as troubled as ever.

Now with prices falling, President Felipe Calderon faces a problem. The Mexican government budgeted for an average price of $42.80, but the price for Mexican crude recently tumbled below that threshold. Compounding the problem, production in Mexico's principle oil fields is falling as Pemex remits 60 percent of its income to the federal government. The lack of exploration and maintenance is finally catching up to the company and country. Columnist Sergio Sarmiento, an advocate of private participation in the Mexican oil industry, dubbed it: "The end of the lottery." This could be Calderon's most vexing problem over the next six years.

UPDATE: Pemex is predicting its production will decline by 13 percent over the next six years - Felipe Calderon's presidential term.

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