Answers emerge. Including offshore private accounts. By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET. Mexico’s public debt-to-GDP of 50% may seem modest by today’s inflated standards, but when it comes to debt, everything is relative, especially if you don’t enjoy the benefits that come from having a reserve-currency-denominated printing press, and if you borrow in a foreign currency that you don’t control. As the debt load grows, more and more of the States’ financial resources must be used to service it. As El Financiero reports, the cost of servicing Mexico’s debt, despite super-low interest rates globally, has almost doubled in the last five years, and is now higher than it has been at any time since 1990. In fact, according to the Government’s own figures, more
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Answers emerge. Including offshore private accounts.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Mexico’s public debt-to-GDP of 50% may seem modest by today’s inflated standards, but when it comes to debt, everything is relative, especially if you don’t enjoy the benefits that come from having a reserve-currency-denominated printing press, and if you borrow in a foreign currency that you don’t control.
As the debt load grows, more and more of the States’ financial resources must be used to service it. As El Financiero reports, the cost of servicing Mexico’s debt, despite super-low interest rates globally, has almost doubled in the last five years, and is now higher than it has been at any time since 1990. In fact, according to the Government’s own figures, more state funds will be spent this year on servicing the debt than on all public infrastructure projects put together.
Yet as the government scrimps and saves in areas that might actually help to boost economic growth, it’s more than happy to dig deep to fill its own pockets.
A joint investigation by the news website Animal Politico and the NGO Mexicans Against Corruption and Impunity has revealed that, amidst all the budget cuts, the Peña Nieto Government has been using a complex web of shell companies to make hundreds of millions of dollars of public funds, originally intended for public causes such as combating poverty or financing public education, completely vanish.
In other words, much of the money that was meant to alleviate the crippling poverty affecting Mexico is now sitting in offshore private bank accounts.
Unsurprisingly, one of the biggest conduits of the illicit funds was Mexico’s erstwhile sugar daddy, Pemex, which, as we reported last week, has been financially bled to the verge of collapse by its swollen ranks of senior managers and administrators, corrupt politicians, shady contractors, and the untouchable, unsackable leaders of the oil workers’ union.
But the corruption at Pemex is apparently even worse than we originally thought. A fresh scandal has erupted that implicates a number of senior political figures in the systematic theft of oil from the pipelines that crisscross the country’s landscape, which is now the second most profitable source of funds for Mexico’s criminal gangs, behind the trafficking of drugs. The pilfered oil is sold at half the price (or less) of what drivers would have to pay at a Pemex gas station.
At the core of the scandal is Javier Lozano, a senator from Puebla, the region most affected by Mexico’s Gas Wars, who was recently shown in a photograph sharing a drink with Othón Muñoz Bravo, AKA “El Cachetes” (The Cheeks), allegedly one of Mexico’s most prolific huchicoleros (gas thieves). Muñoz Bravo was recently detained by Mexico’s marines along with a bountiful stash of drugs and military-grade weapons.
Lozano, a senator for Mexico’s National Action Plan (PAN) party, denied knowledge of Muñoz Bravo’s criminal past or that he had received funds for his political campaign from him. That was just days before another photograph surfaced showing Lozano receiving the keys to a luxury Cadillac jeep from a group of businessmen including Muñoz Bravo. The jeep was not declared to Mexico’s electoral authorities but was nonetheless used to shuttle Lozano from one venue to another on the campaign trail for the 2012 general elections.
There are also allegations, as yet undenied, that the former governor of Puebla and presidential aspirant, Rafael Moreno Valle, held his election victory party in 2010 at a luxury villa belonging to Muñoz Bravo in Puebla.
According to Lozano, many “local politicians knew Muñoz Bravo and had relations with him.” He himself was first introduced to the alleged oil thief by Moreno Valle’s cousin, Sergio Moreno Valle, a local MP who also appears as a singatory on the foundation deeds of a number of Muñoz Bravo’s companies, which included four Pemex-franchised petrol stations.
That’s right: Muñoz Bravo, one of Mexico’s biggest gas thieves, was apparently selling gasoline pilfered directly from Pemex’s pipelines to local customers through Pemex’s own pumps, and pocketing the difference. Those customers apparently included a number of Puebla’s public bus operators.
Whether senior politicians such as Lozano and Moreno Valle directly facilitated Muñoz Bravo’s licensed operations in Puebla and the business relations his companies seemingly enjoyed with a number of Puebla’s public institutions is yet to be proven. What is clear is that during Moreno Valle’s six-year reign as governor of Puebla is that the number of illegal pipeline taps in the state increased by 1,800%, from 108 in 2010 to 3,052 in 2016.
Perhaps the greatest tradegy of all is that both of the scandals highlighted in this article, implicating the governing PRI party and arguably its biggest contender in the next elections, PAN, are mere drops in the ocean of corruption that has infected Mexico’s entire body politic, from top to bottom.
At every stage of the corruption cycle, there’s money to be made. The more the politicians plunder, the larger the holes grow in the country’s public finances. Then, inevitably, more debt is needed to plug those holes.
That’s here where the banks, both Mexican and foreign, come in. Of particular note are Bancomer, a subsidiary of Spanish giant BBVA, and Interacciones and Banorte, both of which belong to the Hank Gonzalez dynasty, one of Mexico’s richest families which, through its intimate, decades-long ties with the governing PRI party, has been able to massively expand its lending to local and state governments.
These three banks alone own over 60% of all of Mexico’s municipal and state debt. According to the weekly news magazine Proceso, Interacciones’ lending to the Mexican government grew 17-fold between 2004 and 2014.
As long as corruption in Mexico continues to grow, so too will the banks’ profits — until one day, there’s no money left. And that’s when the taxpaying middle class, who’ve single-handedly funded this orgy of greed and excess, will be left with a tab they won’t be able to afford. By Don Quijones.
For Pemex, things keep getting worse for a slew of reasons. But one stands out, and it’s not the price of oil. Read… How Did Things Get This Bad This Fast for Oil Giant, Pemex?