• Through this new system, the country reaffirms its commitment to macroeconomic stability and the responsible management of public finances,” he declared.
• The new law has its origins in one of the 13 presidential decisions announced on the first day of my government, and subsequently incorporated as one of the Pact for Mexico commitments, he said.
• Today we achieved a major step forward in the law, which provides favorable conditions for economic growth and job creation.
During his enactment today of the Law on Financial Discipline of the States and Municipalities, President Enrique Peña Nieto said that with this new legislation, “Mexico is undoubtedly taking a very important step towards sound public finances and the solidity of our economy.”
“With this new system, the country reaffirms its commitment to macroeconomic stability and the responsible management of public finances.”
At the event, held in the courtyard of the National Palace, the president explained that at the start of his administration, “We observed a rapid increase in the debt of certain states and municipalities.” For example, during the period 2008-2013, its real average annual growth was 14.5%.
He explained that, “Faced with the risk that this situation could affect the financial stability of the country, the government promoted a preventive proposal to address it decisively and effectively. In fact, he said, this law has its origins in one of the 13 presidential decisions announced on the first day of his government, “and subsequently incorporated as one of the Pact for Mexico commitments.”
President Peña Nieto declared that with the new law, and amendments to the Fiscal Coordination Law, which is now the Federal Law on Public Debt and the General Government Accountability Law, also enacted today, “The Mexican State has new and better tools to ensure sound public finances, and thus strive to achieve macroeconomic stability for the country.”
“Today we have completed an important, relevant and key legal progress, which provides favorable conditions for economic growth and job creation, because ultimately stability is a prerequisite for Mexico to move forward positively and steadily,” he added.
The president said the new law has two objectives: lower the cost of funding responsible local governments, in other words, for them to have access to cheaper credit, and reduce debt, by encouraging financial discipline in states and municipalities.”
He highlighted four advantages of this new law:
FIRST: It will allow local public finances to be sustainable in the medium and long term, thanks to the Rules of Financial Discipline and Expenditure.
“The new regulatory framework requires compliance with balanced fiscal balances, longer term planning for states and municipalities, and the allocation of surplus revenues to investment projects or the payment of its liabilities and debts.”
SECOND: With the Warning System established by the Constitution, which this law regulates, citizens will have access to clear, transparent information on the debt levels of all local public entities that have contracted debt.
”Depending on the results provided by this Warning System, net financing ceilings will be set that states and municipalities will be able to access each year, which will strengthen the proper, planned, and of course, responsible management of their debt. In short, it means that on the basis of its current debt, every state will have a clear idea of how much more debt it can contract without jeopardizing its public finances.”
THIRD: This law will reduce the costs of public debt to states and municipalities in two ways: on the one hand, by forcing all debt contracting by local public bodies to be carried out through competitive processes. The bank proposal with the lowest financial cost will be chosen, ensuring compliance with the constitutional mandate.
On the other hand, the law enacted today establishes the requirements and conditions for the government to issue a federal guarantee for the debt contracted by states and municipalities, which will lead to lower financing costs. Moreover, in terms of checks and balances, the new legislation provides for increased joint responsibility in the authorization of debt granted by local legislatures to public bodies.
“As stated in the Constitutional Amendment, debt may only be contracted if at least two thirds of the Local Congress approve. To this end, these Legislatures should indicate the destination of the resources and analyze the payment capacity of the public body.”
FOURTH: The new Single Public Registry will make it possible to register and ensure the transparency of all the obligations contracted by local public bodies, regardless of their modality, whether debt, public-private partnerships, short-term debt or others. “In this way, Mexicans will be able to better monitor the use of public resources and have a clear idea of how debt in their state or municipality is invested.”
The president thanked members of the Legislative Branch, state governors, the Head of Government and the municipal authorities, “For supporting and enhancing this initiative, which is the result of joint, coordinated work.”
In particular, he hailed the fact that lawmakers have enhanced the following aspects of this bill:
• The requirements for contracting public debt;
• Defining the concept of productive public investment;
• Creating a natural disaster fund by state; and
• Modifying the Net Financing Ceiling depending on the debt and the financial capabilities of public entities.
“These are fundamental contributions that enhance Mexico’s financial stability,” he said.
He declared that after extensive, positive legislative work and consensus building, this law has been enacted today, which will transform the fiscal, financial and budgetary performance of state and municipal orders of government.
THE LAW ENACTED TODAY PROVIDES CERTAINTY, TRANSPARENCY AND ACCOUNTABILITY FOR OUR TAX SYSTEM: LUIS VIDEGARAY CASO
Secretary of Finance and Public Credit Luis Videgaray Caso declared that the enactment of the Law on Financial Discipline of the states and Municipalities, “Marks the end of a long process to add a fundamental piece that was needed to provide certainty, transparency and accountability for our tax system to our system of tax coordination and the country’s financial architecture.”
He noted that this also makes it possible to establish, “Something very important: objective limits on overindebtedness in states and municipalities.”
He said that Mexico does not have an excess of subnational borrowing, since aggregated state and municipal debt represents 3.1 percent of the Gross Domestic Product, a fact which, “Should give us all peace of mind because it does not pose a macroeconomic risk to the country.”
He said that this process puts an end to some of the modifications that have been made in this Administration, with regard to strengthening state finances. By way of an example, he said that through Tax Reform, “The new ISR fund has been created, enabling the taxes withheld from state and municipal workers to participate one hundred percent, considerably strengthening the states created.” As a result, last year more than 50 billion additional pesos were transferred to states and municipalities.
He also highlighted the creation, as part of Energy Reform, of a new fund for oil-producing states, which involved the delivery of an additional 3.4 billion pesos to these states last year.
He said that the rules have been improved and given more certainty, “For example, for the establishment of the Fund for the Stabilization of State Revenue, which has made it possible this year to transfer an additional 10 billion pesos to the federal contributions to states.”
“This strengthening of states and municipality finances, an increase of an average of more than 4.5 percent each year in federal contributions to the states, above the growth rate of the economy, highlights the commitment of the president and Congress to strengthening the public finances of the states and municipalities,” he added, stressing that, “this strengthening has been accompanied by an appropriate framework of discipline and financial accountability, which is what has been achieved today through the enactment of this law.”
THE FINANCIAL DISCIPLINE LAW IS A VITAL TOOL FOR TRANSPARENCY, ACCOUNTABILITY AND EFFICIENCY: CONAGO
On behalf of the state governors, Gabino Cué Monteagudo, Governor of Oaxaca and President of the National Conference of Governors (CONAGO) thanked President Enrique Peña Nieto and Congress for having successfully completed the legislative process that resulted in the new Financial Discipline Law, which he described as “an essential tool for transparency, accountability and the efficiency our society demands of governments.”
He explained that, “In CONAGO we are very clear that the changes demanded of us by our people must be expressed in high public responsibility, in order not to jeopardize the fate of Mexico and the states, due to cyclical decisions that are far removed from planning and budgetary discipline.”
On behalf of the governors, he expressed his satisfaction with the enactment of the law, because it represents a guarantee that funds will be efficiently channeled to promote Mexico’s social and productive development and, above all, because the regulatory framework incorporates a system of incentives into states and municipalities for them to handle their resources sensibly and responsibly.
He declared that the new Law on Financial Discipline, “Modernizes our legal framework to meet society’s demands so that its resources reach their intended beneficiaries in a transparent, efficient manner and thereby avoid the discretionary use of public funds and resorting to indiscriminate borrowing, which threatens the stability and development of municipalities, states and our nation.”
Also, he said, “The governors of Mexico acknowledge the fact that the new law will help strengthen the culture of prevention in natural disasters, through the responsible provision of financial resources that will make it possible to deal with the people and productive activities affected, without harming public finances or budget programming.”