Yucatán's Public Debt: Mortgaging Future Generations?

Article by Eduardo José Cabrera Ruiz
["La deuda pública de Yucatán: ¿Nueva tienda de Raya?"]

Translated by Edward V. Byrne for The Yucatan Times
August 2, 2011

[Translator’s note: This article has been translated with minor editing for clarity. The Spanish title of the author’s piece presents a unique challenge. Tienda de Raya is an historical term which literally means, “a store where customers make (their) marks.” The name refers to company stores – ubiquitous in 19th century Mexico, including on the Yucatán’s many private henequen plantations – where workers were compelled to purchase virtually all basic provisions, such as food, fuel and clothing. Most laborers of the time were uneducated and functionally illiterate. Their purchases were invariably made on credit, and since they could not sign their names they placed a personal mark on the stores’ books of account to verify their financial obligation. Such enforced shopping led to a lifetime of impoverishment for many workers and their descendants. This theme is employed by the author to describe and discuss the State of Yucatán’s growing public debt. For a discussion of the curious Mexican institution known as the Tienda de Raya, see http://es.wikipedia.org/wiki/Tienda_de_raya (available in Spanish text only)].

Coin used in the Tienda de Raya

During the two administrations of Porfirio Diaz [President of Mexico, 1877-1880 and 1884-1911], the Yucatán was filled with so-called “credit stores,” where a variety of basic provisions were sold to impoverished workers who labored on the henequen plantations. (No one could or did pay in cash, since prices greatly exceeded normal incomes). The stores were owned and operated by the hacendados, or plantation magnates. Prices were exorbitant and the merchandise was of poor quality.

In his book “Barbarous Mexico,” John Kenneth Thurner recounts that pants sold to the workers were stiff, scratched the skin (they were made of henequen fiber) and usually lasted less than a month before falling apart. The stores sold beans, corn, poultry, eggs and other foodstuffs, at prices which greatly exceeded what a worker earned.

Thus, if a worker earned one peso a day, and pants cost him five, he would remain perpetually indebted. And if he died with the balance yet unpaid, the indebtedness passed to his children and grandchildren.

Yucatecans today confront a similar economic scenario. The real story behind Governor Ivonne Ortega Pacheco’s recent “Fourth Message to the Citizenry” is the State Senate’s heated debate about the startling manner in which the Yucatán’s sovereign debt has grown, to such an extent that it will have to be paid for by the next three generations.

Since the year 2000, the 31 independent states which comprise the federal union of Mexico have shown a markedly increased tendency to turn to public indebtedness – i.e., borrowed funds – to satisfy their ordinary budget needs, rather than by relying upon traditional, stable sources of revenue. And in the majority of cases, the states have secured their sovereign debt by pledging federal revenue sharing funds to which they are entitled annually from the Mexican national government.

During the administration of [former Governor] Patricio Patrón Laviada, the Yucatán’s public debt (as of July 31, 2007) was $299 million pesos [about $25 million USD], or some 155 pesos per person. The majority of that, $279 million pesos, had been used to deal with extensive damage caused by Hurricane Isidore in 2002. Today the Ortega administration has run up a debt of $5.44 billion pesos [$450 million USD], or 1,500 pesos per person – a pro rata debt increase of 1,000% compared to just four years ago.

In the face of this alarming situation, a legislative commission has demanded that Mexico’s federal audit department, together with the 31 state budgetary departments, conduct internal reviews to determine just how much debt the latter have taken on.

Between 1995 and 2000, Mexican states increased their aggregate public debt 6.8%, or an average of 1.1% annually. But between 2000 and 2011, public debt increased 98% (when adjusted for inflation and other factors), or an average of 6.4% each year.

According to a report issued by the Third Commission (a panel organized to study Mexican public debt issues), between 1993 and 2011 the real rate of aggregate debt growth due to state borrowing was 202.6%. Moreover, 14 Mexican states managed to exceed even that significant rate during the last 18 years – and to a staggering extent. Michoacán had an aggregate debt growth of 2,226.5%; Hidalgo 2,200%; Puebla 1,409%, Veracruz 1,002.5%; and the Federal District of Mexico 855.3%.

The State of Nayarit showed an increase of 513.2%; Coahiula, 488.7%; Nuevo León, 377.7%; Oaxaca, 345.6%; Quintana Roo, 312.1%; and Tamaulipas, 283.3%.

The Yucatán is no exception. Although more than 60% of its federal revenue sharing is already pledged to cover outstanding indebtedness, the State government claims the amount is less than most states have put on the line – and is thus a sign of strength. But the financial indicators suggest otherwise The Ortega Pacheco government has racked up many other types of obligations – for example, $27.54 billion pesos [about $23 million USD] to the Child Rehabilitation Center Telethon sponsored by Televisa, recently approved by the State Congress.

Published sources indicate that the State of Yucatán’s total debt includes the following line items: $130 billion pesos [$108 million USD] in bank notes due; $260 billion pesos [$216 million USD] recently borrowed from BID (International Development Bank); $286 billion pesos [$238 million USD] committed to the construction of the Mayan Cultural Museum in Merida, to be built by an affiliate of the controversial developer Hank Rhon; and $100 billion pesos [about $83 million USD] borrowed from ISSSTEY (the Yucatan State Workers Social Security Institute fund).

Based upon this and other recent information, it’s estimated that the Yucatan today owes $5.44 billion pesos [$450 million USD], and has authorized the borrowing of another $3.67 billion pesos [$300 million USD]. The grand total of State sovereign debt, actual or imminent, is thus over $9 billion pesos – about $750 million USD.

As can be seen, the Yucatán has fallen into the alarming practice of many other states of the Mexican Republic by resorting to indiscriminate borrowing, which places at risk its economic viability and limits possibilities for social and business development in its communities. There will be fewer resources to fight endemic poverty within the State, since federal funds that would have otherwise been available to the next three generations have already been pledged as security for long term public indebtedness.

It may be the 21st century, but in some respects the Yucatán has returned to the same type of permanent institutional indebtedness which burdened impoverished hacienda workers 150 years ago. Ironically, it was General Salvador Alvarado, the Mexican revolutionary hero most admired by Governor Ortega, who ultimately abolished the culture of the Tienda de Raya and its oppressive treatment of hopelessly indebted laborers.

Like their ancestors of another era, Yucatecans today may have been “marked" anew with a collective financial burden which, realistically, is forever beyond their means.