Airports and public finances in Mexico
Opinion to article published by the NYTimes Oct 29. “Mexico’s Incoming President Plans to Cancel Giant New Airport Project”
Populism, direct democracy, influences of Presidents in economics are all part of the article published by the NYTimes Oct 29. “Mexico’s Incoming President Plans to Cancel Giant New Airport Project.” The $3bn bond due in 2047 fell as low as 79 cents on the dollar after the President Elect Andres Manuel Lopez Obrador (AMLO)'s published the decision made by his “people’s poll” a direct consultation managed by his own party to the general population to change location of the newly constructed airport in Mexico City from Texcoco to Santa Lucia. Some question why AMLO is endangering his overwhelming electoral legitimacy with one of the highest electoral results in modern Mexican history, with an illegitimate referendum on the airport.
Instead, the question of which business(es) and how many airports will be installed in the second largest city in the world. Wrongly, The NYTimes articles states: “The decision to not build the new airport in Mexico’s capital would most benefit Houston, with its international airport”. But in reality, no one questions if airport(s) will not be built in Mexico City because the city has some major infrastructure deficits. Rather whose business opportunities will benefit from the Texcoco and/or Santa Lucia airports.
Moreover, the question financial markets are asking how will the government honor their debt. But a more appropriate question is whether the Mexico City Airport’s bonds are organized through project financing-- paying the services of the debt through income made by the airport or additional airports nearby (which is the most market based approach to financing) –and/or if this is sub-sovereign debt based on the issuances of the state which guarantees its loans taken out in a given territory by the government or state which the project is located. If it’s the latter, the Mexican government will need to rethink the financing this and future projects in order to not over heat the economy and macroeconomic indicators, specifically because of the over indebted subnational governments and its contingent liabilities currently held by the states and the SOEs like Pemex.
Special purpose vehicles are the way to go for eliminating political influences on economic results, demanding a centralized trust for the financing securities.
Strangely, this project will open public finance and international political economy theory for years to understand whose responsible for debt issuances. Where the notion of subsoverign debt like in the US, held by local and state governments for infrastructure finance, is not part of our National debt or guarantee by the national government. Imagine if US state and local debt were also aggregated to our national deficit? If Americans don’t do this, why should we ask developing countries to?
