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City’s credit rating takes a hit as debt mounts up

June 20, 2012

U.S. financial services company Standard & Poor’s (S&P) lowered Guadalajara’s credit rating this week, the result of the municipal government having overspent and burdened the city with debt.

Guadalajara’s  rating was downgraded on the national scale from “mxA” to “mxAA-” and the outlook was changed from stable to negative. S&P explained in a statement that this reflects the municipality’s poor budgetary performance in 2011.

Public debt rose by 69 percent from 1.58 billion pesos to 2.68 billion. This is the result of “poor financial planning” by the current municipal administration, warned Juan Carlos Sainz del Toro, Jalisco president of the Mexican Institute of Financial Executives (IMEF).

The downgrading will likely result in fewer public services and could discourage potential investors who now see the city as a risky proposition. In a bid to reassure those concerned, interim Mayor Ayon Francisco Lopez promised on Tuesday that the city will settle all its outstanding debts during September, the last month of his administration.

“We have a manageable debt, we are within the standards of a positive investment grade,  we have the same qualification as the state government, both are qualified as A1 by Moody’s (another rating company),” he said.

City hall has cancelled its contract with S&P in response to the downgrading of its rating. The municipal government is already working with Moody’s and will find other brokers such as Fitch Ratings or HR Ratings to oversee the management of its finances.

Guadalajara is one of five municipalities making up the Guadalajara metropolitan zone.  The others are Zapopan, Tlaquepaque, Tonala and Tlajomulco.   In the census of 2010 the population of the Guadalajara municipality was registered at 1,469,140 inhabitants. The total of the five municipalities was 4,364,069.

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