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U. S. Ambassador to Mexico Tony Garza praised the states of Michoacan and Quintana Roo for innovating, with U.S. technical assistance, on ways to improve their credit position and to plan future borrowing via the bond market.

These states have “set an example for the rest of Mexico, ” said Ambassador Garza. “It is well worth the effort to increase transparency and accountability in managing state finances because you can thus borrow the money you need for public works more cheaply.”

As part of the U.S.-Mexico Partnership for Prosperity workshops being held in the capital of Jalisco today and tomorrow, Ambassador Garza joined the Deputy Administrator of the U.S. Agency for International Development (USAID) Fred Schieck and the Director of the Banco Nacional de Obras y Servicios Publicos (BANOBRAS) to present the results of a joint effort to improve local government access to capital markets.

Under an agreement signed in March 2003, USAID contributed U.S. $500,000 and BANOBRAS $160,000 for technical assistance from the Evensen Dodge International, a private firm based in Minneapolis, to work with state governments on pilot projects that would help develop a structured municipal bond market in Mexico. Michoacan was the first state where Evensen Dodge helped develop an integrated state financing plan. Quintana Roo was selected as the second pilot project.

Following is the unofficial translation of the text of the Ambassador's remarks as prepared for delivery in Spanish at the event to present the results:


Draft Remarks—Ambassador Garza
Partnership for Prosperity Guadalajara
Press Conference on Municipal Bonds Activity
June 28, 2004

Greetings to Director General Luis Pazos of BANOBRAS, State Treasurers from Quintana Roo and Michoacan and their staffs, USAID deputy administrator Fred Schieck, as well as our partners with Evensen Dodge International.

Mexican public servants have a deep commitment to serve the complex needs and demands of the citizens of this country. Their dependable efforts are sometimes almost invisible to the public. Others are easily identified and measured, and those efforts are what we are here to celebrate today. We are here to highlight the successes of two states, Michoacan and Quintana Roo, that took a chance and applied some technical assistance (co-sponsored by Banobras, USAID, and Evensen Dodge International) in order to be able to borrow money at a lower cost. Thanks to their hard work, the states will see millions of pesos in savings over the life of these transactions.

What is even more impressive, both states have taken important steps in structuring their transactions to leave plenty of room for future borrowing needs. And as someone who used to work in State government I know firsthand that kind of forward planning is a real favor to whomever in the future will sit in the Governor’s chair.

The achievements are more than cosmetic; they address fundamental financial planning and management issues. They have planted the seeds that will yield future fruits. The work undertaken by these two states took many months and involved many different offices, not just finanzas. But finance is the foundation for all government activities, and a solid financial foundation benefits all areas of government operations.

On the face of this, it seems simple: pay lower interest rates, save money over the life of your loans. But how does one accomplish this? Who determines what the interest rates are? There is no simple formula. But borrowers need to be smart about how they present themselves to the market. One of the keys to obtaining lower interest rates is make yourself as attractive as possible to potential lenders so that they will compete for your business. You can package your debt in a way that appeals to investors, making sure that you have enough flexibility for future needs, both planned and unforeseen.

What is also marvelous about these two pilot efforts is that they demonstrate how much states can accomplish on their own, without relying on actions by the federal government to increase their revenues. States have a range of actions that they can take to improve their credit quality. While your revenue mix is determined by a variety of factors largely outside your direct control, you have almost total autonomy in your ability to plan and manage these resources. Even if you are already in pretty good financial condition, you can still make improvements.

By taking part in this program as the first pilot effort, the State of Michoacan and now the second pilot, the State of Quintana Roo, have set an example for the rest of the Federation: It is well-worth your efforts to increase transparency and accountability in managing state finances because you can borrow the money you need for public works and infrastructure cheaper. There is an almost immediate benefit to the effort that goes into these improvements, one that reaches directly into the pockets of every taxpayer. Obras cost money, and you can build more if you borrow at the lowest possible costs.

Congratulations to BANOBRAS and these two outstanding pilot efforts. One thing the private sector and state governments will always respond to is competition – whether it’s “how can I structure my business better, or how I can set the best business climate here in my state to outdo my competition.” Given the successes you have obtained, I am sure other states will be looking to follow your lead.

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