With Cantarell Output Down 17% In 11 Months, Concern Grows Re. Mexico's Spending Habits - LA Times

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Such cavalier accounting of this precious resource underscores the blessing and the curse that oil riches have bestowed on Mexico. The country nationalized its oil industry in 1938 after decades of control by foreign oil companies. The discovery of a leviathan field called Cantarell in the 1970s turned Mexico into one of the world's petroleum powers and produced a gusher of wealth that leaders vowed to use for the country's development. But it has also financed plenty of waste and corruption. And it has made citizens and government indifferent to constructing a well-balanced tax system as long as more funds could be squeezed from Petroleos Mexicanos, or Pemex.

Tax evasion in Mexico is rampant. Businesses and consumers have beaten back most government attempts to get them to contribute more. It's a big reason the nation is chronically short of funds for roads, police officers and schools. Mexico's 2005 nonoil tax receipts equaled about 9.7% of its gross domestic product, according to government figures. That's a collection rate lower than that of Bangladesh. Mexico finds itself dangerously reliant on a volatile commodity to fund such diverse purchases as army boots and X-ray machines. In the first 11 months of 2006, the government siphoned $53 billion, or 73%, of Pemex's revenue to pay its bills. This has left little for the company to reinvest in the operation and search out new oil sources.

Production at Mexico's principal oil field is falling rapidly, with nothing on the horizon to replace it. Output at the aging Cantarell field was down more than 17% through the first 11 months of 2006. (emphasis added) "Oil is a finite resource … yet the spending has grown tremendously," said Rocio Moreno, a researcher at the independent Mexico City think tank Fundar. "Mexico's fiscal situation is very precarious."

Some officials appear to recognize Mexico's vulnerability. President Felipe Calderon has vowed to broaden Mexico's tax base and reduce its reliance on crude. Federal lawmakers last year passed legislation to commit more oil revenue to the stabilization fund and to lighten Pemex's tax burden to free up more funds for exploration. Still, when they needed to plug a hole in the 2007 budget, lawmakers returned to the same old well. They rejected a proposal to raise taxes on soda makers after ferocious lobbying from soft-drink bottlers. They opted instead to slash Pemex's budget and to raid the oil fund to boost spending on infrastructure.

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http://www.latimes.com/business/la-fi-mexwindfall27jan27,1,2244494.story?coll=la-headlines-business&track=crosspromo