LOCAL GOVERNMENT BORROWING - ppiaf

• Mexico’s System Reform:
Mexico: a Stable,
Growing Market
• Require that all sub-national governments be rated by two independent
credit-rating rating agencies, in order to borrow
• Link capital provisioning to credit rating
• The riskier the credit, the more the lender has to set aside as capital
provision—i.e., i.e., leverage is linked to credit risk
• Applies to all lenders: national development bank, commercial banks, b
municipal bond issuance
• Allow municipal borrowing against security of future flows of federal
transfers
• Requires independent trustee and escrow account to receive transfers that will
be used for debt service. Avoids risk that state will re-allocate funds to its
general budget. Voluntary contract by local government to use portion p
of
future transfers to finance borrowing.
• Permit privately managed retirement funds to invest in municipal debt