Mexico Senate approves plan to cut 2011 defic it

MEXICO CITY, (Reuters) - The Mexican Senate approved a plan to trim the government’s deficit next year, although not by as much as President Felipe Calderon had proposed.

The lower house passed the bill, which comprises the revenue portion of the 2011 budget, on Oct. 20. The bill now goes to Calderon’s desk to be signed into law.

The changes in Congress to Calderon’s budget plan mark a fresh setback for the conservative leader, who has presided over Mexico’s deepest recession since 1932 as well as more than 29,000 gangland murders in an increasingly bloody drug war.

Under the bill approved on Tuesday, the government would set a fiscal deficit target of 0.5 percent of gross domestic product, although that figure does not include borrowing by the state oil company Pemex, whose debt is seen to carry an implicit government guarantee.

Calderon had proposed cutting the deficit figure to 0.3 percent of GDP from this year’s planned 0.75 percent as part of a bid to balance the budget by 2012 and improve Mexico’s debt rating, which was downgraded last year by two rating agencies.

But opposition in Congress has been a drag for Calderon since he took office in December 2006 as he seeks to achieve his economic reform agenda.

Opposition lawmakers argue the government needs to spend more to prop up the economy, which is seen expanding about 4.6 percent this year after contracting 6.5 percent in 2009.

“We are very convinced that the revenue from moving the deficit level ... will help cover a lot of needs,” said Sen. Manlio Beltrones, the Senate leader of the main opposition Party of the Institutional Revolution (PRI).

Members of Calderon’s National Action Party (PAN) said cutting the deficit at all would send a positive message to investors.

“We’re on the right track,” said PAN Sen. Juan Bueno.

Calderon’s office did not immediately respond to a request for comment on budget voting in the Senate.

A senior Standard & Poor’s analyst said last week that the revenue bill appeared to be “reasonable,” although the agency says it has no plans to boost the country’s debt rating, which is still investment grade. The bill would set the budget’s forecast price for a barrel of oil, which funds about a third of Mexico’s budget, at $65.40. Calderon had proposed a lower oil price forecast to avoid spending cuts if crude prices were to fall.

With the revenue portion of the budget approved, the lower house is scheduled to vote on the spending portion of the bill by Nov. 15