Moody’s Cuts Durango Municipality as Drug War Drives Costs

Moody’s Investors Service downgraded the Mexican municipality of Durango to Ba3 from Ba2, citing an increase in borrowing fueled in part by the cost of fighting drug cartels. Moody’s also revised the outlook to negative from stable.

Net direct and indirect debt climbed to 34.9 percent of operating revenue in 2010 from 16.9 percent in 2006 as Durango hired more police officers, raised their salaries and held municipal elections last year, Moody’s said in an e-mailed statement.

While gang violence wasn’t the only driver, security concerns pressured government finances at a time when Durango was also spending more to hold elections, change administrations and update computer technology, according to Moody’s analyst Maria del Carmen Martinez-Richa.

“They hired more and more police because of the security situation,” Martinez-Richa said in a telephone interview from Mexico City. “That’s put a bit of pressure on operating costs.”

Nationwide, at least 35,000 deaths have been attributed to drug violence since President Felipe Calderon took office in December 2006.

Net direct and indirect debt may climb to 40 percent of operating revenue this year, according to Moody’s calculations based on planned borrowing.

To contact the reporter on this story: Jonathan J. Levin in Mexico City at jlevin20@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.