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.
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