Introduction to Structured Finance

APPENDIX D

Municipal Future-Flow Bonds in Mexico: Lessons for Emerging Economies

JAMES LEIGLAND

JAMES LEIGLANDis a senior municipal finance advisor at the Municipal Infrastructure Investment Unit in Midrand, South Africa. [e-mail]

In late August 2003, a small group of South African municipal officials and their advisors visited Mexico for a week to learn about recent developments in the Mexican municipal bond market. The trip, financed by the South African government, reflects a growing interest among developed as well as developing countries in a surprisingly sudden blossoming of the municipal bond market in Mexico. Beginning with no previous experience in municipal bond issuance, the Mexican market registered 10 municipal or state bond issues in less than two years, beginning in December 2001, with many more issues in preparation by the end of that period. The country now boasts a higher percentage of state and local governments with credit ratings from agencies like Fitch, Standard & Poor's, and Moody's than any other country except the United States. International donors and development finance institutions now regularly cite Mexico as an emerging economy that clearly is leading the way in terms of innovative municipal finance.

The Mexico case has generated considerable interest in a country like South Africa, which had a municipal bond market of sorts for decades before it became dormant in the early 1990s. Since the end of the apartheid government in 1994, the ...