Mexico's Calderon pledges to keep fuel subsidies

MEXICO CITY, June 24 (Reuters) - Mexican President Felipe Calderon vowed on Tuesday to maintain fuel subsidies meant to blunt the effect of inflation on consumers, despite mounting costs as oil prices soar.

Subsidies on gasoline, diesel and domestic gas have helped keep inflation lower in Mexico than in most Latin American countries, but surging crude prices mean the program will cost the government close to $20 billion this year.

"I know there are people ... who don't understand or who urge us to hike prices, and we are not going to do it because we want to protect the poorest families," Calderon said in a speech in Mexico's Caribbean state of Quintana Roo.

"A liter of gasoline in Mexico costs around 7 pesos and 10 cents ($0.69) ... while in Europe, you know how much it costs, 25 pesos a liter," he added.

Other countries in Latin America, including Brazil and Venezuela, also subsidize fuel prices to help keep inflation in check, policies that some economists say may only delay inevitable price shocks.

In Mexico, the increasingly costly fuel subsidies used up extra income the government took in from record-high prices on oil exports during the first quarter.

Calderon faces criticism from Wall Street analysts who want Mexico to reinvest its oil profits in exploration to reverse a decline in crude reserves and bolster sagging production.

They say the government is squandering profits from high crude prices just when it should be spending them on projects like roads, schools, refineries and oil platforms -- things that would boost economic growth.

The money earmarked for fuel subsidies this year is more than what Mexico's government spends annually on education.

Critics in Mexico say poor people who don't drive cars benefit much less from gasoline subsidies than wealthy owners of sport utility vehicles and other vehicles. (Reporting by Robin Emmott; Editing by Leslie Adler)