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United Mexican
States Sovereign Ratings Upgraded To 'BBB+';
Outlook Stable
NEW YORK Oct. 8, 2007--Standard & Poor's
Ratings Services today raised its long-term
foreign currency sovereign credit ratings on
the United Mexican States to BBB+' from 'BBB'
and raised its short-term foreign currency
rating to 'A-2' from 'A-3'. Standard &
Poor's also raised Mexico's long-term local
currency credit ratings to 'A+' from 'A'.
The short-term local currency rating remains
'A-1'. The outlook on all the long-term
ratings is stable.
"The upgrade reflects both the expected
strengthening of fiscal revenues in coming
years and indications of renewed political
dynamism that reduces the fear of policy
gridlock in Mexico," said Standard & Poor's
credit analyst Joydeep Mukherji. "The recent
approval of fiscal reform is an important
step in reducing the Mexican government's
fiscal vulnerability to volatile oil prices
and in meeting growing spending pressures,"
he added.
The strengthening of the non-oil tax base
will give the government greater capacity to
absorb a potential sharp decline in oil
prices while maintaining fiscal stability.
Tax collections are projected to rise by
1.1% of GDP in 2008 and eventually rise by
2.1% of GDP by 2012, largely due to higher
income tax collections as a result of the
recent reform.
The passage of fiscal reform, following the
passage of public sector pension reform in
early 2007, follows several years of
political deadlock on structural reforms
between the Presidency and the Congress. It
sends a positive signal about the ability of
Mexico's political leadership, cutting
across political parties and across the
national and state governments, to reach
agreement on key issues.
"The Mexican government strengthened the
profile of its debt in recent years during a
period of ample international market
liquidity to reduce its vulnerability to
exchange rate and interest rate risk, taking
advantage of opportunities offered by the
global business cycle," Mr. Mukherji noted.
"Such steps have sustained the government's
creditworthiness during recent bouts of
turbulence in international financial
markets. Similarly, Mexico is undertaking
tax reform from a position of strength,
acting while oil revenues remain high, to
increase its fiscal flexibility before a
potential fall in oil prices."
The stable outlook incorporates Standard &
Poor's expectation that the current
uncertainties in international financial
markets will not have any material adverse
impact on Mexico's macro-economic stability,
even if GDP growth is constrained by
potentially lower growth in the U.S. Going
forward, Mexico's rating trajectory will
depend on the ability of the Calderon
administration to maintain the recent
momentum for reform, addressing in
particular obstacles to higher investment
and growth, as well as strengthening the
country's public institutions and deepening
the rule of law.
Complete ratings information is available to
subscribers of RatingsDirect, the real-time
Web-based source for Standard & Poor's
credit ratings, research, and risk analysis,
at www.ratingsdirect.com. All ratings
affected by this rating action can be found
on Standard & Poor's public Web site at
www.standardandpoors.com; select your
preferred country or region, then Ratings in
the left navigation bar, followed by Credit
Ratings Search.
Media Contact:
David Wargin, New York (212) 438-1579
david_wargin@standardandpoors.com
Analyst Contacts:
Joydeep Mukherji, New York (1) 212-438-7351
Richard Francis, New York (1) 212-438-7348
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Key Contacts:
Americas Media Relations: (1)
212-438-6667
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