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United Mexican
States Ratings Affirmed; Outlook Still
Stable
NEW YORK Oct. 28, 2008--Standard &
Poor's Ratings Services said today that it
affirmed its 'BBB+/A-2' foreign currency and
'A+/A-1' local currency sovereign credit
ratings on the United Mexican States.
Standard & Poor's also said that the outlook
on Mexico remains stable.
"The ratings affirmation and stable outlook
are based on our expectation that volatility
in international financial markets and the
downturn in U.S. and global economic
activity will not undermine Mexico's
commitment to macroeconomic stability nor
weaken its creditworthiness," said Standard
& Poor's credit analyst Lisa Schineller.
The combination of a sharp slowdown in
Mexico's real GDP growth in 2009 along with
lower oil revenues will place greater
pressure on the government's budget. Mexico
has limited room for countercyclical fiscal
policy, and it has used some of this leeway
in the recently revised 2009 budget. To
contain the potential increase in public-sector
indebtedness and to sustain market
confidence, we expect the government to take
timely steps to address any budgetary
shortfall and to allow for sufficient
capital investment by the state-owned oil
company (Pemex) to maintain oil production
near current levels. Mexico has a track
record of adjusting to adverse fiscal
developments, and recent improved
cooperation across parties to advance pieces
of legislation suggests that such
proactivity will continue.
The Mexican government and central bank have
recently implemented various measures to
mitigate the tightening of local credit
conditions for financial and nonfinancial
firms and the increased volatility of the
Mexican peso. These include yesterday's
announced changes to the government's debt
auctions for the remainder of 2008. To date,
these measures are modest as a percentage of
Mexico's GDP. For example, the partial
guarantees by the development banks for the
rollover of corporate commercial paper and
support to the housing sector total 90
billion Mexican pesos, just 1% of GDP.
However, Ms. Schineller said that, "if the
government chooses to address additional
problems in the private sector stemming from
a more prolonged period of stress in local
credit and economic conditions, these
contingent liabilities to the sovereign
could rise above current expectations."
Mexico's rating trajectory will depend on
the ability of the Calderon administration
to manage upcoming fiscal strains and
contain the increase in the public-sector
borrowing requirements while allowing for
significant levels of investment by Pemex
over the next several years. Lower growth
and government oil revenues, combined with
Congressional elections in mid-2009, could
generate political pressure to shift away
from the fiscal and monetary policies that
have underpinned Mexico's improved sovereign
creditworthiness. Standard & Poor's
anticipates that the government will act
prudently by compensating for declining oil
revenues and, consequently, support Mexico's
debt and fiscal dynamics.
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 (1) 212-438-1579,
david_wargin@standardandpoors.com
Analyst Contacts:
Lisa M Schineller, New York (1) 212-438-7352
Joydeep Mukherji, New York (1) 212-438-7351
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