03 July 2009

Carstens Sees No Reason for Mexico Credit Rating Cut

By Nathan Gill and Jens Erik Gould
     July 3 (Bloomberg) -- Mexican Finance Minister Agustin Carstens said the country doesn’t have debt problems and there’s no reason for rating companies to cut its credit rating.
     “We have a strong economy. We don’t have any external payment problems,” Carstens told reporters today at a meeting of finance ministers in Vina del Mar, Chile. “We are going to accomplish our fiscal objective.”
     Mexico may propose tax increases as part of a bill aimed at strengthening public finances that the government plans to submit in September, Carstens said. The government may also include “spending adjustments” and debt increases as part of the proposal, he said.
     Fitch Ratings and Standard & Poor’s have placed Mexico’s BBB+ credit-rating, the third-lowest investment grade level, on negative outlook because of concern the recession and a dependence on oil revenue are swelling the government’s budget deficit. The government and central bank have urged lawmakers to approve legislation that they say would shore up the country’s finances.
     The proposal to change fiscal laws “will make use of the best possible combination of spending adjustments, possibly more debt in the short term, and some consideration to greater tax collection,” Carstens said.
     Mexico’s economic growth in the second quarter “will continue being relatively bad,” especially because it will reflect the effects of the swine flu outbreak, Carstens said.

     “There isn’t a solid reason to make a revision of Mexico’s rating,” Carstens said. “Even though we are facing short-term challenges in fiscal policies, we are going to deal with this by using stabilization funds we created when the price of oil was high.”
     Carstens added that even as money transfers in dollars from abroad have been falling, they have risen in peso terms because the currency has weakened. Remittances fell 20 percent in May in U.S. dollar terms compared with the same period last year, the sharpest drop on record.