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Mexico risks ratings in slow fiscal reform
by Staff Writers
Mexico City (UPI) Nov 1, 2012

disclaimer: image is for illustration purposes only

Mexico is risking a further downgrade of its sovereign credit ratings by the world's ratings agencies because of delays in what critics see as urgently needed fiscal reforms.

Mexico's fiscal shortcomings have worried investors for a long time but the problem is under the spotlight again as President-elect Enrique Pena Nieto, 46, prepares to take office Dec. 1.

Pena Nieto has promised a rack of reforms, including more efficient taxation and poverty-reduction programs, but he is up against political foes as well a brutal, hugely resourced organized crime.

Pena Nieto's critics warn that his Institutional Revolutionary Party's return to power after 12 years signals a rise of conservatism and possible return to authoritarianism, accusations that are vigorously rebutted by his aides.

"It is a fact and it has been repeatedly pointed out by Enrique Pena Nieto that (fiscal reform) will be one of the reforms that is promoted at the start of his administration," head of Pena Nieto's transition team Luis Videgaray Caso said.

Independent analysts including rating agencies say Mexico needs an early implementation of wide-ranging fiscal reforms to make a better use of its oil revenues that currently feed a third of the federal budget, streamline taxation and remove other obstacles to economic growth.

The Fitch ratings agency in January praised Mexico's "disciplined macroeconomic policies, a relatively healthy banking sector, resilient external accounts, a modest external debt burden and the sovereign's manageable external amortization profile."

It said those strengths sufficiently counterbalance the structural weaknesses in Mexico's public finances and the country's modest growth prospects.

"While the near-term economic outlook of Mexico appears generally favorable aided by the expected rebound in the (United States) and some further recovery in domestic demand, sustaining higher growth in the medium-term is likely to require additional structural reforms," Fitch Head of Latin America Sovereigns Shelly Shetty said.

"The rising wave of drug-related violence appears to be dampening confidence, retail and commerce activities, possibly weighing on a more robust investment and economic outlook," added Shetty.

Pena Nieto has promised a hard line against organized crime. "The law is applied; it is never negotiated," his election campaign statement said.

He has also told Mexicans, "I propose changing fear for hope. I propose changing Mexico."

The rating agencies say reforms in Mexico's tax environment and the way the country manages its oil income will go some way toward reaching that objective.

Analysts have warned that any delay in comprehensive fiscal reforms, talked about since before the state elections last year and presidential elections this year, may cost Mexico its sovereign ratings.


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