While many Latin American countries are facing tough political and economic heartaches, Mexico seems to be moving in the opposite direction with a hopeful future, although much of the outcome is dependent upon the new Vicente Fox administration.
As Fox took his seat in office on Friday, Mexico entered into a time of democratic transition, according to analysts. Although the Fox administration will face great challenges in the months ahead, Standard & Poor's Ratings Services has reaffirmed its BB+ sovereign rating on Mexico with a positive outlook.
The current S&P rating weighs heavily upon the belief that the new administration will implement a solid macroeconomic policy. Additionally, S&P has said Mexico will need to reign in its budget and instill a tax reform.
According to a statement released by Graciana del Castillo, a sovereign analyst at S&P, Mexico survived the Tequila Crisis in 1994, and a major debt default during the 1980's. Furthermore, Castillo said Mexico reacted better than most Latin American economies to the Asian crisis in 1997, Russia's debt default in 1998, and the devaluation of the real in 1999 as a result of the policies assumed during the Tequila crisis.
This year, Mexico's domestic savings have reached 20%, up more than 5% from 1994, and investments are nearing 24% this quarter. Castillo said, "The subsequent growth in U.S. demand, the increase in asset prices, and the rise in the price of oil have been major factors behind Mexico's boom in 2000."
In working to improve the financial health of the country, the federal government has also required the Mexican states to be rated. S&P has recently rated Hidalgo mxA-, Coahuila mxAA-, and Baja California mxAA-.
Despite the optimistic outlook for Mexico, there are still some major hurdles for the country to overcome. In fact, S&P has recently lowered the ratings on the export certificates for Ispat Mexicana S.A. de C.V. (Imexsa) to BB- from BB and changed the outlook from negative to stable.
At the same time, Imexsa's local currency corporate credit rating was lowered to BB- from BB. Additionally, S&P has changed the outlook from negative to stable for Ispat International N.V. (Ispat), the parent company for Imexsa. The altered ratings are a result of Ispat's inability to improve debt reduction in conjunction with sour steel markets in North America.
The downgrade is just a reminder that although Mexico has experienced a "boom in 2000" it is not there just yet. What will actually come of Mexico over the next year remains to be seen.
