Mexico' Credit Rating

[Ajijic]

Next Mexican crisis could come soon

Martin Hutchinson, Breakingviews.com

Published: Wednesday, November 25, 2009

Mexico’s Congress rejected a proposal from President Felipe Calderon’s to allow some foreign investment in oil exploration.

Fitch's downgrade of Mexico's credit rating by a notch to BBB on Nov. 23 was a warning. Mexico has too many problems to keep going as it has.

Oil production from Pemex, the state-owned monopoly operator, averaged 2.61 million barrels a day in 2009, down 7% from 2008 and 22% from the 2004 peak. Although Pemex budgeted US$19-billion for deep water exploration in 2009, no new large fields have been found, and the company has US$50-billion in debt. In 2008, Mexico's Congress rejected a proposal from President Felipe Calderon's to allow some foreign investment in oil exploration.

Pemex needs some help. Its production is declining and exports are falling even faster – down 13% from 2008 and 35% from 2004. With Mexico's population growing 1.1% annually, domestic consumption is set to rise over time, although the recession has brought it down this year. The only good news for the Mexican government, which depends heavily on revenues from Pemex, is the current oil price is well about the US$59 a barrel assumed in budget calculations.

In a few years – or earlier if oil prices decline – Mexico faces a serious fiscal crunch. The combination of unequal income distribution and high tax evasion limit the government's non-oil revenue to 10.8% of GDP, well below the average for middle-income countries. The national economy has the same sort of problem as government. Mexican productivity remains below its 1980 level.

Mexico's most pro-market party has been in power since 2000, yet little has been achieved, particularly in relation to Pemex. It doesn't help that the legislature is controlled by the opposition, but the more fundamental issues are the persistence of a statist and generally anti-market political tradition, plus hefty doses of crime and corruption. Change isn't likely without a crisis, which might come distressingly soon.

[traderspoc]

Next Mexican crisis could come soon

Martin Hutchinson, Breakingviews.com

Published: Wednesday, November 25, 2009

Mexico’s Congress rejected a proposal from President Felipe Calderon’s to allow some foreign investment in oil exploration.

Fitch's downgrade of Mexico's credit rating by a notch to BBB on Nov. 23 was a warning. Mexico has too many problems to keep going as it has.

Oil production from Pemex, the state-owned monopoly operator, averaged 2.61 million barrels a day in 2009, down 7% from 2008 and 22% from the 2004 peak. Although Pemex budgeted US$19-billion for deep water exploration in 2009, no new large fields have been found, and the company has US$50-billion in debt. In 2008, Mexico's Congress rejected a proposal from President Felipe Calderon's to allow some foreign investment in oil exploration.

Pemex needs some help. Its production is declining and exports are falling even faster – down 13% from 2008 and 35% from 2004. With Mexico's population growing 1.1% annually, domestic consumption is set to rise over time, although the recession has brought it down this year. The only good news for the Mexican government, which depends heavily on revenues from Pemex, is the current oil price is well about the US$59 a barrel assumed in budget calculations.

In a few years – or earlier if oil prices decline – Mexico faces a serious fiscal crunch. The combination of unequal income distribution and high tax evasion limit the government's non-oil revenue to 10.8% of GDP, well below the average for middle-income countries. The national economy has the same sort of problem as government. Mexican productivity remains below its 1980 level.

Mexico's most pro-market party has been in power since 2000, yet little has been achieved, particularly in relation to Pemex. It doesn't help that the legislature is controlled by the opposition, but the more fundamental issues are the persistence of a statist and generally anti-market political tradition, plus hefty doses of crime and corruption. Change isn't likely without a crisis, which might come distressingly soon.

peso firmed up yesterday, and mexico bonds are 20 year bonds are selling at a premium. the bad news is over

[cookj5]

Fact is, oil fields are peaking all over the world and going into decline, not just Mexico's fields. We're not going to drill our way out of this, in Mexico or elsewhere. Mexico needs to move heavily into alternative energy (think of all the sunshine we get) diversify its economy, crack down on the wealthy classes who making out like bandits on the tax evasion, and focus more resources on raising its people out of poverty. But then, the US (my home country) hasn't got the good sense to do this, so why should I expect Mexico to do it?