The response by international investment advisers is immediate and positive
The American financial services company Standard & Poor's (S&P) has upgraded Mexico's sovereign credit rating to BBB+ as a result of the recent enactment of constitutional reforms governing the structure and operations of national oil giant Petróleos Mexicanos (PEMEX).
The reforms were signed into law yesterday by president Enrique Peña Nieto, and took effect at 12:01 a.m. today following publication in Mexico's Federal Register. PEMEX reforms are now the law.
In ceremonial comments Friday, Peña Nieto told legislative deputies and government officials, "With these reforms, we are sending a clear and strong message that Mexico is remaking itself in the 21st century for the good of all its citizens. That is how these reforms will be perceived abroad."
Apparently the president was correct, because the international financial community responded immediately. S&P called Mexico's decision to terminate PEMEX's 75 year old monopoly on the hydrocarbon industry a "decisive moment" in the nation's history. And a S&P sovereign credit analyst told The Economic Times of India, "It's hard to ignore such a significant change that can make a meaningful change for the growth outlook."
Under S&P standards, investments rated BBB- or higher are considered investment grade, a critical characterization for attracting both domestic and foreign capital. Mexico's economic outlook was rated Stable yesterday by the firm. By comparison, Canadian sovereign credit is rated AAA Stable, while U.S. debt instruments are rated AA+ Stable. The higher the credit rating the lower the interest rate the issuing country must pay to investors who purchase bonds and other debt obligations. The interest savings may amount to hundreds of millions of dollars over the life of the financial instrument.
The bottom line for Mexico in today's S&P report is that the country should be able to borrow money more cheaply at home and abroad, to finance long term infrastructure development and other projects.
Mexico's economy is expected to grow just over a very disappointing 1% in 2013, with final reports due in about a month. S&P and others predict that GDP growth will increase to 3-4% in 2014 and 2015, attributing part of that optimistic forecast to the PEMEX reforms.
PEMEX was established 75 years ago, when president Lázaro Cárdenas nationalized the Mexican petroleum industry on March 18, 1938, expelling foreign oil companies from the country and seizing their assets. Until today the company could not receive private capital investment, nor could foreign enterprises participate in its petroleum exploration and production operations.
Feb. 5, 2014 - PRI reforms earn Mexico yet another credit rating boost
May 1, 2014 - Fitch Ratings today gave an identical grade to Mexican sovereign debt, rating it BBB+, with a Stable outlook
Dec. 23 - Mexican energy reforms will lure in $10 billion dollars in immediate investment, official says
Dec. 20 - Mexican minimum wage in 2014 will be $5 dollars - a day
Dec. 10 - Foreign Policy names Enrique Peña Nieto a top Global Thinker
© MGRR 2013. All rights reserved. This article may be cited or briefly quoted with proper attribution or a hyperlink, but not reproduced without permission.