Nov. 6 (Bloomberg) -- Executives from Mexico’s largest companies said tax increases President Felipe Calderon pushed through Congress will likely allow the country to avert a credit-rating downgrade.

Officials from Kimberly-Clark de Mexico SAB, the country’s largest consumer-products maker, America Movil SAB, Latin America’s largest telecommunications company, and Citigroup Inc.’s local unit, speaking at the Bloomberg Economic Forum in Mexico City yesterday, said the budget deficit is under control even as declining oil output curbs government revenue.

“More and more you hear voices that there probably won’t be a downgrade after the revenue law was approved,” said Pablo Gonzalez, chief executive officer of Mexico City-based Kimberly- Clark. “It probably will be sufficient to prevent a downgrade.”

Mexico’s bonds are falling as investors speculate Standard & Poor’s and Fitch Ratings will cut Mexico’s BBB+ investment- grade rating, after assigning the country a negative outlook. Mexico’s dollar bonds have declined 0.6 percent this month, double the 0.3 percent drop for emerging-market debt overall, after rising 0.4 percent in October, according to JPMorgan Chase & Co.’s EMBI+ index.

2010 Budget

Credit-default swaps, contracts investors use to protect against non-payment of debt, show Mexico trading as high-yield, or junk -- placing it three levels below the country’s BBB+ rating. The peso, the worst performer among the world’s 16 most- traded currencies in the past year with a drop of 2.8 percent, also has been hurt by “uncertainty” about the nation’s credit rating, central bank Governor Guillermo Ortiz, 61, said at the forum.

Congress approved 3.18 trillion pesos ($238 billion) of revenue for the 2010 budget on Nov. 1. Lawmakers raised the value-added tax to 16 percent from 15 percent, increased income taxes to 30 percent from 28 percent and applied a new telecommunications tax and lifted the levy on cash bank deposits to help offset the fastest drop in crude production since World War II.

“Mexico has a remarkable track record,” Alberto Jones, 46, director of Moody’s Investors Service in Mexico, said at the forum. He said the country still hasn’t done enough to broaden its tax base. “That part of the basic homework has not been done,” he said.

‘Less Optimal’

Moody’s has a stable outlook on Mexico’s Baa1 rating, also the third-lowest investment-grade rating. Lisa Schineller, an analyst at S&P, said in a telephone interview in New York yesterday that the country still has “medium-term fiscal challenges” after congress opted to increase the sales tax rather than back Calderon’s proposal for a new 2 percent consumption tax that would have been free of exemptions.

The sales tax increase is a “less optimal solution,” Shelly Shetty, an analyst with Fitch, said in a Nov. 2 interview.

The worst recession since the 1930s is also eroding tax revenue, swelling the budget gap to an estimated 2.8 percent of gross domestic product this year, the widest since 1989, according to RBS Securities Inc.

Carlos Navarrete, the 54-year-old leader of the Senate and member of the opposition Party of the Democratic Revolution, urged Calderon to increase deficit spending to help stimulate the economy.

“Mr. President you should foster a higher deficit,” Navarrete said. “It’s not a deathly sin to have debt.”

Deficit Comparison

The gap remains small compared with deficits in the U.S. and other countries that have increased government spending to stimulate the economies, said Carlos Garcia Moreno, 52, chief financial officer of Mexico City-based America Movil. The U.S. gap will equal 11 percent of GDP this year, according to the median forecast in a Bloomberg survey of 33 economists.

“The country’s level of debt, which is what the ratings companies in the end grade, is very low,” Garcia Moreno said in an interview. The revenue bill passed by Congress “assures that the trajectory of the debt is controlled. It’s not a rising trajectory. That’s what should be important to the ratings companies.”

Alberto Gomez, chief economist at Citigroup’s Mexico City- based Banamex unit, said Mexico’s deficit and debt are sustainable.

“We definitely don’t see Mexico losing its investment grade rating and we are confident we won’t even see a downgrade,” Gomez said at the forum in a meeting with Chief Executive Officer Enrique Zorrilla.

‘Very Significant’

Government debt equaled 35 percent of GDP, up from 27 percent of GDP at the end of 2008, according to government figures. After passing the revenue portion of the budget on Nov. 1, congress has until Nov. 15 to pass the spending bill. Calderon’s proposal calls for spending cuts of 218 billion pesos.

“The effort made has been very significant,” Finance Minister Agustin Carstens said yesterday at the Bloomberg Economic Forum. “That has to be taken into account by the rating agencies when they make their decision.”

The cost of protecting Mexican debt against default for five years is 1.62 percentage points, according to data compiled by CMA Datavision. By comparison, it costs 1.60 points to protect securities issued by Colombia and 1.52 points to protect bonds sold by Panama, countries that S&P rates three levels below Mexico at BB+.

Job Gains

Credit-default swaps, conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.

Calderon said employment rose for a fifth month in October, signaling the end of the economy’s biggest contraction since the Great Depression.

“Today, we have clear signs of an economic recovery,” Calderon, 47, said at the forum yesterday. “That means the end of the credit contraction and the recession in our country.”

Carstens, 51, said in an interview on Bloomberg Television yesterday that he sees a “good chance” Mexico’s economy will grow above 5 percent by 2012.

To contact the reporters on this story: Thomas Black in Monterrey at tblack@bloomberg.net;

Last Updated: November 6, 2009 16:26 EST