Mexico ‘Better Prepared’ for Europe Debt Crisis Than Peers, Rodriguez Says

Mexico is seeking to protect its economy from a worsening of the European debt crisis by stepping up measures to help keep money in the country, said Deputy Finance Minister Gerardo Rodriguez.

The nation is boosting foreign reserves, extending local debt maturities and limiting how much money banks can lend to their parent companies abroad or at home, Rodriguez said in an interview at Bloomberg’s headquarters in New York. Spain’s two biggest banks, Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA (BBVA), own two of Mexico’s four largest financial institutions.

“We are a lot better prepared, especially relative to other countries, for a situation that could deteriorate externally,” said Rodriguez, 38. “All this points to a broad framework of creating additional spaces for a potential adverse scenario going forward. That’s what we are here for -- to prepare for negative scenarios.”

Mexican policy makers are bracing for a potential crisis three years after the global financial crash sparked a 20 percent plunge in the peso, drained more than 15 percent of the nation’s foreign reserves and sank the economy into its deepest recession since 1995. The economy rebounded last year to grow 5.4 percent, the fastest pace in a decade, and the government predicts an expansion of 4 percent to 5 percent this year.

While countries from China to Brazil raise borrowing costs to combat inflation, Mexico is the only major Latin American country that hasn’t raised rates this year. Mexican annual inflation was 3.3 percent in mid-May, near a five-year low of 3.04 percent reached in March.

Mexican Inflation

“The context around inflation for Mexico is very, very good from any angle you want to look at it,” Rodriguez said.

The extra yield investors demand to hold Mexican government dollar bonds instead of U.S. Treasuries fell two basis points to 141 at 10:55 a.m. New York time, according to JPMorgan Chase & Co. The yield on Mexico’s benchmark 10 percent peso bond due 2024 has fallen 11 basis points this year, or 0.11 percentage point, to 7.06 percent, according to Banco Santander SA. (SAN)

The peso weakened 0.5 percent to 11.6889 per dollar today. The currency has gained 5.6 percent in 2011, the second-most among Latin American currencies tracked by Bloomberg, trailing Colombia’s peso.

Mexico reduced how much domestic banks can lend to parent companies to 25 percent of their capital from 50 percent and is extending debt maturities in local markets to an average of about 7.9 years by year end, Rodriguez said.

The country is also boosting foreign reserve accumulations to prepare for economic deteriorations in Europe or elsewhere that may happen in the short term, Rodriguez said.

Reserves rose to a record $127.9 billion in the week ending May 27, Mexico’s central bank said May 31 in an e-mailed statement. They fell to below $73 billion in August 2009 from over $86 billion in July 2008, according to the central bank.

To contact the reporters on this story: Boris Korby in New York at bkorby1@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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