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Mexico Upgrade ‘Very Difficult’ Without Tax Law, Moody’s Says

Upgrading Mexico’s rating would be “very difficult” if it doesn’t pass a comprehensive bill to boost tax revenue, said Alberto Jones, who heads Moody’s Investors Service in Mexico.

While a fiscal overhaul is key to an upgrade, Moody’s doesn’t rule out boosting its outlook to positive on Mexico’s Baa1 credit rating before such legislation passes, Jones said in an interview yesterday in Acapulco.

“Today things look very favorable, more favorable than they have in years, that there could be a serious fiscal change that would lead to an upgrade,” Jones said. The government expects to present a bill in September as it seeks to strengthen the national finances.

Mexico’s local currency bonds have posted the best dollar-based returns in the world as yields have tumbled and the peso has surged amid expectations that President Enrique Pena Nieto will succeed this year in passing legal changes to boost growth that include lifting tax collection. Mexico’s total tax revenue, which amounted to 18.1 percent of gross domestic product in 2010, is the lowest relative to output among the 34 members of the Organization for Economic Cooperation and Development, according to data compiled by the group.

Moody’s is “satisfied” it didn’t downgrade Mexico during the 2009 economic crisis, Jones said. S&P and Fitch cut Mexico’s credit in 2009 one level to BBB, the second-lowest investment grade, as the economy contracted 6.2 percent and crude oil output from state-owned Petroleos Mexicanos, known as Pemex, declined.

Moody’s Investors Service has kept Mexico’s Baa1 rating unchanged since 2005.

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