| | |  Business News | June 2009 
Ortiz Says Mexico Needs Changes to Avoid Lower Rating
 Thomas Black - Bloomberg
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June 03, 2009
| | Mexico’s central bank Governor Guillermo Ortiz | |
Mexico’s central bank Governor Guillermo Ortiz said the country must approve laws to improve tax collection and make the labor market less rigid to avoid having its credit rating reduced.
Politicians need to reach a consensus after July 5 elections in the lower house of Congress to boost an economy that had “mediocre” growth in good times and contracted the most in Latin America during crisis times, Ortiz said during a conference in Monterrey today.
“The threat of a lowering of the sovereign debt rating is real,” Ortiz said. “We have to avoid that at all cost.”
Mexico’s low growth and dependence on revenue from declining crude oil production has led to speculation that companies such as Standard & Poor’s and Moody’s Investors Service may reduce the country’s rating, Ortiz said.
Mexico collects less than 9 percent of economic output from its income and value-added taxes, compared with 15 percent on average for Latin American countries, Ortiz said. To continue depending on oil revenue is an “illusion,” he said.
Still, the country has navigated through the global crisis, which hurt Mexico more than others because of reduced U.S. consumption of autos, home appliances and other consumer goods, Ortiz said. The economy should begin recovering in the third quarter, he said.
Inflation
Inflation reached a peak in December and will “continue to fall systematically” in coming months, Ortiz said. Mexico’s international reserves will recover to a level “similar” to that seen at the beginning of this year when the government receives payment on a contract that fixes Mexico’s oil export price at $70 a barrel, Ortiz said. International reserves have dropped to about $76 billion from about $85 billion in January as the central bank bought dollars to shore up the peso.
Measures the government took to contain a new strain of flu will hurt economic growth in the second quarter, Ortiz said. The recovery, including in the tourism industry, will be quicker than economists are estimating, Ortiz said. He reiterated the central bank’s forecast that the economy will shrink in 2009 between 3.8 percent and 4.8 percent, with the impact of the swine flu adding 0.5 percentage points to the contraction.
“There’s a feeling that the economy is touching bottom,” he said.
Too Much Regulation
Mexico’s politician can’t put off economic reforms any longer, Ortiz said. While a tax increase isn’t prudent during the recession, lawmakers need to agree to implement a long-term, sustainable solution to government revenue.
There’s too much regulation, Mexico’s institutions are weak and a rigid labor market creates a surplus of “informal” self- employment, Ortiz said.
“There’s a series of things we have to correct to make the Mexican economy more productive,” he said. “These are things we’ve been dragging around for many years and we haven’t yet found a way to turn them around.”
Officials have made an “exhaustive diagnosis” of obstacles to higher Mexican growth and know what needs to be done, he said. “‘We simply need to apply it,” Ortiz said. “For that, obviously, we need good politicians.”
To contact the reporter on this story: Thomas Black in Monterrey at tblack(at)bloomberg.net |
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