Latin Finance - May 2008 - 41

mexico debt management Conesa adds that while Mexico should be proud of turning its public debt portfolio around, to ramp up the pace of economic growth the country desperately needs to make its labor markets more flexible, implement energy reform and increase competition by eliminating monopolies. to local debt – with peso paper representing about 80% of the portfolio – as near the ideal. The government is keen to maintain a presence in international debt capital markets, and continuously refurbishes its global curve. Investor Base Diversity Rodríguez says Mexico owes much of the current stability in its local debt to a healthy mix of creditors. One the one hand, local Afores managers consider government peso bonds a risk-free investment in much the same way US investors look at safe-haven Treasuries, he says. Foreign funds value them as a higher-yielding but relatively solid emerging market bet. Rodríguez sees Mexico’s peso debt leading the way in LatAm, arguing that Brazil’s local curve is more susceptible to interest rate moves and that tax restrictions limit foreign ownership there. Mexico’s level of outstanding debt has stabilized at around a fifth of gross domestic product and represented 21.4 % of GDP at the end Markets developer: Rodríguez of December 2007. While his predecessors fought successfully to wean the country off a Corporate Concentration dependence on foreign currency debt, The main problem still blighting the Rodríguez sees the current ratio of foreign corporate market in Mexico is that it remains an elite club, according to Rodríguez. “The Mexican market has traditionally been highly concentrated in the hands of a few very large issuers,” he says. “This leads to sudden distortions in the prices of some instruments. You only see triple A issuers like Telmex, Cemex and América Móvil, but you still don’t see the smaller companies that might have lower local credit ratings.” Rodríguez also laments that the market in Mexico for repos and securities lending is woefully underdeveloped, saying such instruments are key to increasing secondary market liquidity. He adds that the government has laid the regulatory groundwork but must put more effort into educating would-be investors. Rodríguez, one of the most respected borrowers out there, hopes to see his work and that of his predecessors pay off by helping poorer Mexicans insure themselves through the private sector against unemployment, natural disaster and falling house prices. “It might all sound a little abstract at times but when you start to see concrete changes like this the benefits to real people become clear,” he says. “This is exactly what we’re striving for when we talk about the development of financial markets.” LF Confronting a Crisis T he four men responsible for changing the shape of Mexico’s debt structure over the past decade give their thoughts on the way the looming US economic crisis will affect Mexico and its debt capital markets. Whenever these flows were interrupted the consequences were terrible. There was no way to hedge and everyone was exposed. Everything that has happened in the last few years has helped reduce these risks.” Carlos García-Moreno, CFO, América Móvil: “Bank crises always tend to be underestimated early on. There are situations that may still deteriorate significantly from where we are. I’m not saying that markets are completely shut, but there has been a very significant reduction in issuance levels. Some transactions will get done, but the problem is how many transactions are not getting done and will not get done.” Andrés Conesa, CEO, Aeroméxico: “In 1994 a large part of our debt was coming due during the following next 12 months. Today we don’t have this problem. Neither the government nor companies need financing. This is a brutal difference.” Gerardo Rodríguez, head of public credit: “You have to put things into the perspective of Mexican economic history and the problems we have faced. In 1994 the exchange rate fell to half its value, the economy shrunk and interest rates blew sky high. We can’t say this will not affect us, but the impact it is having is to reduce growth from 3.5%-4.0% to between 2.7% and 2.8%. We are losing a percentage point of growth compared with suffering enormous problems in the past.” — Greg Brosnan Alonso García Tamés, president, Banobras: “We’re not immune to a new crisis, but I think that the effects will be very different from previous crises. We have much more developed financial markets, floating interest rates, a floating exchange rate, balance in public finances, internal savings, a market of local institutional investors in the form of Afores. Ten years ago we depended exclusively on foreign financing. May 2008 LATINFINANCE 41
Latin Finance - May 2008

Table of Contents for the Digital Edition of Latin Finance - May 2008
