S&P's move followed some outspoken comments by Claudio Loser, a former Western Hemisphere director at the IMF, on 11 May. Loser, an Argentine, noted that Mexico has to pay a higher spread in the markets than Brazil, yet credit rating agencies rated Mexico a better risk than Brazil. S&P rates Mexico BBB+, three notches into investment grade. Moody's, the other big US rating agency, also rates Mexico as investment grade, though it too is warning that Mexico faces a downgrade. Neither agency expects to strip Mexico of its investment grade rating, even though S&P expects the economy to contract by 5.5% in 2009.
The big economic problem Mexico faces is the government's reliance on oil revenues. These are now falling, partly because of sliding international prices, but mostly because production is wilting. Successive Mexican governments have failed to find ways around the constitution, which keeps the oil industry a state monopoly. This constitutional provision, coupled with the financial weakness of the state oil company, Pemex, has thwarted development of the potentially huge oil fields in the deep waters of the Gulf of Mexico.
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