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TEXT-Fitch: broad policy continuity expected under Pena Nieto
July 2, 2012 / 3:33 PM / 5 years ago

TEXT-Fitch: broad policy continuity expected under Pena Nieto

July 2 - Mexican voters Monday chose Enrique Pena Nieto of the Partido
Revolucionario Institucional (PRI) as their president, but, despite a new
administration, Fitch Ratings expects broad policy continuity will anchor
macroeconomic stability. We note Mexico's political institutions have
strengthened, allowing for a smooth transition of power.

We believe Pena Nieto will inherit a resilient economy in December 2012, with
Fitch projecting GDP growth of 3.5% this year. Economic performance is
underpinned by the expanding industrial production, recovery in consumer credit,
and moderate inflation. International reserves are at historically high levels,
supporting the country's shock-absorption capacity.

We also note that Mexico's growth momentum is closely tied with the performance
of the U.S. economy, with downside risk mostly stemming from softer U.S. growth
or increased risk-aversion related to the Eurozone crisis.

Congressional elections were also held. We will continue to monitor outcomes in
its makeup and resultant cabinet positions that will be important in determining
success regarding Nieto's legislative agenda. In recent years, the lack of a
majority in the Mexican Congress has aggravated gridlock on economic reform.

Historically, most Mexican reforms have materialized early in the term of a new
president. As such, the next year to year-and-a-half provides an ideal window of
opportunity to the incoming administration to pursue economic reforms
aggressively, especially given that mid-term Congressional elections are now
three years away. While Pena Nieto has expressed willingness to pursue some
economic reforms, strong leadership, a proactive negotiation stance with the
opposition and unions will be important for achieving success.

The need for both structural and institutional reform is evident in light of the
relatively modest economic growth performance of the Mexican economy and the
increased drug-related violence levels. Progress on reforms that increase fiscal
flexibility, open the oil sector for additional private investment, and improve
the overall competitiveness would be positive for the Mexican economy. We also
believe that a strategy to reduce violence will also be important for bolstering
investor confidence and improving business and investment environment of the
country.

A new administration allows for a reexamination of structural impediments facing
the economy. Again, while we believe that Mexican economy's resilience to the
increasing external headwinds is positive, there are clear challenges remaining.

For more information on this topic, please see our special report entitled,
"Mexico's Electoral Cycle Neutral for Creditworthiness," published on May 15 and
available at www.fitchratings.com

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market
commentary page. The original article, which may include hyperlinks to companies
and current ratings, can be accessed at www.fitchratings.com. All opinions
expressed are those of Fitch Ratings.

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