Mexico Is Approaching Tequila Crisis-Era Debt Levels Daniel McDonald - Daily News
go to original February 29, 2016

The Mexican Miracle? The Lead-Up to the Tequila Crisis (Marginal Revolution University )

Mexico’s surging debt load is raising red flags for Deutsche Bank AG and Barclays Plc.

The broadest measure of debt as a percentage of gross domestic product has swelled to 46 percent from 38 percent in President Enrique Pena Nieto’s first three years in office as plunging oil prices eroded government revenue and a weak peso made it more expensive to borrow in dollars. That compares with a 2 percentage-point increase in the three years before he took office, government data show.

According to the Bank of International Settlements, the debt burden is the highest since 1995, during the so-called Tequila Crisis, when panicked investors sold off their short-term debt and sparked a peso depreciation. The International Monetary Fund estimates that the figure is at least as high as 1996.

Rising leverage threatens to once again erode investors’ confidence in a country that currently enjoys borrowing costs that are among the lowest in the region. Mexico, one of four investment-grade major economies in Latin America, is also the biggest issuer in international debt markets and pays on average 3.6 percentage points above U.S. Treasuries, according to data compiled by JPMorgan Chase & Co. That’s almost 2 percentage points less than the regional average.

“The speed of growth could be troubling,” said Alexis Milo, Deutsche Bank’s chief Mexico economist, referring to debt levels. “A deterioration in Mexico’s fiscal perspective could have an impact on the cost of financing its debt, especially as sooner or later interest rates will rise around the world.”

Read the rest at Daily News

Related: Can Mexico Reclaim Its Title as Latin America's Economic Powerhouse? (Global Risk Insights)

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