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Brave new Mexico

The Mexican financial scene has substantially changed since the 1994 crisis. Out of the dust of the crash broader and better organized capital markets have emerged. Debt restructuring has built up yield curves and bank asset sales are creating new instruments. Even the equity markets seem more buoyant. Jennifer Tierney reports.

With economic recovery firmly established in Mexico, the government plans to consolidate its success in foreign debt markets and focus on the development of a peso-denominated yield curve. The immediate new horizon, though, is the presidential election due in 2000. The finance ministry is working overtime to overthrow the unfortunate Mexican tradition of capital flight and devaluations accompanying changes of administration. So current policy aims to clean house before the elections in both external and internal debt management.

The government largely completed its mission in external financing last year with a massive debt restructuring that included a $6 billion bond issue and a Brady bond exchange. As a result, government financing requirements have fallen dramatically. The United Mexican States (UMS) will borrow $1.5 billion next year, with a further $2 billion in maturities facing the state agencies, including some $600 million in bonds for development bank Nacional Financiera. This year the government concentrated on bonds that offered currency swap opportunities, particularly in lire and yen. The UMS also hit the market with two $1 billion issues.

Aside from refinancing, the government will continue to search for ways to reduce the cost of financing. Although the average cost of financing for the entire $70 billion in debt held by the UMS is still 6.5%,

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