Tuesday, December 15, 2009

Submerging markets

Some of the emerging market darlings are submerging, but the love may linger anyway.

Mexico's debt is downgraded to just above 'junk'
Standard & Poor's lowered its rating on Mexico's foreign-currency debt to BBB from BBB-plus, after a cut of the same magnitude by Fitch Ratings on Nov. 23.

If Mexico were to fall to a BB rating, its debt would be considered non-investment-grade, or junk. That would wipe out the progress the country made regaining investment-grade status early in this decade.

Mexico has raised taxes this year to boost revenue, but the measures haven't gone far enough given declining oil production, S&P said.

But stock and currency investors continue to give Mexico the benefit of the doubt in the short run. Some investors may well wonder why the country deserves a lower debt rating than Greece, given the latter's far more desperate budget situation.

S&P's projection that Mexico's budget deficit will average 3% of gross domestic product through 2011 looks modest compared with Greece's deficit, which is expected to be near 13% of GDP this year. S&P still rates Greece A-minus, waiting to see what steps the government will take to rein in spending.

Meanwhile, back in the USSA:

US needs plan to tame debt soon, experts say
The U.S. government must craft a plan next year to get its ballooning debt under control or face possible panic in financial markets, a bipartisan panel of budget experts said in a report on Monday.

Though the government should hold off on immediate tax hikes and spending cuts to avoid harming the fragile economic recovery, it will need to make such painful changes by 2012 in order to keep debt at a manageable 60 percent of GDP by 2018, according to the Peterson-Pew Commission on Budget Reform.

The national debt has more than doubled since 2001, thanks to the worst recession since the 1930s, several rounds of tax cuts and wars in Iraq and Afghanistan.

A looming wave of retirements over the coming decade is expected to make the situation worse.

The national debt currently accounts for 53 percent of GDP, up from 41 percent a year ago. That's likely to rise to 85 percent of GDP by 2018 and 200 percent of GDP by 2038 unless dramatic changes are made, the commission said.

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