UPDATE 1-Pro-growth reforms help Mexico attract investment - finmin

Mon Jan 27, 2014 10:58am EST

By Natsuko Waki

LONDON Jan 27 (Reuters) - Mexico is attracting foreign investment thanks to growth-enhancing reforms, the country's finance minister said on Monday, adding that market volatility would subside once investors focus on good economic fundamentals.

A broad emerging-market sell-off that started last week has weighed on Mexico, where the peso sank to an 18-month low against the dollar and the benchmark equity index touched its lowest level since November on Friday.

But investors will differentiate once the risk aversion subsides, Luis Videgaray said, with Mexico's prospects for growth attracting foreign investment.

"There's good momentum for foreign direct investments to Mexico," Videgaray told a briefing. "It's because of expectations of future growth. The reform process will accelerate the growth prospect. We expect a stampede-type of effect we saw last week will abate.

"Mexico is still an emerging economy, very open economy, so it's natural we experience some volatility, but we're in a much better shape than many other economies."

Videgaray was in London to receive the Finance Minister of the Year award from the Banker magazine. Last week, he and President Enrique Pena Nieto announced a $7 billion investment deal from PepsiCo, Nestle and Cisco in Davos.

Growing confidence in the government's economic reforms earned Mexico a ratings upgrade from Standard & Poor's in December. It is relatively well-placed among emerging economies thanks to its current account.

Videgaray said the country is exploring more FDI opportunities from China and Europe. For now, the United States remains the main source of foreign investments. He also said he expected no changes in taxation policy for the next few years.

Mexico's Congress passed President Pena Nieto's new tax scheme in October. The fiscal overhaul includes higher income tax rates for the wealthy and new levies on junk food, soft drinks and stock market gains.

Mexico once had the lowest tax revenue in the 34-nation Organisation for Economic Co-operation and Development. That curtailed spending on health, infrastructure and social programs needed to boost living standards in Latin America's second-largest economy.

"The President and workers unions and the private sector will be signing an agreement next month where there will be commitment not to change any of our taxes in years to come. We expect no changes in taxation for at least the next 3 years," Videgaray said.

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