UPDATE 3-Fitch boosts outlook for Mexico debt ratings
(Recasts, adds details)
By Noel Randewich and Jason Lange
MEXICO CITY, March 29 (Reuters) - Fitch Ratings improved its outlook on Mexico's long-term debt ratings on Thursday to "positive" from "stable," encouraged by a landmark pension reform seen as clearing the way for an overhaul of tax laws.
The better outlook applies to the country's "BBB" long-term foreign currency issuer default rating and "BBB+" long-term local currency issuer default rating, Fitch said in a statement.
The new outlook means Fitch is more likely to upgrade its rating on Mexico over the next two years. Fitch also affirmed the current ratings, as well as the country ceiling rating of "A-".
Fitch said its outlook reflected the passage in Congress this week of an overhaul of the public sector pension system, known as ISSSTE, which it said creates momentum for other economic reforms.
New President Felipe Calderon is expected to try to convince Congress to pass deep changes to tax laws this year to increase government revenues, which Fitch said would make Mexico more credit-worthy. Calderon's party lacks a majority in Congress.
"The recent passage of the ISSSTE reform sends a positive signal regarding the ability of the new administration to make headway in a divided Congress," Fitch analyst Shelly Shetty said in a statement.
Mexico's financial markets surged on the news.
The yield on the benchmark 10-year government peso bond MX10YT=RR dropped 6 basis points to near a three-month low of 7.52 percent, while the peso MXN= MEX01 firmed 0.46 percent in local trading to 11.019 per dollar.
The IPC stock index .MXX jumped 2.16 percent to 28,704.24 points.
Mexico's Senate approved a bill on Tuesday to introduce individual retirement accounts for those in the pension system.
MORE REFORMS
Calderon had warned the government was in danger of running hefty budget deficits unless Congress tackled the problem this year.
"Continued reform momentum, including the passage of a revenue-enhancing fiscal reform, would be positive for credit-worthiness," Fitch's Shetty said.
Standard & Poor's told Reuters on Wednesday the pension overhaul was helpful for its 'BBB' rating on Mexico's sovereign debt.
Fitch also said Mexico's reduction of external debt and the recent introduction of rules for avoiding budget deficits was positive for the country's outlook.
Fitch could upgrade its rating if the government reduces its dependence on oil revenue, increases oil production or improves competitiveness in Mexico, Shetty said.
To speed up relatively slow economic growth, Mexico may need to overhaul its energy industry and labor laws, she said.
Calderon is expected to try to bypass a constitutional ban on companies other than state oil monopoly Pemex exploring for oil so that Pemex can venture into challenging deep-water drilling to compensate for falling output from older fields.
Mexico's economy expanded 4.8 percent last year and is seen growing around 3.5 percent in 2007.
The economy has become increasingly stable in recent years, and interest rates have gone down as the central bank maintains a tough stance on inflation and the government brings spending in line with its revenues.
But Mexico's tax take is among the lowest in Latin America on a per capita basis, and the government depends on volatile oil income for about a third of its revenues. (Additional reporting by Al Yoon in New York)
