Nuke 'Em, Duke 'Em Propaganda Machines - Goldman Attacks Fitch For Downgrading Mexico
As we pointed out previously, a Fitch downgrade of Mexico was only a matter of days (S&P - not so much, as the agency is back to its operational sweet spot in the middle of a Fed-enforced bubble). Sure enough, earlier today Fitch dropped Mexico's rating to BBB, citing “The global economic and financial crisis and falling oil
production have accentuated weaknesses in the sovereign’s fiscal
profile. These weaknesses
limit Mexico’s fiscal maneuverability in the face of future oil
income shocks." Yet the hilarious response to this somewhat prudent action came out of scandal-ridden Goldman Sachs, which openly derided Fitch for its action: "We differ from Fitch, because while far from ideal, the 2010 revenue
budget delivered a non-trivial fiscal adjustment amounting to just
under 2.0% of GDP. To be sure, the tax hikes and expenditure cuts could
have been deeper and structurally stronger. However, given the
magnitude of the contraction experienced by Mexico in 2009, few to no
countries adjusted fiscally this year. On the contrary." Subsequent to his report, attached in its entirety, Goldman analyst Paulo Leme continued the Chuck Norris routine: "Everyone else in the
region is experiencing deterioration in the fiscal accounts.
Mexico adjusted. Were the efforts Nobel Prize-winning public
finance? No. But they did a lot."
So there you have it: not only is the NY Fed openly encouraging rating shopping for TALF, but now rating agencies have to be concerned about angering a sleeping octopus, which as we all know, has every right to be morally indignant when others dare to promote an objective reality that may or may not align with Goldman's prop trading interests.
Full text of Goldman analyst Paulo Leme's decyring the rampant injuctice in this world:
Mexico: Fitch Downgrades Mexico One Notch to BBB – Stable Outlook
Today, Fitch Ratings downgraded the UMS to BBB (Stable Outlook) from a previous BBB+ with negative outlook. The local currency internal debt rating was also downgraded to BB+ form A-. The country ceiling was also downgraded to A- from A.
According to the statement from Fitch, the main reason for the downgrade was the reduced maneuverability of the Mexican fiscal accounts resulting from the decline in oil revenue (as production declines) and the hits to growth on the non-oil revenue base which, according to Fitch, narrowed. Another important reason was the forecast that Mexico’s general government debt ratio to GDP will rise to a projected 37% of GDP, which exceeds the BBB+ median. Fitch cited the unfavorable growth performance compared with its rating peers and limited ability to implement sustainable countercyclical fiscal policies as other reasons for the downgrade.
While Fitch acknowledged progress on the tax front as steps in the right direction, the rating agency said that more measures are required to address structural weaknesses of the public finances, particularly in light of lower oil production.
In its statement, Fitch also noted the need for Banxico to bolster its net international reserves position, using as an example the strains in the FX markets when derivative structures unwound with losses last year.
Finally, Fitch said that the prospects for deeper revenue-increasing tax reforms in Congress are not bight, because the opposition party the PRI controls the Lower House. The report added that the 2012 elections will render reforms and political agreements more difficult.
In our opinion, the downgrade is harsh, but fair in the context that it was not for the lack of warning to politicians that a strong 2010 budget and fiscal reforms capable of materially boosting non-oil revenues were key for Fitch to maintain the rating.
We differ from Fitch, because while far from ideal, the 2010 revenue budget delivered a non-trivial fiscal adjustment amounting to just under 2.0% of GDP. To be sure, the tax hikes and expenditure cuts could have been deeper and structurally stronger. However, given the magnitude of the contraction experienced by Mexico in 2009, few to no countries adjusted fiscally this year. On the contrary.