By Maxine Shapiro, KERA 90.1 commentator
Dallas, TX – In spite of the fall-out with Argentina's economy, it looks like Mexico is holding steady. But can they grow? I'm Maxine Shapiro with KERA Marketplace Middays. It looks like our good neighbors to the South will know the answer to that in a couple of weeks.
That's when Standard and Poors Rating Service will announce whether or not Mexico should have their sovereign debt upgraded to investment status. So what does that mean? Not being able to explain it myself, I asked Rob Nash, head of fixed investments with Dallas-based SWS Securities to help me out. This is how Nash explained it: when you and I go to borrow money we have a credit rating. If we've paid all our bills on time and are not overly in debt, we're considered a good risk. Therefore, we get a lower interest rate because of our good rating. Same with Mexico or any country or corporation that is looking to borrow money. This money would be borrowed from Mexican citizens, companies or the U.S., to name a few, in the form of bonds. These bonds can also be part of mutual funds.
Now this is where the suspense lies for Mexico. Even though back in March of 2000 Moody Investor Service upgraded Mexico to investment status and yesterday moved them up another notch (while Fitch Rating did the same last month without Standard and Poors upgrade), there is no consensus and therefore it will leave Mexico status quo. As Nash explained, the issue isn't that one rating service has more power than another. The problem is, that the line for Mexico is clearly drawn. Either they are not investment worthy or they are. They are literally on the threshold of junk bond status vs. investment grade. Nash clarified that "junk bond" is a common term for those bonds, rating just below that all important investment line. An important point here - most mutual funds are restricted from investing in junk bonds.
So you can see how vital it is for Mexico to receive this upgrade from Standard and Poors. And forgive me, but I've just got to say it. If only they were this cautious with Enron. For KERA Marketplace Middays, I'm Maxine Shapiro.
Marketplace Midday Reports air on KERA 90.1 Monday - Friday at 1:04 PM.