The ratings on the United Mexican States reflect: Growing macroeconomic stability; An improving debt profile; and Improving external liquidity. The ratings are constrained by: Lack of political consensus on key structural reform; The government's narrow non-oil tax base; and Weak institutional framework that constrains GDP growth prospects. Low inflation, a flexible exchange rate, and deepening financial markets give Mexico increasing degrees of freedom to adjust to negative external shocks. Growing integration with the U.S. economy, as shown by the tight connection between industrial growth in the U.S. and GDP growth in Mexico, contributes to greater stability. That, in turn, sustains investor confidence despite little prospect of structural reforms until the next presidential elections in mid-2006. Monetary stability and growing domestic
