Mexico Eyes Repo Breakthrough

Mexico has initiatives in place that should stimulate a fully functioning repo market in the second half of 2007, Gerardo Rodríguez, Mexico’s deputy undersecretary for public credit tells LatinFinance. “Repo and securities lending markets are perhaps the one and only missing link in terms of market development, so that we can say with confidence that we have a complete local debt market,” says Rodríguez. Mexico has started a program to financially reward market participants engaged in repo and securities lending activity and penalize those who are not. There are several parallel initiatives, including making insurance companies provision for securities lending. Afores are getting clarification from Consar on limits and how to trade repo, while withholding tax exemptions for foreign investors are being stated. “Everything is happening in the short term,” says Rodríguez. “This package we are working on together with the central bank should be enough for the market to finally take off,” adds the official. To get secondary corporate trade off the ground, Rodríguez says that in his personal view, sorting out operational and legal impediments to foreign participation should take priority. This includes making local debt deals euroclearable and registered overseas. The 4.9% withholding on overseas involvement in corporate trade is unlikely to be lifted any time soon. “Tax issues in financial markets tend to be over-evaluated,” says Rodríguez. He also tells LatinFinance that the pension fund reform making its way through congress this week will save Mexico 20 points of GDP on an NPV basis.