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AmericasSeptember 2 2007

Tax make or break

Brian Caplen reports on Mexico’s plans to build on its financial stability and raise pitiful tax take levels.
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Economists have spent years studying debt crises in emerging markets only to see their prey become close to extinct. Now, however, they have a new quarry to track – let us call it the emerging market revenue crisis, in which Mexico is out front with both the problems and, possibly, the solutions.

Mexico has had more than its fair share of external debt crises over the years, most spectacularly the Latin American collapse of the 1980s that led to the issuance of Brady bonds, as well as the Tequila and banking crises in the mid-1990s. But right now the external debt situation of Mexico is probably the best it has ever been in the country’s entire history. The government debt burden is a mere 31% of gross domestic product (even lower than the 34% that is the median level of other similarly rated sovereigns) and even adding in other public sector borrowers only brings this number up to 46% – inconsequential by European standards.

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