June 12, 2019 / 7:37 PM / a year ago

UPDATE 1-Mexico must boost Pemex creditworthiness -central bank chief

(Adds comments from governor)

By Sharay Angulo

MEXICO CITY, June 12 (Reuters) - Mexico should reinforce Pemex’s creditworthiness after recent downgrades given the state oil company’s importance for the economy, public finances and the financial system, Central Bank Governor Alejandro Diaz de Leon said on Wednesday.

Fitch last week cut Mexico’s sovereign credit rating and then became the first major ratings agency to downgrade the bonds of Pemex to “junk” status, in a setback for President Andres Manuel Lopez Obrador, who has pledged to revive the company.

Diaz de Leon, in a presentation of the central bank’s latest financial stability report, said the ratings of Pemex and the Mexican government are important risk factors that must be dealt with.

Ratings downgrades can affect the financial system’s creditworthiness and availability of funding, he said, saying that external financing to Mexican companies has slowed. The financial system has maintained a solid position in spite of uncertainty, he said, but it is necessary to keep reinforcing regulation and supervision.

“When credit quality is impaired, it can have effects not only on the financial cost but also on the availability of credit,” Diaz de Leon said. “That is why we have determined that this is an element that must be addressed.”

Mexico’s economy contracted by 0.2% quarter-on-quarter in the first three months of the year. Diaz de Leon said on Tuesday that the economic outlook for the coming months was uncertain.

Last week, Mexico made a deal with the United States to take tougher measures to curb migration, averting the threat of escalating tariffs on Mexican goods. Mexico agreed to a 45-day timeline to show that increased enforcement efforts were effective.

Diaz de Leon said any U.S. tariffs on Mexican imports would have an adverse effect on economy and price formation. (Reporting by Sharay Angulo Editing by Daina Solomon, Stefanie Eschenbacher and Leslie Adler)

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