1. September 30, 2004 Lic. Benito Solis M. Director General Regional Roundtable Breakout Session: Current Experience, Innovation and Opportunities: Latin America – Mexico

2. Asignación de Calificaciones a Estados y Municipios: Los Factores y el Proceso 2 Current experience, innovation and opportunities: Latin America Experience: Moody’s Ratings ’ Moody’s is one of the two leading credit rating agencies in the world ’ It started in 1900 rating bonds in the US and now operates in over 100 countries with more than 20,000 ratings per year ’ The company rates debt from companies, countries, financial institutions - and also states and municipalities ’ In Latin America, Moody’s rates almost 100 subsovereign entities.

3. Asignación de Calificaciones a Estados y Municipios: Los Factores y el Proceso 3 Current experience, innovation and opportunities: Latin America Experience: Moody’s Mexico ’ Moody’s, a latecomer to Mexico, opened offices in late 2000 and covers similar categories - including subsovereign ’ Previously subsovereign debt in Mexico was mainly made through the federal government and its banks ’ Recently, changes in the law mandated states and municipalities to secure 2 ratings in order to obtain lower cost government bank loans

4. Asignación de Calificaciones a Estados y Municipios: Los Factores y el Proceso 4 Current experience, innovation and opportunities: Latin America Experience: Ratings List ’ All 32 states – some shown below - and most larger municipalities (74) now have ratings: Estado de GuanajuatoAa1.mx Estado de TamaulipasAa2.mx Estado de NayaritAa3.mx Estado de TabascoAa3.mx Estado de TlaxcalaAa3.mx Estado de MichoacánA1.mx Estado de Puebla Estado de MorelosA2.mx Estado de Quintana RooA2.mx Estado de Yucatán Estado de DurangoA2.mx Estado de ZacatecasA2.mx Estado de San Luis Potosí Baa2.mx Estado de SonoraBaa1.mx Estado de Baja CaliforniaA1.mx Estado de Nuevo LeónA3.mx Distrito FederalAaa.mx Estado de Chihuahua Estado de Chiapas Estado de OaxacaA3.mx Aa3.mx A3.mx A2.mx A3.mx Estado de VeracruzA1.mx Estado de GuerreroA2.mx States Moody’s:

5. Asignación de Calificaciones a Estados y Municipios: Los Factores y el Proceso 5 Current experience, innovation and opportunities: Latin America Experience: Subsovereign Debt ’ The debt of all states and municipalities has doubled in real terms in the past decade (million of Mex. pesos)

6. Asignación de Calificaciones a Estados y Municipios: Los Factores y el Proceso 6 Current experience, innovation and opportunities: Latin America Innovations: Combined Initiatives ’ Moody’s has provided seminars to help orient and educate local governments in this new financial rating process ’ States are now using the ratings to issue bonds to investors for investment projects ’ By law they can only take debt in Mexican pesos - and only for investment ’ Local governments are now securitizing revenues from toll roads, and water and sewage plants - to guarantee new debt

7. Asignación de Calificaciones a Estados y Municipios: Los Factores y el Proceso 7 Current experience, innovation and opportunities: Latin America Opportunities: Door Opener ’ The introduction of the rating process has opened new doors that is matching private capital with local government needs ’ Among the new opportunities foreseen are:  Infrastructure projects  Local industrial parks  Communications systems  Land and residential development  Educational and skills facilities

8. Asignación de Calificaciones a Estados y Municipios: Los Factores y el Proceso 8 Current experience, innovation and opportunities: Latin America Challenges: Addressing Issues ’ Limited financial knowledge of many public officials (A: Seminars) ’ Small municipalities find rating fees difficult to absorb (A: Wholesale fees) ’ Hesitation to “open the books” (A: Society reinforcing need for public ratings) ’ Government transitions create “protective” measures – some new administrations must learn from scratch (A: Learning process) ’ Higher inflation and interest rates could hurt this new market (A: Solid macro-economic policies and floating interest rates)