The Structure of Mexican Public Debt

This paper studies the evolution and composition of the public debt of Mexico, with an emphasis on the internal components. The results of the analysis suggest that there is no evidence of a strong relationship between the premia payed by the different instruments and the structure of the public debt. Consequently, we refute the widespread notion that public indebtedness policies have increased the cost of servicing the debt. The empirical analysis suggests that the Mexican government increased the share of domestic currency denominated instruments in the public debt as a response to increased inflationary uncertainty. On the contrary, the government reduced the share of foreign currency denominated instruments in the public debt as a response to increased exchange rate uncertainty. This is interpreted as consistent with the antiinflationary commitment of the government because it kept the domestic debt indexed to inflation and, thus, reduced the incentives to liquefy the debt via price increases.