"If this reform does not take place in the coming months, spending adjustments to
                 keep public debt within established limits could be very important," Carstens said at
                 a finance conference Saturday in the Caribbean resort of Cancun. "This adjustment
                 would have serious impact on the country's growth."

                 In the first quarter, the government announced spending cuts and savings totaling
                 $1 billion this year due to an economic slowdown.

                 With economic activity slipping and oil prices falling,
                 the Mexican government is seeking to secure
                 congressional votes for fiscal reform, which would
                 increase tax revenue by $12.4 billion in the first
                 year.

                 The proposal has stalled in the Congress, facing stiff opposition to its plan to extend
                 15 percent value-added taxes to food and medicine that are now exempt.

                 Failure to approve the reform would threaten investment plans for state oil
                 monopoly Petroleos Mexicanos (Pemex) and the state-run Federal Electricity
                 Commission, Carstens said.

                 "The government's ability to create basic infrastructure to guarantee potential future
                 growth, above all in the energy sector, would be compromised," he said.

                 Mexico's quest for investment-grade rating from Standard & Poor's also is bound
                 to the reform package. Economists have said that even toned-town tax reforms
                 would likely prompt the agency to boost Mexico's rating in the medium term.

                 Mexico projected a second year of lagging economic activity, with 1.74 percent
                 growth seen in 2002 compared with 0.13 expected this year, a stark picture on
                 which the new budget proposal will be based.

                 The government has projected a fiscal deficit of 0.65 percent this year.

                 "We hope to reduce the fiscal deficit little by little," Carstens said Saturday. "When
                 that deficit reduction can be made and under what circumstances will depend on
                 what happens in Congress in the coming months."

                 The September 11 attacks against the World Trade Center and the Pentagon have
                 slowed economic recovery in the United States and Mexico, but Central bank
                 governor Guillermo Ortiz said Mexican markets weathered the effects and interest
                 rates have returned to pre-attack levels, an indication of economic stability.

                 He reiterated Mexico's inflation target of less than 4.5 percent next year, with this
                 year's rate forecast at between 5.5 and 6 percent.

                 "Next year's inflation goal is ambitious but reachable," Ortiz told the conference.

                 He said the annualized increase in the Consumer Price Index through October
                 would be around 6 percent, compared with 6.14 percent for the 12-month period
                 that ended September 30

                 Banco de Mexico has set a 2003 inflation target of less than 3 percent. The targets
                 are aimed at bringing Mexican inflation rates in line with those of its principal
                 trading partner, the United States. Mexico's inflation last year reached 8.96 percent.

                    Copyright 2001 Reuters.