ABSTRACT
Petroleum, Mexico's largest export, generates two-thirds of governmental receipts of foreign exchange and one-third of the government's budget. Mexico should follow a strategy of value maximization for several reasons. The value Mexico receives for oil should be primary among the competing goals its seeks to pursue in the short term. The Mexican government risks temporary and long-term losses that might never be recouped if it does not maximize the value it receives for exports by increasing volumes. In terms of prevention, Mexico can also begin actively to hedge against future price surprises—specifically by trading paper barrels on the futures market. A related approach would be the establishment of a floating storage system for crude oil close to Mexico's major markets. Mexico has actually had a tradition of innovation in the use of petroleum as a financial instrument. Oil-linked bonds were issued by Mexico in 1977.
