DALLAS -- As the North American Free Trade Agreement nears completion, Texas border cities are hopeful that Wall Street analysts will see the treaty as a reason to upgrade their ratings.

Some officials, however, say the cities may have to wait as much as two years before seeing any credit benefit from the pact President Bush signed this week.

The agreement with Mexico and Canada, which still must be ratified by Congress, would create a $6 trillion trading bloc with 360 million consumers, a grouping that border officials say their cities are positioned to benefit from.

"I think we're about 18 months away from [upgrades], conservatively speaking," said Noe Hinojosa Jr., a partner at Estrada, Hinojosa Securities Inc. in Dallas and a veteran banker in the border region. "I think right now the rating agencies are going to wait until after Congress acts to see what the impact will be."

But others see reason for quick action.

"We've always felt the biggest benefit is that the agreement would institutionalize what has already been happening here and in Mexico," said Laredo City Manager Peter Vargas. "This should render an immediate benefit to our ratings."

He is one of several local officials along the Texas-Mexico border who believe rating agencies slight the region. Further, those officials believe they have been penalized by the agencies because of their historical links to Mexico's economy, a link they believe is made stronger by a free trade agreement.

Harlingen City Manager Mike Perez said that during a recent ratings trip to New York, one analyst was blunt about why the city's A-rated general obligation bonds would not be upgraded.

"One analyst was very frank with us and said that, ~If your community was located anywhere else in Texas, we would upgrade you,'" Mr. Perez said, "I think we're being penalized because of the perceptions they have of Mexico. It's kind of like if you're on the border, it's minus five points to just get started."

But analysts disagree.

"The border has never been treated differently than the largest or smallest municipalities in Kentucky, Maine, California, or New York," said Peter D'Erchia, senior vice president at Standard & Poor's Corp. "It's not because they're on the border."

But local officials and investment bankers in the region say that rating agencies have been slow to react to a decade of robust economic growth triggered by a sharp devaluation of the Mexican peso in 1982. In the years since, some cities along the border have experienced 25% growth, which they attribute to the liberalized trade policy within Mexico that is embodied in the free trade pact.

In pact, U.S. trade with Mexico has doubled to $65 billion a year since 1986, and officials expect the same kind of growth in the next five years.

"It shouldn't lead to immediate upgrades of credits because it's more of a long-term factor," said Amy Doppelt, senior vice president at Fitch Investors Service.

Added Richard Raphael, managing director at Fitch, "The short-term impact should be good, but over the long-term the real question is on the maquiladoras."

The maquilas, as they are known, are American-style manufacturing plants built along the Texas-Mexico border in special zones. Mr. Raphael said it is unclear if a free trade agreement might give manufacturers more incentive to leave the border for Mexico's interior.

"All of the cities are touting the fact that the trade agreement is going to provide some impetus for growth," said Robert Stanley, vice president and assistant director for Southwest ratings at Moody's Investors Service. "As of yet, we haven't started to factor that [free trade] into the ratings."

He and others noted that the agencies already rate cities such as Harlingen, Laredo, and McAllen in the single-A range, which is in line with the ratings distribution across Texas.

They also say the economic activity has still left the region with high levels of unemployment and poverty. For instance, while Laredo has had rapid growth, the city last week was listed as one of the top 20 cities nationally with a high incidence of child poverty.

Still, border officials say that rating agencies will eventually follow investors in their perceptions.

"The last time we had a GO bond sale, our bonds were gone in 15 minutes," said Mr. Perez. "Anyone buying our bonds right now is getting a great deal."

Mr. Hinojosa, who has worked with border officials for much of the last decade, agreed that investors perceive local credits to be under-valued and a bargain.

"I think people are more objective now," he said. "They now see the border with more positives. I don't think anyone is afraid to invest there anymore."

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