Cheap oil is an unexpected economic windfall for Western Europe, the United States, and Japan. It gives China, Brazil, Turkey, and other medium-sized powers a refreshing break on their imported energy tabs. And, it improves what economists call the ``LDC debt problem'' for both oil importers and banks that have lent to such less-developed countries (LDCs).
There are, however, big losers, including such important powers as Nigeria, Egypt, Norway, and the Soviet Union.
Of greatest concern to Western bankers and economists is the large and populous country of Mexico.
In all, Mexico owes $97 billion -- one-quarter is held by United States banks. Nonpayment of interest alone would set the Western banking system awry.
Mexico has been living beyond its means. But many countries, including the US, do. Mexico, however, borrowed heavily in the late 1970s, expecting to use its vast oil reserves to service the loans.
Most of the money, according to officials such as Finance Minister Jesus Silva Herzog, went to projects meant to help Mexico exploit its resources and gain the aspiring-industrial nation status enjoyed by the likes of South Korea or Brazil.
The first trouble hit in 1982 when interest rates shot up. Much of the country's foreign debt was at floating rates. Thus, Mexican interest obligations rose, too. The US Federal Reserve, the International Monetary Fund, and other agencies arranged a bailout.
And now comes the oil collapse.
In the past two weeks, Mexico has had to cut its oil prices from almost $24 a barrel to $15. Unless more oil is sold, this price cut means a 37 percent drop in oil income practically overnight.
Some economists now believe that Mexico is on the verge of having to declare a debt-payment moratorium.
Originally, Mexico had been asking for $2.5 billion in credits from commercial bankers and another $2.3 billion from the IMF to make it through this year. However, that was before the big drop in oil prices. Now it is seeking upwards of $10 billion, and the Mexican Ministry of Planning and Budget wants an effective 6 percent interest rate cap on the debt rather than the current 10 percent rate.
``People have the confidence that some sort of bail out will be orchestrated,'' says Javier Murcio, a Mexican economy specialist for Data Resouces Inc.
But, while the US Treasury, the IMF, and others could organize a special facility for Mexico, they are unlikely to simply hand over money -- especially without Mexico agreeing to substantial economic reforms. ``You have to remember,'' says a European economist, ``that essentially this is a problem between debtor and creditor.''
The concern over Mexico's finances extends to a number of US money-center banks, such as Manufacturers Hanover Trust, Bank of America, and regional banks in Texas.
Portfolios at some banks are mitigated somewhat, however, by improving loan performance among LDC oil-importers, such as Argentina and Brazil.
A most serious situation would arise if the Mexican debt problem brought a loss of confidence in a big US bank. This could trouble bondholders and shareholders of these banks. And, if the banks had to largely write off the loans, the problem could end up in the lap of US taxpayers.
Although some loans are held by British and West German banks, the Mexican debt crisis is essentially an American problem. And, pulling Mexico through would be tricky but not without rewards.
Promoting regional stability and development would be only one benefit. In the long run, loaner nations would also gain by helping Mexico through to the 1990s and beyond, when, as most oil experts expect, energy demand will go up and many oil countries will see their reserves dwindling, Mexican oil will be highly prized.
Last in a three-part series. Previous articles appeared Feb. 19 and 20.