Mexico's new bailout greeted with caution by some at home

Mexico has reached a novel financing agreement meant to allow the country to grow economically in order to pay its enormous foreign debt. The new accord, reached late Tuesday night, with international private banks contains some points that are likely to make other debtor nations envious and prompt them to try for similar deals. But at the same time bankers, and even Mexican officials, warn privately that Mexico is a special case that should not be emulated.

The agreement was not even finalized in Washington before businessmen, labor leaders, and economists in Mexico dampened the economic good news with predictions that the new financing could easily be misspent, leaving Mexico with greater debts and without the economic growth the deal is supposed to generate.

Mexico is to receive $12 billion in new money from private banks and international financial institutions such as the International Monetary Fund. It is a larger amount than countries have normally received in such bail-out packages because Mexico persuaded bankers that the only way it could ever pay its estiated $100 billion debt was to create economic growth of 3 to 4 percent by 1988.

In the past, such rescue packages have entailed a couple of billion dollars and delay of some interest payments. The Mexicans have succeeded in renegotiating the terms binding about half of the country's entire debt this time.

Calling it a ``profound modification,'' Mexican Treasury Secretary Gustavo Petricioli said $43.7 billion will be paid back in 20 years with seven years grace.

Moreover, the interest rate Mexico will now pay on its debts will be lowered from 1.5 percent to .81 percent, saving Mexico $6 billion during the term of the accord. What is new in this is that for the first time the interest was fixed according to the London Interbank Rate instead of the United States prime rate which is higher.

There is also a contigency mechanism which allows Mexico access to more money should the price of oil -- it's primary foreign exchange earner -- slip below $9 a barrel. Never before has such a deal included a clause recognizing the link between the ability of a country to earn and therefore its capacity to pay its debts.

There has already been talk in Venezuela and Argentina that they should follow Mexico's lead in their negotiations with bankers. However, Mexican officials say their deal was achieved only with a great deal of backing from the Reagan adminstration.

American bankers here point out that US banks have a far greater stake in Mexico than in other countries, so the US government had to take greater interest in order to protect the American banking system.

``Argentina is a political problem, Brazil is an economic problem, Venezuela is a management problem, and Mexico is a US problem,'' says one American banker.

Treasury Secretary Petricioli warned bankers when the negotiations bogged down this last weekend and Monday that if the banks did not make some concessions, it would not be just Mexico that would be hurt. ``It would be a failure for everyone [the Reagan adminstration, the International Monetary Fund, the banks, industrialized and debtor countries].''

The major organizations and chambers of commerce representing the majority of the Mexican private sector issued an unusual joint statement Monday pleading that the new money be wisely spent. The new funds ``shouldn't be monopolized by the government and should be used in the reactivation of the economy.''

The private sector fears that the money will go into public spending further fueling an already climbing inflation rate.

The most powerful labor union, the Confederation of Mexican Workers, is pushing for monthly salary adjustments indexed to inflation and for an immediate 50 percent wage increase. The Mexican government has been able to ignore labor demands for many months. However, the government of President Miguel de la Madrid Hurtado is now faced with the threat of a general strike if the demands aren't met in the next few weeks.

Economists here say the government may be ready to cave into these demands. They see this as locking the country into a vicious cycle of inflation and salary hikes that would, in the short term lead to economic growth and greater consumer purchasing power, but in the medium term to large devaluations and eventually to perhaps even scrapping its currency to break the trend.

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