Mexican straits point to a hold on debt repayment

Within the next few months, financially strapped Mexico is expected to declare a type of moratorium on its foreign debt by paying its creditors in nonconvertible pesos instead of dollars, according to bankers and Mexicans close to the government. Economists, newspapers, and -- off the record -- some government officials predict that by the end of the summer Mexico's economic situation will be at least as bad as it was when it went bankrupt in August 1982 and turned to the United States for an emergency loan.

``Times are tough now, and in a few months they are going to be real tough,'' said a Western banker whose bank holds Mexican loans. ``Mexico isn't going to fall immediately, but a real downward spiral has started.''

Patricia Nelson, a respected financial columnist for the Mexico City News, said the situation is so bad that Mexico doesn't even know how much money it needs in new loans to keep going.

Mexico is negotiating with the International Monetary Fund (IMF), but the talks are stalled. Private banks, including hundreds in the US, have refused to discuss new loans or debt rescheduling with Mexico until it has reached an accord with the IMF.

``The silence is deafening,'' the banker said. ``No one is doing anything or talking.''

Bankers say Mexico is losing $200 million to $300 million a month from its net reserves to make up the revenue lost by the drop in oil prices. They point out that 47 percent of the funding for the Mexican budget comes from oil earnings.

Bankers say they are almost certain Mexico will announce it is paying its foreign debt in nonconvertible pesos into special Bank of Mexico (the central bank) accounts before the September IMF meeting, since at that point Mexico's reserves will be dangerously low if not exhausted.

The latest Bank of Mexico report on the reserves said they amounted to $2.8 billion, according to the newspaper La Jornada. Many economists say this is not enough to pay for vital goods and services for two months.

This mechanism would allow face-saving on both sides of the loans, since Mexico would be seen by its economically pinched population to be standing up to the banks, but would not so irritate the world financial community that new loans were impossible.

The banks, particularly the large American ones heavily involved, would be able to keep the loans on their books as ``performing'' ones and avoid having their stability threatened or their profits severely hurt by having to write them off.

How long the pesos would be nonconvertible and whether or not the banks would be able to lend the money within Mexico to earn interest would be a matter of negotiation, bankers say.

Servicing the foreign and internal debt saps three-eighths of the Mexican budget.

The Mexican government would like various international monetary organizations and the banks each to stop demanding their own remedies for the economy as a quid pro quo for new money and realize that the belt cannot be tightened any more.

Bankers counter by saying Mexico would be in far better shape if it had actually made many of the budget cuts and economic reforms that have been announced.

On Monday President Miguel de la Madrid repeated what several members of his Cabinet had indicated earlier: ``We are going to fulfill our financial obligations in accordance with our real capacity to pay and without choking the nation's production apparatus.''