Mexico wants Latin debt load shifted to wide political arena
Mexico, praised by American banks and the International Monetary Fund (IMF) for managing its debt crisis, is finding its austerity regimen extremely difficult -- and is looking for a way out. At the invitation of Mexican President Miguel de la Madrid Hurtado, representatives of 10 heavily indebted Latin American countries convened in Mexico last week.
Western bankers and economic analysts here believe the meetings may have been the beginning of a campaign, led by Mexico, to get international bankers and the United States government to treat the debt issue as a political problem whose burden would have to be shared by all participants rather than just by debtors.
Mexico had previously resisted suggestions from other Latin debtor nations that such an approach be taken. But after seeing its own economy grow worse by the month, it is making noises that suggest it has begun to consider that tack.
While in Washington recently, Mexican Secretary of Commerce H'ector Hern'andez Cervantes said restrictions on international commerce and falling oil prices are creating ``intolerable'' conditions that will prevent Mexico from fully complying with its international debt obligations.
Businessmen are echoing that sentiment. The president of the National Chambers of Commerce, Nicolas Madahuar Camara, commented that not only did Mexico need to get public finance under control and cut public spending, but a global economic policy had to be established to allow Mexico to restructure its economy.
Some weeks ago, Mexican Foreign Secretary Bernardo Sep'ulveda Amor met here in Mexico with US Federal Reserve chairman Paul Volcker.
Both Western bankers and Mexicans close to the government said Mr. Sep'ulveda broached the idea of a political settlement to the debt crisis, sounding out the Americans on behalf of the Latins. Volcker rejected the idea flatly.
Sources in the financial community believe the Mexicans were not as enthusiastic about the idea then as they appear to be now. The change seems to have come about with the deterioration of the Mexican economy.
After weeks of the peso sinking against the dollar in the commercial exchange houses, the government eliminated one of its exchange rates -- the ``free'' rate (which was actually controlled by the government).
To get dollars, the government allowed banks to sell dollars at a rate set by market supply and demand.
Because economic indicators for Mexico were negative, the demand for dollars was intense. Altering the exchange rate caused about a 35 percent devaluation of the peso against the dollar.
Mexican oil sales dropped to 800,000 barrels a day last month, one of the lowest levels in years. Responding to this, Mexico lowered oil prices to lure customers back.
Even so, economists and sources close to the government reckon Mexico has lost hundreds of millions in oil revenues this year.
Although the trade balance for the first five months showed a surplus of $3.53 billion, that was a drop of 43 percent from the same period in 1984.
Imports grew. Western bankers and economists believe capital flight this year is about the same as it was for the last few months of 1984, which was about $1.2 billion.
Some industries, especially tourism, have reacted favorably to the exchange-rate alteration. Others, such as pharmaceuticals, which depend on imports, say the new rate will pinch them seriously.
Industry and business are concerned that very little money will be available to them as credit because of government consumption of most of the credit available and its efforts to stem inflation. Also, capital flight is taking away money that might otherwise be invested.
``The situation is lousy,'' a Western banker says. ``The formula for paying back [the debt] just isn't working.'' But he adds, ``I doubt it will get as bad as 1982,'' when Mexico was on the verge of bankruptcy.
At the end of last year, the Mexicans stimulated the economy to create growth. That triggered inflation and a currency crisis. That in turn sparked a lack of confidence, capital flight, a devaluation, and an undoing of some of the progress made since '82.
The alternative -- no growth and no new jobs for a rapidly expanding population that is already terrifically underemployed -- is no more appealing, given the years of austerity that Mexicans have endured.
``They are too boxed in,'' the banker says. ``They are so bound to the IMF that one bad month puts them back in the soup. There is no room to maneuver. It is just too much debt for any [repayment] formula to work. No matter what they do, they end up shoveling their money out to the banks.''
Now apparently the Mexican government is trying to fight being ``boxed in'' by bumping the problem from the economic to the political level.