Won’t Cancel Foreign Debt, Mexico Says

In his annual state of the nation report Sunday, President Miguel de la Madrid rejected the unilateral cancellation of Mexico’s huge foreign debt as one way to solve the country’s nagging economic problems.

The president thus squelched speculation that Mexico might lead a Latin American “debt revolt,” which some political leaders and economic commentators in other nations have urged as a solution to today’s heavy Latin debt burden.

In his speech, De la Madrid took a moderate approach, saying, “I do not believe that these (debt) problems will be solved by confrontation or by repudiation of contracted obligations.”

At the same time, he put creditors on notice that arrangements made by this country merely to pay off old loans are not enough. Mexico, he said, will pursue easier terms and new loans to expand its economy and dig out of what Mexicans call la crisis.

De la Madrid, adorned with the red, white and green sash of office, spoke at the modernistic Federal Congress Hall in Mexico City. His three-hour speech was in keeping with the low-key tone of his presidency. Horizons are limited, he said.

“The task which falls to this six-year administration is to lay the groundwork and set the course of change but without assuming that the history of Mexico begins or ends with us,” he declared.

During his talk, De la Madrid alluded briefly to episodes of fraud and disruption that marked recent state and legislative elections. He maintained, however, that these incidents did not detract from the customary overwhelming victory of the ruling Institutional Revolutionary Party.

On relations with the United States, he noted only that they “demand reciprocal respect, dignity in our dealings and mutual knowledge and understanding, as well as the constant exercise of good will and a willingness for extensive cooperation.”

De la Madrid’s report, his third, marked the halfway point in his term.

Mexico owes about $96 billion to hundreds of banks. Its foreign debt, second in size only to Brazil’s among Latin debtors, amounts to nearly a third of the $370 billion owed by all of Latin America.

Repayment eats up 40% of Mexico’s earnings from exports. Steady declines in the price of oil, Mexico’s leading export, have aggravated the country’s ability to pay. The loans were made in the 1970s, at a time when it seemed that petroleum prices would rise forever.

Mexico’s economic problems are staggering. About a quarter of the Mexican population is without work or underemployed. Real earnings have dropped by a third in three years. Inflation is expected to reach 60% in 1985.

To reduce government budget deficits and cut inflation, De la Madrid recently slashed spending and laid off thousands of government workers.

Political commentators have warned of social unrest if economic problems persist.

Developments abroad also stimulated the debt debate in Mexico. The newly elected president of Peru, Alan Garcia, declared that his country would limit payments of its $14-billion debt to 10% of export earnings. Cuban leader Fidel Castro stirred the pot by calling for outright repudiation of all of Latin America’s foreign indebtedness.

In Brazil, Cabinet ministers who generally were seen as “soft” toward debt repayment were booted from office.

Last week in New York, as Mexico was signing an agreement to spread payment on half its debt over 14 years, the country’s finance minister pressed bankers to take new steps to ease the debt load.