Quake Likely to Delay Action on Mexico Debt

An International Monetary Fund move to cut off loans to Mexico might be reassessed in light of the devastating earthquake that will make it even harder for that deeply indebted nation to meet its obligations, international financial sources said today.

The IMF had been poised to withhold a $900-million installment due Mexico in early October because of that nation’s failure to meet economic austerity terms of the loan agreement.

The agency refused to make any public comment on the situation.

But, amid cries of bad timing from Congress and international economists, the board of the 149-nation organization is likely to reconsider the move to cut off funds, according to sources who spoke only on the condition of anonymity.

Renegotiation Possible

The IMF probably will agree to renegotiate terms of the loan to give Mexico the same kind of flexibility that was given Chile after a major earthquake struck that country last March, the sources said.

Chile was allowed to run a higher national deficit than first stipulated so that it could divert funds to needed reconstruction efforts.

The damage of Thursday’s earthquake to Mexico’s economy has not been calculated, but, like Chile, the nation will need to shift money into major rehabilitation projects, economists agreed.

Second-Largest Debtor

Mexico, with a total foreign debt of $96 billion, is the world’s second-biggest debtor, after Brazil, whose debt is about $100 billion.

At issue is the final installment of a $3.4-billion loan the IMF made to Mexico in 1983. The loan carried numerous strings, requiring Mexico to reduce government spending, bring inflation and interest rates down, and spend more of its revenue in paying off loans.

But despite numerous belt-tightening steps, Mexico has failed to meet a number of the targets set for mid-1985, including a requirement that inflation be lowered this year to around 40%. Inflation has been running at an annual rate of 50%.

“Clearly, the earthquake will make things more difficult for Mexico and increase the urgency of the need for funds down there,” said John Williamson, a senior fellow at the Washington-based Institute for International Economics.