Reagan to Meet De la Madrid on Debt Problems

The Reagan Administration is willing to ease hard-strapped Mexico’s quest for more than $4 billion in new bank loans this year but is pressing Mexico to undertake economic reforms that will be difficult to achieve, senior Administration officials said Thursday.

Mexico’s troubled economy is expected to be the focus of talks today between President Reagan and Mexican President Miguel de la Madrid in Mexicali, about 200 miles southeast of Los Angeles. It will be the third meeting between Reagan and De la Madrid.

Mexico owes $96 billion to foreign banks, many of them in the United States, and the country’s ability to pay its debt has been weakened by falling prices for petroleum, its principal export.

The Mexican government contends that it can continue to meet payments only if its floundering economy grows. And that, Mexican officials say, will require a transfusion of at least $4 billion in 1986 to help pay for new government investment.

Pressure on Bankers

The Reagan Administration concurs in the need for new money and is willing to press bankers and international lending agencies such as the International Monetary Fund to deal with Mexico on favorable terms. “We’re talking about encouraging international lending and private lending,” White House spokesman Larry Speakes said.

The success of the venture, they asserted, will depend on Mexico’s convincing lenders that it will make efforts to control inflation, cut government spending, open the country to increased foreign investment and discourage capital flight.

The formula of fresh loans and economic reforms was set out in a plan put forth last fall by Secretary of the Treasury James A. Baker III as a solution to Third World debt problems.

“We recognize that Mexico is critical to our security,” said one Administration official who requested anonymity. “We will do everything we can to help. It stands to reason we would also hope that the assistance will be benefited by . .. internal procedures and reforms.”

After earlier debt crises, the De la Madrid government instituted a series of economic reforms but with mixed results. Also, Mexico missed IMF targets on cutting government budget deficits and inflation. In addition, falling oil prices and reconstruction from last September’s earthquakes are expected to frustrate its ability to repay its debts.

In addition, Reagan Administration pressure to open the Mexican economy to foreign investment is a sensitive political issue in Mexico, which, since the expropriation of foreign-owned oil countries earlier this century, has been nervous about the return of large-scale foreign business.

While the Reagan Administration suggests that Mexico could do more to restructure its economy, Mexican officials believe that they have done enough under difficult circumstances. They point to several recent steps that they say meet the goals promoted by the Reagan Administration.

For example, Mexico recently moved to join the General Agreement on Tariffs and Trade, a worldwide organization that oversees trade. Joining GATT should open the Mexican market to imports as well as ease access for Mexican goods abroad, officials say.

In addition, De la Madrid recently raised the prices of basic goods, including fuel, that are subsidized by the government. The new prices are designed to help reduce the government budget deficit.

For his part, De la Madrid is expected to emphasize in his talks with Reagan that the United States can aid Mexico’s economy by importing more from Mexico. Mexican officials have said they hope to gain easier entry to the United States for pharmaceuticals, textiles and steel.

Although weakened economically, Mexico has some leverage in its effort to gain U.S. help in reducing its debt burden. In a pinch, Mexico could call a moratorium on payments or limit them to a percentage of its earnings from abroad, a step Peru took last year. Either move would reverberate negatively through the U.S. banking system.

To stave off such a crisis, the IMF is reportedly ready to lend $900 million to Mexico this year, the World Bank is offering $1 billion, and the Inter-American Development Bank about $400 million--contingent on stricter Mexican controls on its economy. In addition, commercial banks stand ready to offer another $2.5 billion.

Besides Mexico’s economic woes, Reagan and de la Madrid are to discuss unrest and leftist insurgencies in Central America, immigration issues and what Administration officials describe as a growing Mexican role in international narcotics trafficking.

Most pressing, one official argued, is Mexico’s expanding drug trade. The official said that about a third of all cocaine bound for the United States passes through Mexico.

Mexico’s drug trade raised serious concern in the United States last spring when an agent for the U.S. Drug Enforcement Administration agent was murdered in Mexico. His killers escaped the country, apparently with the aid of Mexican federal police, but were later recaptured and brought back for trial.

The official contended that drug trafficking will become “critically dangerous to the stability of (Mexico) in the near future.”