Mexico to Insist on Better Debt Terms, Official Says

Mexico’s new finance minister, Gustavo Petricioli, served warning to the world’s bankers Monday that Mexico would insist on better repayment terms on its $97.6-billion debt. But he ruled out a unilateral suspension of payments as a solution to the country’s economic crisis.

“We must be firm and decisive and explain that we are not going to sacrifice our development to debt payments,” he told a press conference.

It was the first public appearance of the 57-year-old, Yale-educated finance minister since he replaced Jesus Silva Herzog last week in what most political observers saw as a sign to the banks that Mexico means business in its demand for easier terms.

President Miguel de la Madrid on June 17 abruptly dismissed Silva Herzog, who had been holding the job since 1982.

Real Concessions Needed

Foreign creditors expressed uncertainty about the Cabinet change. They are concerned that it could signal a tougher attitude in De la Madrid’s policy toward debt negotiations.

Replying to pre-submitted questions, he reiterated the main themes of a speech by De la Madrid in February, in which the Mexican leader demanded genuine concessions by the banks.

Petricioli said that a unilateral moratorium on the debt was unviable and that he would seek a meeting with foreign creditors to find a solution somewhere in between.

“We have to move between those extremes in a firm, decisive, clear negotiation,” he said. “Real capacity for payment depends, as I said, on our foreign income.

“In a large measure, that means, in practical terms, the price of oil. As oil prices improve, so will our capacity to pay,” he said, adding that in the meantime, the government was undertaking “a maximum effort” to encourage non-oil exports, which make up about one-third of Mexico’s foreign income.

Oil earnings this year, which account for about 65% of Mexico’s exports, are expected to be about half of last year’s $13-billion level, while interest payments due in 1986 are some $9 billion, about one-third of which has been paid.

There has been speculation that a payment as high as $1.8 billion on interest due July 1, under terms negotiated by Silva Herzog, may not be met.

Mexico has been having trouble meeting debt payments since oil prices began falling in 1982, knocking the bottom out of its economy. A further plunge in prices earlier this year has aggravated the crisis by cutting in half Mexico’s expected oil earnings for 1986.

The U.S. government and foreign creditors put together a $5-billion loan package to bail out Mexico in 1982 after Mexico pledged to the International Monetary Fund that it would sharply reduce government spending and fight inflation, which was running at close to 100% at the time.

Talks With IMF

Negotiations with the IMF this year--expected to lead to an eventual rescue package of $5 billion to $6 billion from the international financial community--have been deadlocked, largely over the government’s reluctance to reduce Mexico’s budget deficit by about half from the present 13% of its gross national product, as the IMF has demanded.

In response to questions, Petricioli repeated recent statments by De la Madrid, saying that Mexico had always struggled “to be a free and independent country, to determine its own destiny and priorities, its own economic policy.”

“Mexico will not accept this situation,” he added, referring to the IMF conditions.

Petricioli’s first report left some Mexican analysts puzzled about the details of government economic policy.

“Are we going the way of Peru? Probably. It seems so. But I cannot be sure yet,” said one private economic consultant, who asked not to be named for business reasons. A year ago, Peru announced that it would limit interest payments on its foreign debt to 10% of its export earnings.