Mexico Gets New Loan Package of $6 Billion

Mexico and its bankers agreed Tuesday on a complicated $6-billion loan package that is generally considered favorable to Mexico.

The loans are part of a $12-billion rescue effort put together this summer by international monetary officials after plummeting oil prices pushed Mexico to the brink of insolvency.

Mexico and the banks had been under tremendous pressure in recent days to come up with a loan agreement. Top government officials, including Federal Reserve Board Chairman Paul A. Volcker and International Monetary Fund Managing Director Jacques de Larosiere, personally intervened in the last 48 hours to try to get the stalled talks moving.

After three weeks of sometimes bitter confrontation, bankers expressed satisfaction that the Mexican loan negotiations have ended with an agreement. But Mexico clearly will receive the loans on better terms than the bankers had wanted to give.

Mexico needs the new money to make interest payments on its enormous $97-billion foreign debt. The rapid drop in the price of oil, which provides 60% of Mexico’s foreign currency earnings, forced Mexico to seek emergency aid earlier this year.

The Mexican talks have been closely watched by financial officials in Argentina, Brazil and the Philippines, who will soon be entering new money negotiations themselves.

The loan agreement is unusual because of the number of conditions it places on Mexico’s economic performance in the next several years. The terms of the loans can change if Mexico fails to make significant structural changes in its economy, which is dominated by government-owned enterprises and highly political unions.

But there is no linkage to oil prices, a concession granted in a recent $2-billion package of new loans from the World Bank.

The banks got two of their chief demands: a profit margin over their cost of funds and World Bank guarantees behind some of the loans. The interest rate on the new loans will be 13/16ths of a percentage point over the London interbank offered rate (Libor).