Mexico Takes Tougher Stance on Debt : Growth Will Not Be Sacrificed to Service Loans, Officials Say

Mexico is moving toward a harder line on its $100-billion foreign debt, as the so-far moderate Miguel de la Madrid administration nears its close with the repayment burden still hindering growth.

Finance Minister Gustavo Petricioli says Mexico wants to reduce its debt service burden to 3% of gross domestic product from 6% at present.

“We have made much progress and we will continue to do so, but in the event we cannot reach agreements, Mexico has the right to take its own decisions,” he said in a recent speech.

Although Mexico has always had debt relief as a goal, disappointment with foreign bank response to its debt-for-bonds scheme in March and the onset of a presidential election campaign has led to a more militant stance.

Mexico had allocated $2 billion for the bond operation, but a paucity of bids meant it spent only $492 million on U.S. Treasury bonds to back its own issue of paper.

“We are expecting a distinctly tougher attitude from Mexico in the next year or so,” one U.S. banker said.

Government officials are now beginning to talk about insisting on a 50% cut in interest payments, and there is a growing consensus here that Mexico’s past adherence to a non-confrontational strategy on the debt now deserves a payoff.

“Mexico is not in principle seeking confrontation with its creditors, but wants better terms in dialogue with them,” said Public Credit Director Angel Gurria.

To date, Mexico has won pioneering new agreements from creditors through a policy of cooperation. It was the first to win still unbeaten interest terms for a debt rescheduling and contingency loans tied to growth prospects and oil prices.

It has also led the way with complex debt restructuring accords to ease repayment of its $14-billion private debt.

But despite these innovations, GDP only recovered 1.4% last year from a 3.8% plunge in 1986, and efforts to combat inflation mean public spending has been cut.

Carlos Salinas de Gortari, presidential candidate of the ruling Institutional Revolutionary Party (PRI) and virtually sure to be elected on July 6, has made it clear that Mexico will not sacrifice growth just to service its debt.

Planning Minister Pedro Aspe, a close collaborator of Salinas, voiced these feelings during a speech earlier this month in Brazil.

“It is impossible to continue servicing the debt amid prolonged world recession, growing protectionism, deterioration in the terms of trade and declining credit flows,” he said.