$3.5-Billion Loan Offer From U.S. to Mexico Stalls : Issue Strains Relations, May Snag Bush’s Policy on Third World Debt

A 4-month-old offer by the United States to provide a $3.5-billion “bridge” loan to Mexico to help stabilize that country’s economy is about to die on the vine unused, aggravating the tension between the two countries that it was intended to ease.

The Reagan Administration announced the offer last October, hoping it would help Mexican officials avert new economic and political turmoil before Mexican President Carlos Salinas de Gortari--then just elected--took office on Dec. 1. The peso was under attack in currency markets at the time.

But now, four months later, Washington still has not completed the paper work to put the offer into effect, and the Treasury Department is preparing to notify Mexico City formally that the proposal is about to expire. If Mexico wants another loan, it will have to negotiate it.

Oil Prices Rise

In strictly economic terms, the expiration of the loan offer is not important. Oil prices have risen significantly since the United States first made its offer, generating added revenue for Mexico and quelling fears that it would prove unable to pay its bills. And Salinas is off to a strong start.

“The loan offer was largely symbolic then and, with the improvement in Mexico’s economic situation in recent weeks, it’s even more symbolic now,” a private debt analyst said. “The hope from the beginning was that Mexico would not have to draw on the loan--and it worked.”

However, the issue has angered some Mexican officials--and snagged relations between the two countries--just at a time when the Bush Administration is trying to win Mexico’s support and cooperation in proposals to restructure that country’s economy.

U.S. officials contend that the loan offer was never processed because Mexico did not meet U.S. conditions for drawing on it--reaching an accord with the International Monetary Fund on new measures for restructuring its economy.

Although Mexican officials have conducted preliminary discussions with U.S. and other officials, they still have not concluded an accord with the IMF. Agreement with the IMF was essential because the temporary loan from the United States was to have been repaid with money from the IMF.

But Mexican authorities have complained that by refusing even to complete the paper work on the loan offer, the United States has not kept its side of the bargain on the loan--a situation they view as a political rebuff that has caused bruised feelings.

No Comment From Mexico

It was not immediately clear how serious the disagreement would become. A U.S. official said Wednesday that the two sides had decided to allow the loan offer to expire quietly “by mutual consent.” The Mexicans have not commented publicly on the issue.

However, the dispute comes at a time when Washington is trying to win Mexico’s cooperation in its effort to make relatively modest revisions in its strategy for dealing with the Third World debt problem.

Faced with new complaints by Latin American debtors that their debt-service burdens are too high, President Bush has ordered a full-scale review of the current debt strategy. The Treasury is working on some changes that are expected to be announced soon.

U.S. Treasury Secretary Nicholas F. Brady is expected to discuss some of the Administration’s ideas at a meeting of finance ministers and central bankers of the Group of Seven major industrial countries here today and Friday.

The ministers are not expected to hammer out a formal proposal this week, but they may lay the groundwork for changes in March or April. Besides the United States, the group includes West Germany, Japan, Britain, France, Italy and Canada.

So far, the thrust of the changes that the United States is considering involves measures designed to encourage commercial banks to reduce the value of some of the loans they have made to Latin American countries to cut the size of the debt these governments owe.

U.S. officials say they plan to focus primarily on proposals to ease current tax laws, banking regulations and accounting rules so that banks do not have to incur huge losses to get rid of questionable loans. No major departure from the current debt plan is expected.

Although technically separate from any debt-policy changes, the $3.5-billion bridge loan would have been the largest that Washington had approved for any Third World country since August, 1982, when Mexico announced it was on the brink of default.

That set off the global debt “crisis” that has dominated global financial news for most of the past six years. Since then, commercial banks have regained much of their strength, but debtor countries have made spotty progress in restructuring their economies.