International : Paris Club Reschedules $2.6 Billion of Mexican Debt

Mexico, the Third World’s second-biggest debtor after Brazil, won agreement Wednesday from the informal Paris Club of creditor nations to reschedule $2.6 billion of its debt, a Mexican official said.

Jose Angel Gurria Trevino, Mexico’s undersecretary for international financial affairs, told reporters that the money was originally due for repayment in the next three years but would instead be paid back over 10 years with a six-year grace period.

He said the debt package included export credit financing promises that should bolster confidence in the country.

Met With Creditor Nations

About 70% of Mexico’s foreign debt of more than $100 billion is owed to commercial banks.

Gurria, who is also Mexico’s chief debt negotiator, said the rescheduling involved $2.1 billion in principal and $500 million in interest due over three years from today.

The agreement was reached early Wednesday after a two-day meeting with 17 creditor nations.

In itself, the Paris Club deal is a minor part of the restructuring effort that Mexico is currently pursuing, which also involves talks with multinational agencies and banks.

But Gurria said the promised credit finance, a rare advantage for heavily indebted nations, was a reassuring element to take back to New York, where Mexico resumes negotiations with commercial bank creditors this week. He was speaking at the airport before boarding a flight for New York.

“Mexico can now count on a veritable battery of credit lines from all countries of the world with which we trade . . . That’s an important source of peace of mind, a reassurance of the feasibility of our economic program,” he said.

In New York, bankers close to the negotiations said Tuesday that the talks were expected to resume Wednesday or today to discuss a proposal from the bankers for Mexico to cut its debt by about 20%.

But one banker there felt the debt reduction proposal “certainly fell short of what Mexico thinks is adequate.”

Mexico had wanted a 55% reduction in its existing debt, bringing the value of the debt closer to its secondary market value--about 40 cents on the dollar as of Tuesday.

Major Devaluation Possible

“They (Mexico) want a 55% reduction, and in the best of worlds we want a 15% reduction,” one banker said. “We have to negotiate a compromise. That is what they are coming back for.”

Mexico may be forced into a major currency devaluation if it cannot agree with commercial bank creditors on a new foreign debt package by mid-June, banking analysts said in London.

Economists fear Mexican nationals, who hold an estimated $40 billion of domestic assets, will begin shifting funds abroad if there is no sign of progress soon.

Gurria said the New York negotiations were necessarily complex but said progress had been made.

“It’s the first time we’ve attempted this in a concerted deal rather than through confrontation. It’s part of a very important effort by the international financial community, including the Group of Seven (industrial) countries, in the context of their new debt strategy,” he added.

Mexico is due for some quick disbursements from the International Monetary Fund and World Bank. Last Friday the IMF approved $4.08 billion in loans as part of a three-year line of credit, saying $570 million would be immediately available to compensate for an export shortfall.