Three-Year Package for Mexico’s Debt

The bank committee evaluating Mexico’s massive foreign debt said Wednesday that it has agreed on a three-year plan to finance $48 billion in commercial bank debt and will send the pact to 450 creditor banks for their expected approval.

Signing of the agreement was expected in early February, said the announcement by Mexican Finance Ministry undersecretary Angel Gurria and William Rhodes, co-chairmen of the 15-member bank committee for Mexico.

Gurria and Rhodes said virtually all of Mexico’s 450 bank creditors worldwide have committed to the package for 1989-92, which covers basically all the nation’s medium- and long-term commercial bank debt of about $48 billion.

If the package garners the expected bank approval, it will bring significant debt relief to Mexico and represent an important victory for the debt-relief program championed by U.S. Treasury Secretary Nicholas F. Brady.

The Mexican debt plan is seen as the first full implementation of Brady’s well-received approach and as a model for solving the Third World debt crisis.

Mexico and its commercial bank creditors reached a tentative agreement July 24 under which Mexico would be granted a 35% reduction in its $53-billion commercial debt. The commercial bank advisory committee for Mexico was charged with working out the details of the tentative pact.

Mexico’s foreign debt totals $104 billion, about $51 billion of it owed to the World Bank and other international organizations.

The status of the $5 billion in commercial bank debt not included in the package announced Wednesday was not disclosed.

Rhodes and Gurria praised what they called the ground-breaking work of the commercial bank committee. “The positive response is unprecedented in any package of this magnitude since the debt crisis broke out in August, 1982,” Rhodes said.

Of the three basic options offered to banks in the package, about 41% of the total exposure has committed to principal-reduction bonds, about 49% to debt-service-reduction bonds and about 10% to new money, the announcement said.

“The package offers Mexico the support it needs from the commercial banks to carry out its program of economic reform and growth, to leave the debt crisis behind it and to look with confidence to the future,” Gurria said.

President Carlos Salinas de Gortari took office in December, 1988, in the midst of Mexico’s debt crisis, but resisted intense pressure to declare a moratorium on debt payments.

“I will avoid confrontation,” Salinas said in his inaugural speech. “But I declare emphatically and with conviction that the interests of Mexicans come before those of (foreign) creditors. The priority now will be not to pay, but to return to growth.”