GLOBAL MARKETS IN TURMOIL : Mexico: Oil Revenue May Be Used as Collateral

As members of Congress offered grudging support, Clinton Administration officials said Friday that Mexico may end up using its $7 billion in annual oil revenue as collateral in what is likely to grow to a $40-billion program of U.S. guarantees of loans intended to prop up the struggling Mexican economy.

Mexico will also pay what are being described as a risk premium and a supplemental fee to the U.S. government, leaving open the possibility that the U.S. Treasury could come out ahead provided Mexico repays the private bank loans Washington would be guaranteeing.

Senior government officials told members of Congress that the alternative to no action by the United States could be a 50% increase in illegal immigration if the Mexican economy continues to fall.

“If we do nothing, there is going to be a huge increase” in immigration, Sen. Barbara Boxer (D-Calif.) said after a sketchy outline of the loan program emerged after a meeting of members of Congress, Treasury Secretary Robert E. Rubin and Federal Reserve Board Chairman Alan Greenspan.

“It’s not a happy thought for anyone in the border states,” said Senate Majority Leader Bob Dole (R-Kan.).

Taking a cue from their leaders, the roughly 50 senators and 75 House members with whom Rubin and Greenspan met for more than an hour offered generally favorable responses to the plan, on which more meetings are scheduled today at the White House.

But they were not entirely convinced.

“There were a lot of questions raised, a lot of questions not answered,” Dole said after the closed-door conference. “I think there’s a general consensus that we need to . . . do what’s necessary to make this work.”

“We don’t have the luxury of waiting very long,” he said.

Among the uncertainties is this crucial one: the amount of premiums, or loan fees, Mexico will pay to the United States. That figure is being worked out by experts at the Office of Management and Budget and the Congressional Budget Office.

The guarantees amount to assurances by the U.S. government that if Mexico defaults on the private loans, the U.S. Treasury will make the payments so that the lending U.S. banks are not left empty-handed.

The fees would, in effect, cover the amount of U.S. government money that would be set aside to pay for a default--an amount that must be charged to the federal budget while the loans are outstanding, even if the Treasury is never called upon to release the funds.

The supplemental fee, on the other hand, would be intended to pressure Mexico to seek its loans in more conventional financial marketplace transactions as quickly as possible, a senior Treasury official said.

“We may make money on this deal,” Dole said.

As collateral, the $7-billion annual revenue of the Mexican government’s oil monopoly, Pemex, would be made available to the United States should the government default on the loans.

“We could attach the receipts in the absolutely unlikely event that there is non-payment,” another Treasury official said.

In Mexico City, the finance ministry said oil export revenue will be utilized in a sort of factoring operation, using accounts receivable as security for the U.S.-guaranteed loans.

“Mineral rights are not being mortgaged, licensed or sold,” the government stressed in a statement, hoping to head off charges that Mexico is handing over control of its prized oil fields.

Meanwhile, the bolstered U.S. commitment drove the Mexican stock exchange up sharply for the third day in a row. The Bolsa index gained nearly 98 points, or 4.6%, to close at 2,216.55. The peso rose for the fourth straight session to close at 5.25 per dollar, compared to 5.5 a day earlier, ending the week at its highest level since Jan. 2.

But the battered currency remains 34% weaker than it was before the government of President Ernesto Zedillo devalued it Dec. 20 and sent the nation’s and Latin America’s financial markets reeling.

Other economic fallout continued in Mexico on Friday. All three U.S. auto makers announced 10% price hikes on cars sold in Mexico because of surging inflation, and Mercedes-Benz joined Volkswagen in temporarily shutting its Mexico factories as auto sales there plummeted.

The overall shape of the program built around loan guarantees was announced Thursday, without any details, after Dole and House Speaker Newt Gingrich (R-Ga.) met with President Clinton and offered their support.

On Friday, Gingrich reiterated his support but was said to have complained that he saw few options.

The Speaker, taking part in the closed-door briefing Friday, was said to have commented: “We are totally committed to cooperating in this effort. We have zero choice.”

But several participants made it clear that they expect the United States to win some sort of reciprocal action from Mexico.

“There will be conditions,” Dole said. “I think that’s pretty obvious.”

Sen. Dianne Feinstein (D-Calif.) said that in exchange for supporting the loan guarantees, she wants Mexico to pledge its willingness “to provide some border enforcement,” similar to that performed by the U.S. Border Patrol, for “at least the next five years.”

“It’d be very foolish to enter into that agreement without any conditions,” she added in an interview Friday afternoon.

With such concerns being voiced by members of the House and Senate on Friday, it became clear that the Administration may have to struggle to keep legislation authorizing the guarantees strictly free of amendments and limited entirely to financial issues.

Some members of Congress, even as they offered general support for the plan, called on other nations to join the effort to prop up the peso. Others saw it as an opportunity to attach conditions to the year-old North American Free Trade Agreement.

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