As the peso continued its headlong slide and the American rescue package for Mexico came under rising pressure--in both the U.S. and Mexican congresses--the Clinton Administration said Tuesday it had repeatedly warned Mexico last year that it needed to alter its economic policies or face a currency crisis.
The peso closed at 6.795 to the dollar--hitting a new low for the third straight day. The peso has lost almost half its value against the dollar since Dec. 20 and has fallen even further in relation to the German mark, the Japanese yen and other currencies.
Lawrence H. Summers, undersecretary of the Treasury for international affairs, said Washington's warnings to Mexico over the last year were delivered "with increasing urgency."
Summers also told the House International Relations Committee that the White House's rescue package for Mexico would not diminish the government's ability to defend the dollar in the increasingly volatile foreign exchange markets, where the U.S. currency also fell to historic lows Tuesday against the yen and mark.
"The foreign currency reserves of the United States (continue) to be fully available to defend the currency," if necessary, Summers said. "The capacity of the United States to intervene in defense of the dollar is not in any way diminished by what has taken place."
The Mexico bailout consists of $20 billion in loans from money usually reserved for propping up the dollar on international currency markets.
But after listening to Summers, members of the committee expressed general uneasiness about--and in some cases animosity toward--the Administration's commitment to helping Mexico out of its financial mess.
Even the committee's senior Democrat, Rep. Lee H. Hamilton of Indiana, who generally supports the Administration and is known for his reasoned approach, said he was "not comfortable with the idea that the President can loan a sum as large as $20 billion without an appropriation."
President Clinton put forward the $20-billion program five weeks ago after Congress had made it clear that it would not approve his request to set up a fund that would have guaranteed up to $40 billion in private loans to Mexico.
The three-hour hearing reflected the tension between Congress and the Administration over the Mexican rescue plan. Capitol Hill is focusing with a growing aggressiveness on whether the Treasury and White House acted quickly enough to head off the crisis--or the Administration was blindsided.
Of the government's behind-the-scenes work last year to head off the crisis, Summers said: "American officials warned their Mexican counterparts repeatedly and with increasing urgency as the year went on that policy was on an unsustainable path in Mexico and that, unless adjustments were made . . . the situation was likely to become a very, very difficult one. . . .
"Our warning was that Mexico was borrowing and creating credit at a rate that was inconsistent with the exchange rate that it was maintaining," he said.
With Congress growing increasingly skeptical about the Clinton plan, some members were searching for ways to head it off, and pressing Republican leaders to move legislation that would shut off the pipeline of dollars.
Among the most critical Tuesday was Rep. Tom Lantos (D-San Mateo). He said "the bailing out of Wall Street speculators and the Mexican elite turns one's stomach."
Treasury Secretary Robert E. Rubin tried to fend off an attempt by Sen. Alfonse M. D'Amato (R-N.Y.), chairman of the Senate Banking, Housing and Urban Affairs Committee, to cut off the aid. In a letter to D'Amato, Rubin cited the support both sides in the House and Senate gave the plan at first.
"Congress should stand behind the leadership agreement with the Executive Branch," Rubin wrote.