Mexico Moves to Reassure Markets : Economy: Fiscal stabilization plan announcement is imminent. Congress approves bill to start Chiapas peace talks.


The government attempted to reassure collapsing financial markets on two fronts Thursday, promising an imminent free-market-oriented economic stabilization plan, even as Congress sought to promote political stability with a plan to initiate peace talks in Chiapas.

The peso plunged to a new low of 7.85 against the unhealthy dollar on rumors that the government's long-awaited stabilization plan will include currency controls.

In an attempt to stop the hemorrhage, the Treasury Ministry and Bank of Mexico issued a joint statement pledging that a new economic plan reaffirming Mexico's commitment to free-market policies "will be announced very shortly."

The currency closed at 7.55 to the dollar.

"The program does not contemplate the introduction of any restriction on external payments or moratoria of any kind," said the statement, issued in English. The battered Mexican stock exchange index closed up 42 points--2.8%--at 1,540.54 on the news.

President Ernesto Zedillo had promised a new economic plan as soon as Congress approved the $20-billion U.S.-Mexico bailout package. Both legislative houses passed it Tuesday, increasing pressure to announce the economic plan and leading to speculation that business interests were balking at the stiff taxes it would impose.

While Zedillo and his advisers struggled to finish the plan, other branches of government addressed political problems underlying the economic crisis, even as new controversies arose.

In key developments Thursday:

* The Treasury Ministry made final negotiations of $3.25 billion in loans from international financial institutions to strengthen the banking system and to provide a safety net for the poorest Mexicans; $1 billion will be used for education, health care, nutrition and training for those who will be most hurt by federal budget cutbacks that are part of the stabilization plan.

The rest of the money will improve bank regulation and be used to support the federal insurance fund for banks. In a separate announcement, the National Banking Commission revealed that this nation's third-largest bank, Banca Serfin, will participate in a government program to raise capital for banks run through the insurance fund.

* Evidence mounted that top law enforcement officials have been corrupted by drug cartels, fueling speculation that narco-politics may have been involved in two high-profile political assassinations, one of which has already been linked to the former president's brother.

* The violence that has fueled a deepening sense of nationwide insecurity continued unabated, despite Zedillo's accelerating campaign to enforce a new rule of law in Mexico. The director of the state penitentiary in Tijuana was killed in an ambush-slaying near his home late Thursday night in what investigators suspect was a murder planned and ordered by one of his inmates. Jorge Alberto Duarte Castillo, 42, was shot five times by two men after returning home from work at Tijuana's La Mesa prison, an institution known internationally for the utter chaos within its walls.

* The Chamber of Deputies approved a bill, already passed by the Senate, to set the ground rules for renewing peace talks in the embattled state of Chiapas, where an Indian uprising has simmered for 15 months.

Deputies' efforts to pass the proposed law bogged down early in the day, because the two major opposition parties were sidetracked in a heated discussion over allegations of human rights abuses in the government crackdown on rebels last month.

Late Thursday, Chamber of Deputies members voted 427-7 with two abstentions in favor of the package.

The government's national human rights commission has received 379 complaints ranging from torture to harassment against various law enforcement agencies and the Mexican army, panel Chairman Jorge Madrazo said.

The Senate version of the bill incorporated many of the rebel preconditions, including suspension of arrest warrants for alleged leaders of the Zapatista National Liberation Army, recognition of an independent mediating committee and changes in phrasing that had offended the rebels.

But it stopped short of telling the Mexican army to withdraw from former rebel-held territory that troops reclaimed last month. The law also specified that peace negotiators come to the talks unarmed, in sharp contrast with the first round of talks a year ago when rebels brought their guns to negotiations.

The government's inability to resolve the rebellion that left at least 145 people dead last year was the spark that set off the economic crisis, when angry rebel supporters blocked roads and took over town halls in a one-day protest in December.

Doubts about Mexico's political stability--reinforced by two unsolved high-profile political assassinations--set off concerns about the economic policies the country followed in 1994, an election year. As investors fled the country, cutting the peso's value in half and sending interest rates soaring, events overtook the initial economic stabilization plan that Zedillo announced in January.

In addition, in order to obtain the $20-billion U.S. rescue package, officials here had to agree to even more austerity than Mexico has suffered for the last dozen years.

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