NEWS ANALYSIS : Despite Efforts, Mexico’s Crisis Grows Deeper : Economy: With interest rates rising and the peso falling, the government’s wage and price accord is threatened.

Official interest rates neared the 60% mark and the peso fell to yet another record low Wednesday, approaching a level that threatens the Mexican government’s voluntary wage and price control agreement with business and labor.

The latest bad news, which means that consumers and businesses must pay up to 80% to borrow money, set off a rising chorus of protests from business leaders and economists who say the government’s approach to dealing with the deepening peso crisis is not working.

The peso closed at 7.94 to the dollar, down from 7.80 on Tuesday, after tumbling as low as 8.20 in Wednesday trading.

Unlike two previous days in which the Mexican central bank sold dollars to boost the peso to better than 8 to the U.S. dollar, the government said no such action was necessary on Wednesday. But the bank disclosed that it spent more than $100 million on Tuesday--more than previously thought--to bolster the currency’s value.

Combined with the $175 million the central bank spent last Thursday for the same purpose, the government has spent more than a quarter of a billion dollars in less than a week to defend its currency. And, continued intervention or no, some observers expect the peso to fall even further.

“I would argue that the government has not mastered the situation, that the intervention is not going to work and that the currency has not seen its lowest level,” said economist Rogelio Ramirez de la O of Mexico City.

The peso interventions have aroused controversy and confusion. The government maintains that it will only intervene at opportune moments “to wear away the excessive volatility” of the peso, in the words of one Finance Ministry official, and for the most part allow the peso’s value to float freely.

Nevertheless, the interventions over the past week are reminders that the government spent more than $24 billion of its foreign reserves last year in a futile attempt to support the peso, precipitating the December, 1994, devaluation and Mexico’s deepening economic crisis.

The devaluation also led to a $52-billion international bailout package for Mexico, $20 billion of which is being lent by the United States.

As a result, the country’s foreign reserves fell to as low as $3 billion early this year. Those reserves have been bolstered by the emergency foreign loans and stood at $14 billion on Tuesday. It is those funds Mexico is now using to prop up the peso.

The government insists the peso is undervalued, but it is apparently no coincidence that the interventions have occurred on days when it appeared the currency might close at more than 8 to the dollar.

The weakening peso threatens the Alianza , the hard-won wage and price control pact that the government signed earlier this year with labor and business leaders that limits wage increases to 21% and price rises to 25% over the next year.

Abel Beltran del Rio, general director of Ciemex/Wefa, a Philadelphia-based think tank that follows Mexico, said that if the peso goes to 8.50, “the government would have to reconvene the Alianza and increase wages . . . businesses, the government, even families will have to redo their budgets.”

Alejandro Valenzuela, government spokesman for the Alianza , said there is “flexibility” in the agreement, and would not say what level the peso must maintain. But he did not deny that the peso was near a critical threshold.

“You are talking about 8.5, and we are not there. The way the Alianza is structured, we have flexibility” to adjust some terms of the accord, Valenzuela said. “If parameters change, you have to look at them, but not as long as they are not affecting you. We hope the peso will not be undervalued.”

Economist de la O, asked why the central bank appears determined to keep the currency at less than 8 to the dollar, said: “Maybe because that’s what the government perceives as tolerable for the budget not to be impossible and the alliance to remain in place.”

The central bank said Wednesday that it priced its weekly auction of 28-day cetes , a short-term government note similar to U.S. treasury bills, at 59.99%, up 5.75 percentage points from the previous week and nearly double the 31% rate in late September.

The rate on the cetes is a key indicator to which rates on commercial and consumer loans are pegged, so analysts say the rates will only put more pressure on Mexico’s beleaguered banks and their business and consumer borrowers.

Meanwhile, stocks rose for the first time in four days as the tumbling peso attracted investors to underpriced shares. The Bolsa index rose 18.65 points, or 0.83% in peso terms, to 2,260.18.

The government’s policy of discretionary peso intervention and boosting interest rates is coming under increasing fire from economists and business executives. The idea is to make government bonds attractive with high interest rates, pulling in foreign dollars and thereby reducing pressure on the peso on exchange markets.

But critics say the policy has simply created a vicious circle of rising interest rates and a weaker peso.

“It hasn’t been working the last month because when rates go up, people get a little more skittish and the exchange rate weakens,” said one analyst at ING Baring Securities in Mexico City.

The rising rates have dumped salt in the wounds of Mexico’s already staggering business enterprises, which now pay 80% or more in interest for commercial loans.

“These rates present a serious risk of causing a financial and productive collapse of many industries,” said a spokesman for Canacintra, Mexico’s chamber of commerce. He estimated that 40% of the nation’s 86,000 businesses are in financial trouble.

A finance executive with Grupo Textil, a Mexico City-based textile merchant, said interest rates have frozen his market for textiles. “If we aren’t borrowing, the economy isn’t growing because we aren’t investing,” said the executive, who asked not to be named.

* MEXICAN UNREST

Consumers protest economic crisis. A6

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Through the Roof ...

The rising interest rate on the Mexican government’s 28-day Cetes , the equivalent of a U.S. Treasury bill, a bellwether indicator to which commercial and consumer borrowing rates in Mexico are tied:

Nov. 15: 59.99%