Mexico Makes $1.3-Billion Loan Payment

The Mexican government won praise Monday from U.S. officials and a guarded reaction from independent analysts as it made a $1.3-billion repayment on its $12.5 billion in U.S. loans, largely by going to international markets to restructure its debt.

Mexico came up with more than $1 billion of the payment through a recent sale of Mexican government bonds, mostly to German investors, officials said.

This kind of “debt swap,” analysts said, is a common practice among governments seeking to trade short-term for longer-term debt. The German obligations will not come due for seven years, when Mexico must pay back investors with a hefty annual interest of 10.375%.

Officials of the Mexican treasury, which has built up a cash reserve of more than $16 billion since the nation’s economic crisis began in December 1994, said Monday’s transaction was “the start of the process of rolling over debt.”

On Monday, Mexico started selling up to $1 billion in additional debt--government bonds offered through J.P. Morgan and Merrill Lynch to raise money for other obligations coming due this year. Those bonds will mature in five years and carry interest rates that will be set today.

“This is the beginning of a constant restructuring,” Mexico central bank spokesman Eduardo Turrent said, defining a process that won praise from some independent economists and criticism from others. “This is the first step in establishing the process of using credit and paying it back.”

The loudest applause for that process came from U.S. Treasury Secretary Robert E. Rubin, who called Monday’s $1.3-billion payment “further evidence that the [Mexican government’s] program is working to restore stability and the basis for growth. We are confident the United States will be paid back with interest for the assistance we have provided.”

Several independent analysts agreed that the debt swap appears to be good for Mexico. That the government could sell its debt and raise capital in the international private market is a clear sign that investor confidence is returning to Mexico after more than a year of instability.

“I think this also is a show of confidence on the part of the Mexican government. They’re in a much better situation than they were in September,” said Lehman Bros. analyst Darryl McLeod.

He was referring to the time last year when President Ernesto Zedillo--whose nation’s economy had been in a tailspin before the Clinton administration came to the rescue--hand-carried the first, $750-million payment check to Washington on a state visit.

Noting that Mexico plans to roll over all but about $2.5 billion worth of the $10 billion in total debt from all sources coming due this year, McLeod added: “From the Mexican point of view, this is the right thing to do. They’re paying a little more interest in the private markets, but that’s what you should do if you want future [financial aid]. It’s a good investment.”

Rogelio Ramirez de la O, an independent Mexican economist, agreed that the present debt swap appears wise. But he and others took note of the high interest rates Mexico must pay on its new, long-term debt. They saw this as a clear indicator that the nation’s economic crisis is far from over.

“During the rest of this year, and in the following years, Mexico will be facing a big problem: $32 billion in debt payments,” said Jose Luis Calva, an economics professor at the National Autonomous University of Mexico. “I just don’t think it’s going to be viable--creating new debt to pay off loans, especially at 10% interest rates.”

As for the U.S. loans, Mexico’s next payment is not due until June 1997. But Zedillo’s government has asked Washington to continue to make available the remaining $7.5 billion of the originally promised $20-billion package until next August.

Mexico pledged its future oil-export revenues to secure those loans, but the Clinton administration has met sharp criticism from U.S. conservatives in Congress, who called the loan package a bailout for the rich.

Mexico used most of the $12.5 billion the U.S. lent it to pay off short-term debts last year, principally to American, Mexican and other institutional investors, wealthy speculators and pension funds that held Mexican government securities known as tesobonos.

In that context, several independent analysts saw Monday’s repayment as a political bonus for Clinton as well. “It’s also the right thing to do politically,” McLeod of Lehmann Bros. said. “They’re defusing political problems in the U.S. during an election year.”