U.S. Agrees to Issue Loans for Development in Mexico

In a move to create jobs and spread the benefits of cross-border trade over a wider swath of Mexico, the United States will extend low-cost financing for major public and private projects south of the border, according to a preliminary agreement signed by officials of both governments here Monday.

The low-cost loans are seen as a means of addressing the lack of infrastructure and economic development in parts of Mexico that have not felt the benefits of the increased trade created by the North American Free Trade Agreement.

The deal comes as both countries try to get relations back on track after a hiatus caused by the Sept. 11 terrorist attacks and a chill that followed Mexican President Vicente Fox’s refusal to support President Bush in the war in Iraq. Reflecting those uneasy relations, Fox recently expressed his frustration with the United States’ failure to grant legal status to some 3 million undocumented Mexican workers.

Monday’s agreement was touted by speakers here as the first major accomplishment of the so-called Partnership for Prosperity, a program created by Fox and Bush as a way to stimulate private investment and bolster cross-border economic development, especially in Mexico.

The agreement announced Monday calls for the granting of a Mexican license to the Overseas Private Investment Corp., a U.S. agency that makes loans to developers who otherwise would not have access to affordable bank loans. Mexican Economy Minister Fernando Canales and OPIC President Peter S. Watson predicted at the signing ceremony that the agency could soon be financing up to $2 billion in Mexican projects annually, from airports and water treatment plants to new tourist resorts and educational facilities.

The deal must first be approved by the Mexican Senate after it convenes in September -- an approval that is far from certain. OPIC’s entry in Mexico has been blocked by Mexican politicians who see its loan provisions as violating the constitution by giving a foreign government the power to foreclose on Mexican property. That has raised the issue of sovereignty, always a delicate topic in Mexico when the United States is involved.

“Another reason for the resistance was that the Mexican government did not want to be perceived as agreeing there is a risk to investing in Mexico. It was a political issue,” said James Jones, former U.S. ambassador to Mexico and now a Washington consultant. “The Fox government has the will to get over those political inhibitions.”

Mexico and Cuba are the only Latin American nations that have refused to give OPIC a license to operate in their countries. Meanwhile, OPIC loans have become highly coveted in other developing nations. Of its current $18-billion loan portfolio, roughly $4.7 billion in loans have been made for projects in Latin America.

OPIC is an independent lending agency used to further U.S. foreign policy goals. From the U.S. perspective, OPIC loans will create economic development that in turn will reduce illegal immigration.

From Mexico’s point of view, the loans are the kind of subsidy that it feels it deserves from a much wealthier trading partner, much the same way that less-affluent nations of the European Union receive aid as a means of addressing economic inequality among the members.

Fox also has said that Mexico needs $20 billion in foreign investment annually to stimulate sufficient economic development. Last year foreign investment was less than $14 billion. His government sees OPIC loans as boosting foreign investment.

“NAFTA has been a big success, but you need mechanisms to bring the benefits to the backward areas that have profited less,” said Carlos Elizondo Mayer-Serra, director of the Mexico City-based think tank Center for Economic Research and Teaching.

Elizondo and others noted that even though U.S.-Mexico trade now tops $200 billion annually, or triple the total since NAFTA took effect in 1994, economic growth in Mexico has not been fast enough to keep up with the expansion of Mexico’s workforce. Housing and public works construction in Mexico is woefully inadequate, especially in border areas.