Mexico Receives Credits of Us$23.7 Billion to Stabilize Economy before 2000 Presidential & Congressional Elections

Article excerpt

In mid-June, Finance Secretary Jose Angel Gurria Trevino announced that the Mexican government had obtained US$23.7 billion in international credits and refinancing to protect the country from financial turmoil during and immediately after the 2000 presidential and congressional elections.

The package of credits, which Gurria referred to as "economic armor," includes US$16.9 billion in credits from multilateral institutions. The total includes a standby loan of US$4.2 billion from the International Monetary Fund (IMF), plus credits of US$3.5 billion from the Inter-American Development Bank (IDB) and US$5.2 billion from the World Bank. The US and Canadian governments provided another US$6.8 billion in credits, including US$4.2 billion from the US Export-Import Bank. Some of the credits had been announced in early May (see SourceMex, 1999-05-05).

Gurria told reporters that the Mexican government will not draw on the credits unless necessary. "We don't have to use them, but it is reassuring to know they're available," said Gurria. "It lets us sleep better at night."

Guillermo Ortiz Martinez, chief governor of the Banco de Mexico (central bank), said the availability of the credits will help protect Mexico against a repeat of the economic depression that followed the devaluation of the peso in 1994.

A series of political crises, including the uprising of the Ejercito Zapatista de Liberacion Nacional (EZLN) in Chiapas and the assassination of presidential candidate Luis Donaldo Colosio, led many investors to decide not to roll over their short-term debt. This caused Mexico's foreign reserves to plummet significantly, requiring a bailout from the US and multilateral institutions (see SourceMex, 1995-01-04 and 1995- 03-15).

Ortiz emphasized, however, that economic conditions this year are much different than in 1994 when much of Mexico's indirect foreign debt was short-term financial instruments.

Opposition parties question motivation and timing of loans Major opposition parties have strongly criticized the latest deal with the IMF. Leaders from the center-left Partido de la Revolucion Democratica (PRD) and the conservative Partido Accion Nacional (PAN) raised concerns that the IMF may have imposed strict conditions in exchange for its standby loan.

PRD Sen. Mario Saucedo Perez questioned whether the IMF approved the standby loan in exchange for a promise from President Ernesto Zedillo's administration not to abandon its push to privatize the Comision Federal de Electricidad (CFE)

and Luz y Fuerza del Centro (LFC), the country's two largest electrical utilities.

The administration's proposal to privatize the CFE and LFC has met strong resistance not only from the PRD but from several members of Zedillo's governing Partido Revolucionario Institucional (PRI). The government's privatization proposal could be considered in the fall legislative session (see SourceMex, 1999-04-28). …