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Mexico, 4/76-10/77 (4)
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324801943
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Mexico, 4/76-10/77 (4)
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Arthur F. Burns Papers
Federal Reserve Board Subject Files
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Mexico
International Monetary Fund. (07/1944 - )
International economy
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1977-10-31
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1977
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1976-04-01
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1976
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The original documents are located in Box B80, folder "Mexico 4/76 - 10/77 (4)" of the
Arthur F. Burns Papers at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
NATIONAL ARCHIVES AND RECORDS SERVICE
WITHDRAWAL SHEET (PRESIDENTIAL LIBRARIES)
FORM OF
CORRESPONDENTS OR TITLE
DATE
RESTRICTION
DOCUMENT
1. telegram
Donald Syvrud to Undersecretary Yeo, Sam Cross, and
11/2/76
A
F.L. Wilman Mexico City 38268, re Mexico's
External Debt and U.S. Bank Exposure (2 pp.
DECLASSIFIED let 5/96
2. telegram
Donald Syvrud to Treasury Dept. Mexico City 38255
11/1/76
A
CLASSIFIED
re Mexican Foreign Exchange Developments in
at 5/96
1976 (5 pp. )
3. telegram
Donald Syvrud to Undersecretary Yeo, Sam Cross, and
11/1/76
A
F.L. Widman, Mexico City 38264, re Mexican
Foreign Exchange Developments in 1976 (20 pp.
DECLASSIFIED
ut 5/96
4. memo case, Collins to Burns, 11/3/76
4a. memo
J. Foster Collins, Treas. Dept. to Burns re
11/3/76
C(A)
reports on Mexico (1 p.) saniti zed 18/17/97
4b. telegram
American Embassy Mexico to Sec of State,
10/27/76
A
Mexico 13678 re Lopez-Portillo meeting with
U.S. businessmen (3 pp. ) DECLASSIFIED
7/25/07 dol
4c. telegram
American Embassy Mexico to S.c. of State,
10/28/76
A
Mexico 13748, re re-pegging of peso (2 pp. )
DECLASSIFIED 7/25/07 dal
4d. telegram
American Embassy Mexico to Sec of State,
11/1/76
A
Mexico 13923 re possible revision of IMF
program for Mexico (2 pp. )
DECLASSIFIED 7/25/07 doe
4e. memo
re Mexican Economic Situation (2 pp. )
sanitized
10/30/76
A
8/24/95
4f. telegram
(7 pp. )
103A
10/26/76
A
4g. telegram
American Embassy Mexico to Sec. of State
11/2/76
A
Mexico 13934 re Mexican economic & political
developments. (4 pp. )
DECLASSIFIED
2/12/15
4h. telegram
(4 pp. )
10/27/76
A
sanitized
4i. telegram
(8 pp. )
8/24/95
10/27/76
A
KBH
4j. telegram
excerpt from State Dept. telegram, #5585, re
c. 10/28/76
A
FILE LOCATION
Mexico (1 p.) Declassified 2/24/95 ILBH
Arthur Burns Papers
SR
Federal Reserve Board Subject File, Box B80
8/13/84
Mexico, Nov. 1-3, 1976
RESTRICTION CODES
(A) Closed by Executive Order 12065 governing access to national security information.
(B) Closed by statute or by the agency which originated the document.
(C) Closed in accordance with restrictions contained in the donor's deed of gift.
GENERAL SERVICES ADMINISTRATION
GSA FORM 7122 (REV. 1-81)
NATIONAL ARCHIVES AND RECORDS SERVICE
WITHDRAWAL SHEET (PRESIDENTIAL LIBRARIES)
FORM OF
CORRESPONDENTS OR TITLE
DATE
RESTRICTION
DOCUMENT
4k. memo
William Morell, Jr. to Secretary Simon re Mexico
11/3/76
A
(2 pp. DECLASSIFIED it 5/96
5. memo case, Truman to Burns, 11/3/76
5a. telegram
American Embassy Mexico to Sec. of State,
11/1/76
A
Mexico 13923, re possible revision of IMF
program (2 pp. )
5b. telegram
American Embassy Mexico to Sec. of State,
2/12/15
11/1/76
C(A)
Mexico 13924, re Ambassador Dent's visit to
Mexico (2 pp.
5c. telegram
American Embassy Mexico to Sec. of State,
DECLASSIFIED
11/2/76
A
Mexico 13934, re ecomomic and politicàl
developments in Mexico (4 pp.)
6. memo case, Wallich to Burns, 11/3/76
6a. memo
Edwin Truman to Burns re status of Mexico's
10/2/76
C(A)
applications for drawings from the IMF (2 pp.)
opened 4/22/96 KBH
FILE LOCATION
Arthur Burns Papers
SR
Federal Reserve Board Subject File, Box B80
8/14/84
Mexico, Nov. 1-3, 1976
RESTRICTION CODES
(A) Closed by Executive Order 12065 governing access to national security information.
(B) Closed by statute or by the agency which originated the document.
(C) Closed in accordance with restrictions contained in the donor's deed of gift.
GENERAL SERVICES ADMINISTRATION
GSA FORM 7122 (REV. 1-81)
SECRET 021736Z NOV 76 STAFF
CITE MEXICO CITY 38268
TO: IMMEDIATE DIRECTOR.
TEXT FOLLOWS OF MR. DONALD SYVRUD 2 NOVEMBER MESSAGE FOR
TREASURY UNDERSECRETARY YEO, SAM CROSS AND F.L. WILMAN:
"CONFIDENTIAL NODIS
TO: UNDER SECRETARY YED, SAM CROSS, F.L. WIDMAN
FROM: D. SYVRUD
SUBJECT: MEXICOS EXTERNAL DEBT AND US BANK EXPOSURE
1. OUR BEST ESTIMATES OF MEXICOS END OCTOBER EXTERNAL DEBT,
PUBLIC AND PRIVATE, IS $25.3 BILLION WITH A PROJECTED FURTHER
INCREASE TO $25.9 BILLION BY THE END OF 1976. THE FOLLOWING
TABLE GIVES A BREAKDOWN OF PUBLIC AND PRIVATE, SHORT AND
NG TERM ESTIMATES AND OUR SOURCES.
2. BANK OF MEXICO OFFICIALS ESTIMATE THAT US PRIVATE BANKS
HOLD AN AVERAGE OF 70 PERCENT OF THE TOTAL DEBT, WITH SHORT
17,8
TERM DEBT ALMOST ENTIRELY HELD BY US BANKS. ON OTHER HAND,
FEDERAL RESERVE DATA FOR MARCH 1976 SHOWED US BANK EXPOSURE
AT $10.5 BILLION, WHICH ABOUT HALF TOTAL ESTIMATED DEBT AT
THAT TIME. ACTUAL US BANK EXPOSURE PROBABLY LIES SOMEWHERE
BETWEEN THESE TWO EXTREMES, BUT CLOSER TO LOWER LEVEL.
BOM OFFICIALS SAY THAT US BANKS CHANNEL CREDITS THROUGH
ENTREPOTS WHICH ARE NOT INCLUDED IN FED DATA.
DECLASSIFIED
E.O. 12958 Sec. 3.6
MR95-2,#6; #6; Treasury Lts. 3/7/96
DERALO FORD LIBRARA
By lit NARA, Date 5/3/96
PAGE 2 MEXICO CITY 38268 SECRET
EXTERNAL DEBT
MEXICO'S EXTERNAL DEBT
(BILLIONS OF U.S. DOLLARS)
DEC 1975
JUNE 1976
DEC 1976
PUBLIC SECTOR
14.8
17.0
19.3
SHORT TERM
2.7
3.2
3.3
LONG-TERM
12.1
13.8
16.0
PRIVATE SECTOR
NA
6.6
6.6
SHORT TERM
NA
2.7
2.7
LONG TERM
NA
3.9
3.9
TOTAL EXTERNAL DEBT
NA
23.6
25.9
SOURCES IMF SM 76/200, TABLES XXI AND XVIII FOR DECEMBER 1975
AND JUNE 1976 PUBLIC SECTOR DATA. BOM ESTIMATES FOR JUNE 1976
PRIVATE SECTOR DATA (SEE NOTES OF TABLE 5 OF PREVIOUS TELEGRAM)
ALL DECEMBER 1976 DATA ARE BASED ON ASSUMPTIONS AND PROJECTIONS
IN BALANCE OF PAYMENTS DATA IN TABLE 5 OF PREVIOUS CABLE.
E2 IMPDET
SECRE
GERALO FORD LIBRARY
BT
SECRET
1 NOVEMBER 76
RECIEVE 012006z
FROM: MEXICO CITY 38255
in 086343
TO: DIRECTOR
PLEASE PASS THE TEXT OF MR. DONALD SYVRUD"S MESSAGE
TO THE TREASURY DEPARTMENT. (Under Secretary YEO, SAM Cross,
F.L. Widman)
SUBJECT: MEXICAN FOREIGN EXCHANGE DEVELOPMENTS IN 1976.
1. ON THE BASIS OF DATA COMPILED OVER THE WEEKEND BY
ALFREDO PHILLIPS AND HIS STAFF, I PREPARED THE ATTACHED
MEMORANDUM (BEING SENT SEPARATELY) WHICH ATTEMPTS TO RECONCILE FOREIGN
EXCHANGE RESERVE MOVEMENTS AND INTERVENTION DATA AND PROJECTS
BORROWING REQUIREMENTS AND AVAILABILITIES FOR THE REMAINDER OF 1976,
I DISCUSSED HIS MEMORANDUM AND THE TABLES APPENDED TO IT WITH
FERNANDEZ-HURTADO OCTOBER 31, HE COMMENTED ON SEVERAL
PARAGRAPHS BUT AGREED TO ITS ACCURACY, AND TO FORWARDING
SECRET
DECLASSIFIED
E.O. 12958 Sec. 3.6
MR 95-2,#7; Treasury Hr. 3/7/96
By ut NARA, Date let 5/3/96
BERALD FORD LIBRARY
CABLE SEC DISSEM BY
PER
TOTAL COPIES
RUN BY
REPRODUCTION BY OTHER
;
SECRET
ISSUING OFFICE IS PROHIE
PERSON/UNIT NOTIFIED
ADVANCE COPY ISSUED/SLOTTED
BY
AT
z
STAFF
ACTION UNIT
1
4
RF. FILE.
VR.
O N F I
2
5
3
6
ACTION #
T 346260
EIA954
PAGE 02
IN 086343
TOR:012006Z NOV 76
MEXI 38255
IT TO WASHINGTON, HE ASSUMES THAT IT WILL ALSO BE GIVEN TO
THE FED. BOTH HE AND PHILLIPS HAVE COPIES OF THE MEMO.
2. IN SUM, THE MEMO CONCLUDES: MEXICO'S GROSS FOREIGN
EXCHANGE RESERVE POSITION AS OF OCTOBER 29 WAS $778 MILLION.
THE INTERVENTION DATA MEASURES THE CHANGE IN NET FOREIGN
RESERVES WHICH DECLINED BY $3,400 MILLION THROUGH OCTOBER -5,
GROSS RESERVES DECLINED $955 MILLION, AND FOREIGN EXCHANGE
LIABILITIES INCREASED BY THE REMAINDER, OF WHICH $365
MILLION SWAP TO THE U.S. TREASURY, $700 MILLION LIABILITY
2
TO MEXICAN COMMERCIAN BANKS AND $1,380 MILLION LIABILITY
TO MEXICAN PUBLIC ENTERPRISES. BANK OF MEXICO PROJECTIONS
FOR NOVEMBER AND DECEMBER SH OW A NET INFLOW OF $205 MILLION,
ASSUMING NO FURTHER SPECULATIVE OUTFLOW. HOWEVER, THIS
PROJECTION INCLUDES $800 MILLION "SPECIAL FINANCING" FROM
THE BANK OF AMERICA GROUP, EXCLUDING THIS
(
CREDIT BOM PROJECTS A $600 MILLION DEFICIT FOR THE TWO
MONTHS PLUS WHATEVER PRIVATE CAPITAL OUTFLOW MAY OCCUR.
3, FERNANDEZ-HURTADO ALSO AGREED THAT THE NEXT STEPS
SHOULD BE (A) TO IMPROVE OUR REPORTING SYSTEM, AND (B).
TO EXAMINE THE PUBLIC SECTOR FINANCIAL DATA AND DOMESTIC
GERALD FORD VIPRARD
SECRET
CABLE SEC DISSEM BY
PER
TOTAL COPIES
RUN BY
REPRODUCTION BY OTHER TH
SECRET
ISSUING OFFICE IS PROHIBIT
PERSON/UNIT NOTIFIED
ADVANCE COPY ISSUED/SLOTTED
BY
AT
z
STAFF
ACTION UNIT
1
4
RF. FILE.
VR.
0 N F I
2
5
3
6
ACTION #
T
346260
EIA954
PAGE 03
IN 086343
TOR:012006Z NOV 76
MEXI 38255
MONETARY AND CREDIT TRENDS WITH THE AIM OF ASSESSING THE
OUTLOOK FOR THE NEXT TWO MONTHS.
4, IN OUR DISCUSSION OF THE MEMORANDUM, F-H MADE THE
FOLLOWING ADDITIONAL POINTS:
(A) NET PUBLIC SECTOR BORROWINGS FOR 1976 ARE
ESTIMATED AT $4.500 MILLION. NET BORROWINGS THROUGH
END SEPTEMBER ARE $3,847 MILLION; OCTOBER NET
BORROWINGS WERE NEGLIGIBLE, THE FORECAST FOR NOVEMBER-
CL - 3.0
DECEMBER IS $654 MILLION (TABLE 5).
Flift
-2,5
5.5
(B) ASSUMING A CURRENT ACCOUNT DEFICIT OF $3000 MILLION
Palise + 4.5
(TABLE 4), GROSS RESERVE LOSS OF $1000 MILLION, AND NET
Restle +10
5.5
PUBLIC SECTOR BORROWINGS OF $4,500 MILLION, SPECULATIVE
CAPITAL FLIGHT WOULD AMOUNT TO $2,500 MILLION FOR 1976.
(C) THE ASSUMPTION IN TABLE 5 THAT THE PUBLIC SECTOR
WOULD ROLL OVER EXISTING DEBTS MAY BE OPTIMISTIC, HE
THOUGHT SOME OF THE BANKS WOULD NOT WANT TO MAINTAIN
THEIR EXPOSURE, PARTICULARLY THOSE PARTICIPATING IN THE $800
MILLION SPECIAL FINANCING, THE ASSUMPTION FOR ROLLOVER OF
PRIVATE SECTOR CREDITS, HE THOUGHT, WAS REALISTIC,
GERALD FORD LIBRAPY
(D)
PRIORITY MUST BE TO STEM THE OUTFLOW OF DOLLARS.
SECRET
CABLE SEC DISSEM BY
PER
TOTAL COPIES
RUN BY
REPRODUCTION BY OTHER TH
SECRET
ISSUING OFFICE IS PROHIBIT
PERSON/UNIT NOTIFIED
ADVANCE COPY ISSUED/SLOTTED
BY
AT
Z
STAFF
ACTION UNIT
1
4
I
RF. FILE.
VR.
2
5
N
3
6
F
ACTION #
O
T
346260
EIA954
PAGE 04
IN 086343
TOR:0120067 NO V 76
MEXI 38255
THE PERIOD NOVEMBER 15 TO END OF JANUARY IS SEASONABLY
THE MOST FAVORABLE FOR THE BALANCE OF PAYMENTS, BUT THE
POLITICAL CLIMATE IS NOT HELPFUL.
(E) THREE FACTORS ARE IMPORTANT IN ASSESSING MARKET
CONFIDENCE: THE LEVEL OF PUBLIC SECTOR SPENDING,
THE TREND OF WAGE SETTLEMENTS, AND THE ATTITUDE OF
THE NEW GOVERNMENT TO THE PRIVATE SECTOR. THE TREND
OF WAGE SETTLEMENTS IS FIXED FOR NOW, THE LOPEZ-PORTILLO
GOVERNMENT WILL HAVE TO HOLD THE LINE THERE TOO, AS IT IS
EXPECTED TO DO ON PUBLIC SECTOR SPENDING.
(F) HE ELABORATED ON EARLIER VIEWS ON THE EXCHANGE
MARKET. HIS AIM IS TO ELIMINATE SPECULATION WITH MINIMUM
INTERVENTION, GIVEN CONFIDENCE FACTOR, THIS WILL BE
DIFFICULT TO DO PRIOR TO DECEMBER 1. FURTHER,
DEPRECIATION OF THE RATE WILL CONTRIBUTE TO SPECULATIVE
GERALD FORD LIBRARY
Hero 2 FEVER, HE IS AIMING AT HOLDING THE RATE BETWEEN 20-25
PER U.S. DOLLAR WITH MINIMUM MARKET INTERVENTION AND A
WIDENING BAND. HE PLANS TO WIDEN GRADUALLY THE BAND WITHIN
WHICH THE BANKS CAN QUOTE, WHILE HOLDING THE SPREAD BETWEEN
BUYING AND SELING RATES TO ONE PERCENT. ON OCTOBER 31,
SECRET
CABLE SEC DISSEM BY
PER
TOTAL COPIES
RUN BY
REPRODUCTION BY OTHER TM
SECRET
ISSUING OFFICE IS PROHIBIT
PERSON/UNIT NOTIFIED
ADVANCE COPY ISSUED/SLOTTED
BY
AT
Z
STAFF
ACTION UNIT
1
4
:
I
RF. FILE.
VR.
2
5
Z
3
6
F
ACTION #
O
T 346260 EIA954
PAGE 05-05
IN 086343
TOR: 0120067 NOV 76
MEXI 38255
FOR EXAMPLE THE BOM RATES WERE $24.40 BUYING AND $25.65
SELLING PER DOLLAR, A BAND OF ABOUT 5 PERCENT. THIS BAND
WILL BE WIDENED, WITHOUT ANY PUBLIC ANNOUNCEMENT, TO GIVE THE
MARKET A SENSE OF THE DIRECTION THE BOM EXPECTS; THE BAND
WILL BE WIDENED IN A DOWNWARD DIRECTION, THAT IS, BY GREATER
REDUCTION IN THE BUYING RATE BELOW 24.40.
That nevvers friend
FORD & GERALD LIBRARY
--
SECRET
I NOVEMBER I976
RECEIVED 012338Z
FROM: MEXICO CITY 38264
IN 086483
TO DIRECTOR
FAEE 1
THE FOLLOWING IS ATTACHMENT TO 1 NOV MESSAGE FROM MR. DONALD
SYVRUD TO TREASURY DEPARTMENT FOR ATTENTION OF UNDER SECRETARY YEO,
MR. SAM CROSS AND MR. F.L. WIDMAN.
SUBJECT: FOREIGN EXCHANGE DEVELOPMENTS IN
1976.
INTRODUCTION
1, THIS PAPER TRACES THE BANK OF MEXICO'S (BOM) FOREIGN EXCHANGE
RESERVE POSITION AND INTERVENTION DATA FOR 1976, RECONCILES
CHANGES IN THE RESERVE POSITION WITH INTERVENTION DATA, AND PROJECTS
THE BORROWING REQUIREMENTS AND FOREIGN EXCHANGE AVAILABILITIES
FOR THE REMAINDER OF 1976.
FOREIGN EXCHANGE RESERVES
2, THE BANK OF MEXICO'S GROSS FOREIGN EXCHANGE RESERVES
AS OF OCTOBER 29, 1976, TOTALLED 778 MILLION, A BECLINE OF 797
MILLION SINCE DECEMBER 30, 1975. THE COMPOSITION OF GROSS RESERVES
value?
ON THE BASIS OF PRELIMINARY DATA ARE: GOLD, 264; IMF, 0; SDRS, 50;
SECRET
DECLASSIFIED
E.O. 12958 Sec. 3.6
MR 95-2; #8; Treasury Ltr. 3/7/96
FORD is GERALD LIBRARY
By ut NARA, Date 5/30/96
SECRET
Page 2
EX, 444; US TREASURY BILLS, 19; ACCEPTANCES, 1: NET BILATERAL
PAYMENTS POSITION, 19; SEE TABLE 1.
(IF THE GOLD HOLDINGS ON OCTOBER 28 WERE VALUED AT A CONSTANT
PRICE OF $42.22 PER DUNCE, THE SAME VALUE AS OF DECEMBER
30, 1975, THE CHANGE IN GROSS FOREIGN EXCHANGE RESERVES WOULD
AMOUNT TO $955 MILLION).
THE BANK OF MEXICO'S NET FOREIGN EXCHANGE RESERVE POSITION,
TAKING THE U.S. TREASURY SWAP INTO ACCOUNT, WAS $436 MILLION ON
OCTOBER 29. THIS TREASURY SWAP WILL BE PAID ON NO VE MB ER 5, TO
BE COVERED BY AN EQUAL DOLLAR AMOUNT DRAWN FROM THE IMF. (SDR
134 MILLION OF THE FIRST CREDIT TRANCHE AND SDR 185 MILLION OF
THE COMPENSATORY FINANCING FACILITY ON NOVEMBER i AND 31.
3, INCLUDING THE SWAP AS A LIABILITY (SWAPS BEING PESO OBLI-
GATIONS ARE NOT A LEGAL FOREIGN EXCHANGE LIABILITY OF THE BANK
OF MEXICO), THE DECLINE IN THE NET FOREIGN EXCHANGE POSITION OF
THE BANK THROUGH OCTOBER 29 AMOUNTED TO $1320 MILLION, AN AVERAGE
OF $132 MILLION PER MONTH,
4, THESE GROSS AND NET FOREIGN EXCHANGE POSITIONS ARE CONSIS-
TENT WITH THOSE PROVIDED WEEKLY.
NET FOREIGN EXCHANGE MARKET INTERVENTION
BERALD FORD LIBRARA
SECRET
SECRET
R.
Page 3
GERALD
UNON
LIBRARY
5, DURING THE FIRST TEN MONTHS OF 1976 - TO OCTOBER 29, THE
BANK OF MEXICO'S FOREIGN EXCHANGE OPERATIONS RESULTED IN NET
SALES OF $3400 MILLION. MONTHLY INTERVENTION DATA, SHOWING THE
NET PURCHASES AS SALES TO THE PRIVATE SECTOR AND TO PUBLIC SEC-
TOR ENTERPRISES, ARE INCLUDED IN TABLE 2.
6, THE ACCUMULATED INTERVENTION DATA ARE CONSISTENT WITH
THOSE PROVIDED ON A DAILY BASIS.
RECONCILIATION OF RESERVE AND INTERVENTION DATA
7, THE KEY TO RECONCILING THE DIFFERENCES BETWEEN CHANGES IN
RESERVE DATA AND INTERVENTION DATA IS AN UNDERSTANDING THAT THE
MEXICAN ECONOMY OPERATES VIRTUALLY ON A TWO CURRENCY BASIS-DOLLARS
AND PESOS, THERE IS COMPLETE CONVERTIBILITY BETWEEN THE TWO CURREN-
CIES AT ALL STAGES. INDIVIDUALS AND FIRMS, FOREIGN OR DOMESTIC,
MAY HOLD PESO OR DOLLAR DENOMINATED ACCOUNTS IN COMMERCIAL BANKS.
COMMERCIAL BANKS IN TURN MAY HOLD PESO OR DOLLAR DENOMINATED
ACCOUNTS AT THE BANK OF MEXICO. THE ONLY LIMITATION ON COMMERCIAL
BANKS IS THAT THEY ARE REQUIRED TO BALANCE THEIR FOREIGN EXCHANGE
POSITIONS EACH DAY. PUBLIC ENTERPRISES ALSO HOLD DOLLAR DENOMINA-
TED AS WELL AS PESO DENOMINATED ACCOUNTS AT THE BANK OF MEXICO.
8, MOST OF THE DIFFERENCES BETWEEN RESERVE AND INTERVENTION
SECRET
SECRET
Page 4
LIBRARY GERALD R. FORD
DATA ARE ATTRIBUTABLE TO FREE CONVERTIBILITY AND THE RIGHT TO HOLD
DOLLAR DENOMINATED ACCOUNTS IN THE BANK OF MEXICO. MANY OF THE
TRANSACTIONS OF THE-BANKS OR THE PUBLIC ENTERPRISES ARE MERELY
"TRANSFERS" FROM THEIR PESO ACCOUNT TO THEIR DOLLAR ACCOUNT (OR
VICEVERSA) IN THE BANK OF MEXICO. SUCH A TRANSFER WOULD INVOLVE
A BANK OF MEXICO SALE OF DOLLAR FOR PESO (OR VICEVERSA) AND WOULD
THUS BE INCLUDED IN INTERVENTION DATA. THE TRANSACTION WOULD ALSO
INCREASE (OR REDUCE) THE BANK OF MEXICO'S DOMESTIC DOLLAR LIABILI-
TIES (TO THE BANK OR ENTERPRISE) BUT IT WOULD NOT AFFECT ITS GROSS
FOREIGN EXCHANGE HOLDING.
9. IF THE COMMERCIAL BANK (OR PE) SIMULTANEOUSLY REQUESTED A
TRANSFER FROM ITS PESO ACCOUNT TO ITS DOLLAR ACCOUNT AND REQUESTED
PAYMENT OF THE DOLLARS TO A U.S. BANK, THIS TRANSACTION, "FOREIGN
EXCHANGE DRAFTS AND PAYMENT ORDERS" INVOLVES BOTH INTERVENTION
(A BANK OF MEXICO'S SALE OF DOLLARS FOR PESOS) AND A RESERVE LOSS
(A REDUCTION IN THE BANK OF MEXICO'S DOLLAR LIABILITY TO THE BANK
AND A SIMILAR REDUCTION IN THE FOREIGN EXCHANGE ASSETS).
10, # IF THE COMMERCIAL BANK (OR PE) REQUESTS A TRANSFER FROM ITS
DOLLAR ACCOUNT IN THE BANK OF MEXICO TO A FOREIGN BANK, THERE IS NO
PESO-DOLLAR TRANSACTION AND THUS NO INTERVENTION, BUT THE BANK OF MEXI-
SECRET
SECRET
Page 5
CO AGAIN DRAWS DOWN ITS FOREIGN EXCHANGE RESERVES TO MAKE THE PAY-
MENT ABROAD - AGAIN REDUCING ITS DOLLAR LIABILITY TO THE MEXICAN
BANK, THE BANK OF MEXICO REFERS TO THIS TRANSACTION AS "TRANSAC-
TIONS IN U.S. DOLLARS ONLY".
11. COMPARISON OF CHANGES IN NET FOREIGN EXCHANGE RESERVE PO-
SITION THROUGH OCTOBER 29 ($1320 MILLION PER PARA, 3) WITH NET
INTERVENTION DATA ($3400 MILLION PER PARA. 5) RESULTS IN A DIFFE-
RENCE OF $2,080 MILLION. PRECISE DATA TO RECONCILE THIS DIFFERENCE
FOR THE ENTIRE YEAR ARE NOT READILY AVAILABLE, BUT WITH A MAJOR
EFFORT COULD BE PULLED TOGETHER FROM DAILY WORKSHEETS. IN RECOG-
NITION OF THE NEED TO BEGIN RECONCILING RESERVE AND INTERVENTION
DATA THE BANK OF MEXICO INITIATED ON SEPTEMBER 16 A DAILY SUMMARY
WHICH FACILITATED THIS RECONCILIATION. THESE DATA FOR SEPTEMBER
16 TO OCTOBER 19 ARE INCLUDED IN TABLE 3.
12, FAIRLY ACCURATE DATA ON NET CHANGES IN FOREIGN EXCHANGE
RESERVES OF THE BANK OF MEXICO ARE AVAILABLE DAILY THROUGH CAL-
CULATION OF THE THREE TRANSACTIONS DESCRIBED IN PARAGRAPHS 8-10
ABOVE.
GERALD FORD LIBRARY
SECRET
SECRET
Page is
R. FORD
BOTH THE COMMERCIAL BANKS AND THE PUBLIC ENTERPRISES ENGAGE
IN ALL THREE OF THE TRANSACTIONS DESCRIBED ABOVE,
13, ANOTHER APPROACH TO EXPLAINING THE DIFFERENCE BETWEEN
INTERVENTION AND RESERVE DATA IS TO EXAMINE THE OPERATIONS OF THE
COMMERCIAL BANKS AND PUBLIC ENTERPRISES SEPARATELY. THE COMMERCIAL
BANKS ARE REQUIRED TO DEPOSIT IN THE BANK OF MEXICO AN A VERAGE OF
75 PER CENT OF THEIR DOLLAR LIABILITIES, THE BANK OF MEXICO RECORDS
THESE DOLLAR DENOMINATED DEPOSITS AS FOREIGN E CHANGE LIABILITIES
TO THE COMMERCIAL BANKS, THROUGH OCTOBER 28, THESE LIABILITIES
INCREASED BY $700 MILLION (FROM 7,5 MILLION ON DECEMBER 30, 1975
TO 708 MILLI ON ON OCTOBER 28), ASSUMI NG THIS AMOUNT AS A BANK OF
MEXICO FOREIGN EXCHANGE LIABILITY, NET FOREIGN EXCHANGE RESERVES
DECLINED $2,039 MILLION (FROM 51567 MILLION ON DECEMBER 30, TO
A NEGATIVE $29.5 MILLION ON OCTOBER 29, INCLUDING A $177 MILLION
ADJUSTMENT FOR THE CHANGE IN THE GOLD VALUATION SYSTEM).
14, TAKING ALL KNOWN ITEMS INTO ACCOUNT, WE CAN EXPLAIN $2.020 MIL-
SECRET
S.ECRET
Page 7
LION OF THE $3,400 MILLION NET INTERVENTION LOSS, MOST OF THE
REMAINING $1,380 MILLION IS ATTRIBUTABLE TO THE BANK OF MEXICOIS
TRANSACTIONS WITH THE PUBLIC ENTERPRISES, WHEN A PUBLIC ENTERPRISE
BORROWS DOLLARS FOR THE SPECIAL TRUST. FUND. THE PROCEEDS ARE
DEPOSITED IN A DOLLAR ACCOUNT IN A FOREIGN BANK TO THE ACCOUNT OF
THE BANK OF MEXICO (AS A TRUSTEE), TO THE EXTENT THAT THE GOVERN-
MENT OF MEXICO AUTHORIZES DELIVERY OF THOSE DOLLARS To PUBLIC EN-
TITIES, FOR PAYMENT OF IMPORTS OR DEBT SERVICES, THE TRANSACTION
IS A "us DOLLAR ONLY" TRANSACTION, WITH NO INTERVENTION INVOLVED.
TO THE EXTENT THAT THE GOVERNMENT OF MEXICO AUTHORIZES DELIVERY
OF THE DOLLAR PROCEEDS FOR EXPENDITURES IN MEXICO, THE DOLLARS
ARE CONVERTED INTO PESOS AND ARE INCLUDED IN THE INTERVENTION
DATA AS A PURCHASE OF DOLLARS. FOR PESOS, TO THE EXTENT- THAT THE
DOLLARS REMAIN ON ACCOUNT AT THE BANK OF MEXICO, THEY REMAIN
AS A LIABILITY. ALL THESE TRANSACTIONS FROM BEGINNING TO END,
ARE SIMULTANEOUSLY REGISTERED IN MEMORANDA ACCOUNTS,
15, DATA ON BANK OF MEXICO TRANSACTION WITH PUBL IC ENTERPRISES
ARE NOT READILY AVAILABLE. A MAJOR EFFORT WOULD BE REQUIRED TO
SUMMARIZE THE INCREASE IN BANK OF MEXICO USE OF TRUST FUND DOLLAR
RESOURCES,
SECRET
BERALD FORD LIBRARY
SECRET
Page 8
GERALD R. FORD LIBRANA
16, IN SUM, NET FOREIGN RESERVES HAVE DECLINED BY $3,400 MILLION
DURING THE YEAR TO OCTOBER 29, GROSS RESERVES HAVE DECLINED BY
$955 MILLION, AND FOREIGN EXCHANGE LIABILITIES HAVE INCREASED
BY THE DIFFERENCES, OF WHICH 365 MILLION SWAP TO THE U.S. TREA-
SURY, $700 MILLION LIABILITY TO THE COMMERCIAL BANKS AND $1,380
MILLION LIABILITY TO THE PUBLIC ENTERPRISES,
PROJECTIONS FOR NOVEMBER AND DECEMBER
17, THE CRITICAL UNKNOWN IN PROJECTING THE BANK OF MEXICO'S FO -
REIGN EXCHANGE REQUIREMENTS AND AVAILABILITIES FOR THE REMAINDER
OF 1976 IS THE LEVEL OF SPECULATIVE CAPITAL OUTFLOW RESULTING.
FROM A LACK OF CONFIDENCE. ON THE ASSUMPTION OF NO SPECULATIVE
CAPITAL OUTFLOW AND, BASED ON THE BEST AVAILABLE DATA ON THE
TREND OF THE CURRENT ACCOUNT AND REASONABLE ASSUMPTIONS REGARDING
CAPITAL ACCOUNT MOVEMENTS, THE BANK OF MEXICO PROJECTS A $204
MILLION NET IN FLOW FOR THE FINAL TWO MONTHS OF 1976, THE PROJEC-
TIONS AND THE ASSUMPTIONS ON WHICH THE PROJECTIONS ARE MADE ARE
SHOWN IN TABLE 5,
18, THE BANK OF MEXICO IS PROJECTING A CURRENT ACCOUNT DEF IC IT
FOR THE LAST TWO MONTHS OF $ 45 0 MILLION. THIS IS BASED ON A FORE-
CAST DEFICIT FOR 1976 6 OF $2,9978ILLION, $2,997 OF WHICH $2.103 MILLION
SECRET
SECRET
Page 9
IS A PRELIMINARY ACTUAL THROUGH AUGUST. FOR THE FINAL FOUR MONTHS
THE BANK OF MEXICO EXPECTS A SMALLER ($225 MILLION) MONTHLY DEFI-
CIT THAN DURING THE EARLIER EIGHT MONTHS (263 MILLION), BUT STILL
BIGGER THAN THE FIRST QUARTER ($212 MILLION),
19, PUBLIC SECTOR CAPITAL ACCOUNT TRANSACTIONS ARE PROJECTED BY
THE FINANCE MINISTRY To RESULT IN A NEW INFLOW OF $654 MILLION,
WITH AMORTIZATIONS OF $800 MILLION AND BORROWING OF $1 1454 MILLION,
THIS LATTER INCLUDES AN $800 MILLION CREDIT ARRANGED BY THE BANK
OF AMERICA FDV LATE NOVEMBER OR EARLY DECEMBER,
20, PRIVATE SECTOR CAPITAL ACCOUNT TRANSACTIONS BOTH LONG AND
SHORT TERM, ARE AS SUMED TO BE IN BALANCE FOR THE REST OF THE YEAR
WITH AMORTIZATIONS OF $577 MILLION OFFSET BY BORROWING OF A SIMI-
LAR AMOUNT, GIVEN THE EXCEPTIONALLY TIGHT MONETARY SITUATION. TO
BE DESCRIBED LATER, THIS ASSUMPTION SEEMS REALISTIC,
21, FINALLY, THE U.S, TREASURY SWAP IS DUE FOR REPAYMENT ON NO -
VEMBER 5, TO BE COVERED BY DRAWINGS FROM THE IMF OF A SIMILAR
AMOUNT ON NOVEMBER 2 AND 4,
THE KEY UNKNOWN IS THE AMOUNT OF SPECULATIVE CAPITAL FLIGHT
BASED ON THE CONFIDENCE FACTOR.
LIST OF TABLES
GERALD FORD LIBRARY
SECRET
S.ECRET
Page 10
1, FOREIGN EXCHANGE RESERVES
DEC, 1975 - OCT, 28, 1976, BY MONTH
(MILLIONS OF US DOLLARS)
2, NET FOREIGN EXCHANGE INTERVENTION
FROM END OF DEC. 1975 TO OCT, 29, 1976, BY MONTH, WITH BREAK-
DOWN OF NET PUBLIC SECTOR AND PRIVATE SECTOR OPERATIONS,
(MILLIONS OF US DOLLARS)
3, RECONCILIATION OF FOREIGN EXCHANGE RESERVE CHANGES AND NET
INTERVENTION
DATA SEPT, 17 TO OCT, 29, 1976 (TO BE POUCHED)
(MILLIONS OF US DOLLARS)
4, BALANCE OF PAYMENTS 1976, BY QUARTER
ACTUAL TO FIRST SEMESTER 1976 AND PROJECTIONS FOR.
SECOND SEMESTER 1976,
(MILLIONS OF US DOLLARS)
5, PROJECTED FOREIGN EXCHANGE
REQUIREMENTS AND AVAILABILITIES, NOVEMBER AND DECEMBER 1976,
CMILLIONS OF US DOLLARS)
6, FOREIGN EXCHANGE RESERVE
SEPT, 17 - OCT, 28, 1976 (TO BE POUCHED)
SECRET
BERALD R. FORD LICENSET
SECRET
Page 11
LIGRARY GERALD FORD
FX Res
TABLE NO. 1
DEC.75
JAN.76
FEB.
MAR.
APR.(##)
GOLD
154.6(#)
152.0(#)
152.0(#)
152.0(#)
396.1
IMF
118.0
118.0
118.0
118.0
118.0
SDR
100.9
100.8
100.8
99.7
99.3
FOREIGN EXCHANGE
1,111.8
1,041.7
1,196.9
1,114.3
853.8
NET BILATERAL
46.6
18.2
25.0
30.6
41.3
AGREEMENT
U.S. TREASURY BILLS 13.2
6.5
9.1
7.8-
5.6
ACCEPTANCES
30.1
13.9
24.5
20.0
23.0
-----
-----
-----
-----
-----
GROSS FOREIGN
EXCHANGE RESERVES 1,575.2
1,451.1
1,626.3
1,542.4
1,537.1
MAY
JUN
JUL
AUG
SEPT
OCT
Gold
396.1
396.1
364.5
337.0
361.8
264
IMF
118,0
118.0
118.0
118.0
113.1
----
SECRET
SECRET
Page 12
SDR
98.8
98.3
98.4
98.7
49.1
50
FX
896.1
1,039.5
754.5
750.3
530.5
444
18.5
29.9
38.6
46.3
11.6
19
10.4
10.0
5.7
13.4
11.6
19
61,2
75.7
15.2
....
----
----
GROSS FOREIGN
EXCHANGE RESERVES
1,599.1 1,767.5 1,394.9 1,363.7 1,077.7 778
CHANGE IN GROSS RESERVES
797
(#)
GOLD IS VALUED AT 42.22 / oz
(##) GOLD IS VALUED AT 90 PERCENT OF THE AVERAGE U.S. DOLLAR
MARKET PRICE FOR THE PRECEDING THREE MONTHS OR OF THE
MOST RECENT DATE, WHICHEVER IS LESS.
(###) FIGURES AS OF END OF MONTH
SOURCE: BANK OF MEXICO, CLASSIFIED REPORTS.
TABLE NO. 2
FORD & GERALD LIBRARY
NET FOREIGN EXCHANGE PURCHASES AND SALES
(INTERVENTION) BY MONTH, JANUARY - OCTOBER,
1976, WITH PUBLIC AND PRIVATE SECTOR OPERATIONS.
SECRET
S.ECRET
Page 13
MONTH
PRIVATE
PUBLIC
TOTAL
JANUARY
MINUS 188
PLUS
5
MINUS 183
FEBRUARY
MINUS 259
PLUS 258
MINUS 1
MARCH
MINUS 371
PLUS 232
MINUS 139
APRIL
MINUS 514
PLUS 191
MINUS 323
MAY
MINUS 29
MINUS 176
MINUS 205
JUNE
MINUS 173
MINUS 316
MINUS 489
JULY
MINUS 255
MINUS 133
MINUS 388
AUGUST
MINUS 541
PLUS 55
MINUS 486
SEPTEMBER
MINUS 256
MINUS 41
MINUS 297
OCTOBER##
MINUS 637
MINUS 249
MINUS 886
MINUS 3,223
MINUS 174
MINUS 3,397
##INCLUDES AN ESTIMATE FOR OCTOBER 29,
TABLE 4
QUARTERLY FORECAST OF THE MEXICAN BALANCE OF PAYMENTS 1/
MILLIONS OF DOLLARS
GERALD FORD VIBRARY
SECRET
SECRET
Page 14
GERALD FORD
BP
JANUARY APRIL
JULY
SEPTEMBER TOTAL
MARCH#
JUNE#
AUGUST
DECEMBER
1, BALANCE ON GOODS
& SERVICES
-635.1
-874.0
-594.4
-893.6
-2
997.1
A. EXPORT OF GOODS
& SERVICES
1 704,8
1 827.0
1 170.6
2 062.0
6 764.4
1. MERCHANDISE
781.0
879.5
465.5
1 134.5
3 260.5
2. SILVER
35.6
38.7
27.0
62.0
163.3
3. TOURISM
237.6
202.8
152.4
200.0
792.8
4. INTERNATIONAL
TRAVEL
23,8
25.1
18.0
33.1
100.0
5. FRONTIER
TRANSACTIONS
391.2
405.1
310.0
381.6
1
487.2
6. IN-BOND ASSEMBLY
PLANTS
125,2
154.4
102.7
142.3
524.6
7. OTHER
110,4
121.4
95.0
108.5
435.3
B. IMPORTS OF GOODS
& SERVICES
2 339.9 2 701.0 1 765,0 2 955.6 9 761.5
SECRET
SECRET
Page 15
BP-2
fuby by Syt-De Total I.
1. MERCHANDISE
1 433.4
1 656.8
1 100.0
1 810.0
6 000.2
A) PUBLIC SECTOR 560.8
525.4
350.0
572.0
2 008.2
B) PRIVATE SECTOR 872,6
1 131.4
750.0
1 238.0
3 992.0
2. TOURISM
70.6
118.2
90.0
101.3
380.1
3. INTERNATIONAL
TRAVEL
23.7
47.1
24.0
83.0
127.8
4. FRONTIER
TRANSACTIONS
257.3
264.9
181.0
226.3
929.5
5. DIVIDENDS &
INTEREST
198.9
204.5
120.0
240.0
763.4
FORD & GERALD LIBRARY
:
SECRET
SECRET
Page 16
july by sept-Dec
6. INTEREST ON
OFFICIAL DEBTS
239.0
280.3
150.0
355.0
1 024.3
7. OTHER
117,0
129.2
100.0
190.0
536.2
II. LONG-TERM
1 038,5
800.9
600.0
1
308.6
3 748.0
III. CHANGE IN THE BANK OF
MEXICO'S
RESERVES 2/
403.4
-73.1
5,6
415.0
750.9
#PRELIMINARY
1/ ASSUMES A 4.5 PERCENT GROWTH RATE.
2/ INCREASE IN INTERNATIONAL ASSETS AND/OR CAPITAL OUTFLOWS.
TABLE .4
(CONT. )
FOREIGN DEBT SERVICE OF THE PUBLIC SECTOR
LIBRARY GERALD R. FORD
(MILLIONS OF DOLLARS)
SECRET
SECRET
Page 17 7
Debt Service
GERALD R. FORD LIBRANY
1976
1977
SEPT-DEC
JAN-JUN
JUL-DEC
TOTAL
2 035.0
3 662.2
3 794.2
A. LONG TERM
755.0
1 530.0
1 722.0
INTEREST
355,0
830.0
770.0 .
AMORTIZATION
400,0
700.0
952.0
B. SHORT TERM
1 280.0
2 132.2
2072.2
INTEREST
80,0
180.0
120.0
AMORTIZATION 1 200.0
1 952.2
1 952.2
TABLE 5
NOVEMBER-DECEMBER 1976
I. OUTFLOWS
U.S. DLS,
MILLION
A. CURRENT ACCOUNT DEFICIT
450
B. PUBLIC DEBT PAYMENTS
800
B.1 LONG TERM
200
To he rulled crier- - (F.I)
S ECRET
S.ECRET
Page 18
3,2 SHORT TERM
600
C. PRIVATE DEBT (TOTAL)
577 Estimated 1/6 of ofort D
D. U.S. TREASURY SWAP
365
" 127 a every 1)
E. SUB-TOTAL
2,192
II. INFLOWS
F. PUBLIC SECTOR DEBT
1,454
F,1 LONG TERM
854
F,2 SHORT TERM
600 doub Hul vullovers
G. PRIVATE SECTOR DEBT
577 good voll overs N.
H. I.M.F.
365
1. SUB-TOTAL
2,396
J. TOTAL (II - I)
PLUS 204
FORDO : GERALD
K. ERRORS AND OMISSIONS
N.A.
NOTES AND ASSUMPTIONS FOR TABLE 5
I, OUTFLOWS,
A, CURRENT ACCOUNT DEFICIT. - ON BASIS OF AN ESTIMATED CURRENT
ACCOUNT DEFICIT OF U.S. $2,997.1 FOR 1976, AND 893.4 FOR THE 4
MONTH PERIOD, SEPTEMBER-DECEMBER 1976, FOR 2 MONTH PERIOD NOVEMBER-
DECEMBER A DEFICIT IS ESTIMATED AT US $450 MILLION. THE DEFICIT
IS BASED ON BANK OF MEXICO'S FIGURES AND DEFINITIONS, WHICH DIFFER
SECRET
SECRET
Page 19
FROM THE IMF ESTIMATES DUE TO NETTING OF REMITTANCES OF PROFITS
AND DIVIDENDS AND INVESTMENTS OF THESE. THERE IS ALSO A DIFFERENCE
OF APPROXIMATELY 300 MILLION IN THE ESTIMATES.
B, SUM OF 8.1 AND B.2.
B,1. ON BASIS OF BALANCE OF PAYMENTS ESTIMATES FOR 1976, U.S.
$200 MILLION REPRESENTS PROJECTED AMORTIZATIONS OF PUBLIC SECTOR
EXTERNAL DEBT,
B,2. ESTIMATES BASED ON BALANCE OF PAYMENTS FIGURES.
C, IT IS ASSUMED THAT:
I) OUT OF TOTAL PRIVATE SECTOR EXTERNAL SHORT-TERM
DEBT ESTIMATED AT US $2,703 MILLION AS OF JUNE 30, 1976, 1/6 FALLS
DUE ON THE 2 MONTH PERIOD AMOUNTING TO US $450 MILLION.
ID AVERAGE MATURITY OF PRIVATE SECTOR LONG-TERM
DEBT IS 5 YEARS; OUT OF A TOTAL OF US $3,867 MILLION OUTSTANDING
AS OF JUNE 30, 1976, IT IS ESTIMATED THAT US $770 FALLS DUE IN
1976, AND OUT OF THAT, US $127 MILLION IS DUE IN NOV-DEC 1976.
FORD & GERALD LIBRARY
:
SECRET
SECRET
Page 20-20
THEREFORE, 450 PLUS 127 EQUALS 577 MILLION. Total we Luvities
Nov-Dre 76
D, PAYMENT OF U.S. TREASURY SWAP.
F, RESULT OF F.1 AND F.2
F.1 HALF OF A TOTAL NET INFLOW OF US$1,308.6 INCLUDED
654
200
IN BALANCE OF PAYMENTS ESTIMATES FOR 4 MONTH PERIOD SEPTEMBER-
854
DECEMBER 1976, PLUS US $200 TO BE AMORTIZED (SEE B.1).
F,2 IT IS ASSUMED THAT ALL SHORT-TERM PUBLIC SECTOR
DEBT IS ROLLED OVER.
G. IT IS ASSUMED THAT ALL. PRIVATE SECTOR DEBT (SHORT
AND LONG TERM) IS ROLLED OVER (SEE C ABOVE).
H, I.M.F. DRAWINGS ON FIRST CREDIT TRANCHE AND
COMPENSATORY FINANCING FACILITY.
E-2, IMPOET.
No Fed swap in estimates.
GERALD R FORD
SECRET
Department
to: Chairman Burns
of the Treasury
Federal Reserve Board Office of Special
Assistant to Secretary
room. 2046 date. 11/3/76 for National Security
Per your request to Sten Shrieber, I
am forwarding the reports from Mexico on
which he based his briefing yesterday. I
have added an assessment
1.5(c)
and a summary of a long Embassy
1.6(d)(1)
telegram which we did for Secretary Simon.
I believe by this time you should also have
Canf.
seen some special reporting from Don Syvrud
of Lisle Widman's office which was sent. to
Mr. Wallich yesterday.
Photocopy from Gerald R. Ford Library
DECLASSIFIED E.O. 12958 Sec. 3.6
With PORTIONS EXEMPTED
E.O. 12958 Sec. 1.5 (c)1.6(d)(i) (c)
CERALD FORD
L.toster Cochin
MR 95-2,#9 C/A Hr. 6/1/97
J. Foster Collins
By KBH NARA, Date 10/17/97
room 4328
ext. 2631 - 2632
DECLASSIFIED BY TREASH
4b
OF
DEPARTMENT THE THE TREASURY
MESSAGE
RECEIVED AT
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Fle
ACTION EB-07
MEXICO
INFO OCT-01 ARA-06 ISO-00 AID-05 CIAE-00 COME-00 FRB-03
INR-07 NSAE-00 USIA-06 TRSE-00 XMB-02 OPIC-03 SP-02
CIEP-01 LAB-04 SIL-01 OMB-01 NSC-05 SS-15 STR-04
CEA-01 /074 W
104377
R 271630Z OCT 76
FM AMEMBASSY MEXICO
TO SECSTATE WASHDC 8243
G ONFIDENTIALMEXICO 13678
dal 7/25/07
RM.2045-C BRANCH MT BLDG.
TELECOMMUNICATIONS
OCT 28 12 37 AM '76
TELECOMM TREASURY INICATIONS
E. 0. 11652: GDS
TAGS: EFIN, EINV, MX
SUBJECT: JLP MEETS WITH TOP U.S. BUSINESSMEN; SUBSEQUENTLY DISCUSSES
MEETING WITH AMGASSADOR
1. SUMMARY: ON FRIDAY, OCTOBER 22, A DOZEN MAJOR U.S.
BUSINESSMEN/INVESTORS MET PRIVATELY WITH LOPEZ PORTILLO
FOR A FRANK DISCUSSION OF FOREIGN (U.S.) INVESTMENT IN
MEXICO OF THE NEXT SIX YEARS. BOTH SIDES FOUND THE MEETING
PRODUCTIVE, AS JLP MADE HIS SATISFACTION EXPLICIT TO THE
AMBASSADOR IN THEIR TETE-A-TETE THE NEXT DAY. END SUMMARY.
2. MIGUEL ALEMAN FIRST STIMULATED THE MEETING SEVERAL
MONTHS AGO. ON THE AMERICAN SIDE, DILLON REED AND COMPANY
AND KENDELL (PEPSICO) ORGANIZED THE RESPONSE. THE RESULT
WAS A PRIVATE MEETING OF TOP U.S. BUSINESSMEN/INVESTORS
(DUPONT, GM, PEPSICO, SEARS, PFIZER AND OTHERS) WITH LOPEZ
PORTILLO ON OCTOBER 22. PETER FLANIGANCA SENIOR PARTNER
IN DILLON REED) PROVIDED TALKING PAPERS TO THE U.S.
PARTICIPANTS ON THE BASIS OF A TIGHTLY DRAWN AGENDA, WHICH THE
BUSINESSMEN CLAIMED WAS "CLEARED WITH SECRETARY KISSINGER".
3. THE AMERICANS, HAVING MET PREVIOUSLY IN THE U.S.,
WERE PREPARED FOR A FRANK DISCUSSION. UNLIKE A
CONFIDENTIAL
LIBRARY GERALD ? FORD
OF
DEPARTMENT THE THE TREASURY
MESSAGE
RECEIVED AT
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MEXICO 13678 271834Z
PR IOR MEETING OF U.S. BUSINESSMEN WITH PRESIDENT
ECHEVERRIA ON JANUARY 18, 1975, AT WHICH THE PRESIDENT AND SIAFF
SERMONIZED HIS LISTERNERS, FRIDAY'S MEETING WAS NOTABLE
FOR ITS FRANK INTERCHANGE IN WHICH THE AMERICAN PARTICIPANTS
PRESENTED THEIR POSITIONS BASED ON FLANIGAN'S AGENDA. THE AMERICANS
WERE PARTICULARLY IMPRESSED BY THE QUALITY OF THE DISCUSSION
AND BY JLP'S ASSERTION HE HOPED THIS WOULD BE THE FIRST
OF MANY MEETINGS.
4. LOPEZ PORTILLO STRESSED TO THE AMERICANS THAT HIS
REGIME WOULD BE INDEPENDENT AND NOT CONSTRAINED BY THE
POLICIES OF THE LAST SEXENIO. TO ACHIEVE SUCH FREEDOM
FROM THE PAST, HE WOULD REQUIRE THE COLLABORATION OF THE
BUSINESS COMMUNITY--BOTH FOREIGN AND DOMESTIC. WHILE HE
GREATLY DESIRED FOREIGN BUSINESS PARTICIPATION AND
INVESTMENT IN MEXICO, IT MUST BE SELECTIVE AND STIMULATE
MEXICO'S REAL GROWTH. IN ADDITION, JLP ESPOUSED THE
RECURRENT THEME THAT MEXICO MUST EXPAND ITS MARKETS AND
SOURCES OF FINANCE. FOREIGN BUSINESS HE SAID, MUST BE
GUARANTEED EQUITABLE TREATMENT AND A FAIR PROFIT--
POINTING OUT THAT THIS IS AN ARGUABLE SUM. THOUGH
GOVERNMENT POLICIES REFLECTING CURRENT NEEDS SHOULD NOT
VIOLATE PRIOR UNDERSTANDING WITH VESTED INTERESTS,
STILL, JLP SAID, FOREIGN BUSINESSMEN MUST REALIZE THAT
POLITICAL SOVEREIGNTY IN MEXICO WAS A CONCEPT OF THE
HIGHEST IMPORTANCE.
5. THE U.S. BUSINESSMEN EXPRESSED THEIR CONCERN AT A
NUMBER OF RECENT DEVELOPMENTS AND CURRENT TRENDS. JLP
RESPONDED THAT HE KNOWS THE PROBLEMS AND THINKS HE
KNOWS SOME OF THE ANSWERS, AS RUNNING MEXICO WAS, IN
MANY WAYS, LIKE RUNNING A BUSINESS. PARTICULARLY
IMPORTANT WAS TO OBSERVE THE RULES OF THE GAME AND NOT
TO CHANGE THEM IN THE MIDDLE OF PLAY. SOME PROBLEMS HE
SAID HE COULD SOLVE IMMEDIATEYL; OTHERS WOULD TAKE
CONSIDERABLY LONGER. THOUGH HE WAS NOT KNOWLEDGEABLE AS
TO THEIR DETAILS, JLP STATED HE WOULD REVIEW, FOR EXAMPLE,
THE PATENTS AND TRADEMARKS LAW FOR POSSIBLE CONFLICTS
WITH MEXICO'S INTERNATIONAL TREATY OBLIGATIONS AND
OTHER IRREGULARITIES; THE FOREIGN INVESTMENT LAW FOR
POSSIBLE INQUITIES, THOUGH IT WAS ALSO NECESSARY TO
CONFIDENTIAL
FORD & GERALD LIBRARY
OF
THE THE TREASURY
MESSAGE
RECEIVED AT
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MEXCO 13678 271834Z
AVOID "MAJORITY ABUSE". IN RESPONSE TO THE AMERICANS'
CONCERN ABOUT THE POSSIBLE USE OF PRICE CONTROLS, JLP
SAID THAT WHILE UNWELCOME TO THE BUSINESS COMMUNITY,
AN ECONOMIC CRISIS MIGHT REQUIRE SUCH RECOURSE.
6. FANK LORETTA (DUPONT MEXICO) REPORTED DUPONT
CHAIRMAN SHAPIRO'S COMMENT THAT "THE ENTIRE GROUP
WAS HIGHLY IMPRESSED" BY JLP'S FRANKNESS, LOGIC AND
STRAIGHTFORWARDNESS, AND GAVE HIM HIGH MARKS FOR THE
MANNER IN WHICH HE RESPONDED TO THEIR QUESTIONS AND
EXPLAINED HIS OWN POSITIONS.
7. WHEN THE AMBASSADOR CALLED ON LOPEZ PORTILLO SATURDAY
MORNING, JLP HIMSELF RAISED THE SUBJECT, ENTHUSING ABOUT
THE MEETING AS HAD THE AMERICAN BUSINESSMEN THE PREVIOUS
DAY. HE THOUGHT THE INTERCHANGE PRODUCTIVE AND WANTED
MORE SUCH FRANK MEETINGS. HE REPEATED SEVERAL OF THE
THEMES OF THE MEETING: THE FAVORABLE ROLE OF FOREIGN
INVESTMENT IN MEXICO (PARTICULARLY U.S. INVESTMENT),
BUT WITH THE CAVEAT THAT IT MUST BE SELECTIVE AND
CONTRIBUTE DIRECTLY TO MEXICO'S DEVELOPMENT PLANS,
CREATING NOT ONLY JOBS BUT FOREIGN EXHCANGE THROUGH
EXPORT)AS ON THE DAY BEFORE, HL SPOKE OF THE RULES
OF THE GAME, BUT POINTED OUT BOTH SIDLS MUST PLAY BY
THE RULES. ADDITIONAL TO THOSE POINTS DISCUSSED IN
THE BUSINESSMEN'S MEETING AND REPORTED ABOVE, THE
AMBASSADOR RAISED THE CRUCIAL IMPORTANCE TO ANY INVEST-
MENI ASPIRATIONS OF THE GOVERNMENT OF THE NEED TO
REBUILD CONFIDENCE AMONG ALL POTENTIAL INVESTORS IN
THE GOM'S ABILITY TO MANAGE ITS FINANCIAL AND ECONOMIC
PROGRAMS, AND TO ASSUME FAIR AND WELCOMING TREATMENT
TO AMERICAN AND OTHER FOREIGN INVESTORS. THE AMBASSADOR
SPECIFICALLY ALLUDED TO THE PATENTS AND TRADEMARKS LAW
WHICH IS OF IMMEDIATE CONCERN TO AMERICAN INVESTORS AND
OTHER BUSINESSMEN, AND RELIEF FROM WHICH WOULD BE A
HIGHLY VISIBLE SIGN OF WELCOME TO U.S. INVESTMENT.
JOVA
CONFIDENTIAL
FORD & 9ERALD LIBRARY
OF
THE TREASURY THE
MESSAGE
RECEIVED AT
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FOR RETRIEVAL AND^COPIES 2061
FOR INFORMATION AND SERVICE - 8114
NNNN VZCZCCRQ113
RTTCZYUW RUESMOA3748 3020015-CCCC--RUEATRS.
ZNY CCCCC ZZH
MEXICO
R 2800032 OCT 76
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 8276
INFO RUEATRS/TREASURY WASHDC
BT
CONFIDENTIAL
€ N F D E N T I A L MEXICO 13748
dol 7/25/07
E. O. 11652: GDS
TAGS: EFIN, MX
HM.2893-C BRANCH MT BLDG.
TELEGOMMUNICATIONS
OCT 27 11 OH PM '76
TELECOMMUNICATIONS TRE ASURY
SUBJECT: RE-PEGGING OF PESO
1. SUMMARY: GOM DECISION TO FLOAT PESO DOWNWARD APPEARS TO
US A VERY RISKY GAMBLE AIMED AT SLOWING CAPITAL OUTLFOW
OR AT LEAST MAKING IT MORE EXPENSIVE PRIOR TO A BANKING
DECLINE IN PUBLIC CONFIDENCEEEE OF GOVERNMENT. OUTFLOWS HAVE
CONTINUED TODAY, THOUGH MAGNITUDE DOES NOT SEEM TO BE LARGE.
END SUMMARY.
2. ANNOUNCEMENT OF DECISION TO REFLOAT, OR, MORE ACCURATELY,
RE-PEG PESO AT 26.24 AND 26.50 APPEARS TO HAVE BEEN A MORE
OR LESS DESPERATE DECISION TO STEM CAPITAL OUTFLOWS PRIOR TO
A LONG HOLIDAY WEEKEND (NOV. 2 IS A BANK HOLIDAY). CONVERSATIONS
OF FINATT WITH SENIOR BANK OF MEXICO OFFICIALS ON OCTOBER 27,
DID NOT GIVE ANY INDICATION THAT DECISION TO REPEG WAS
IMMINENT. ALTERNATIVE TO REPEG WAS PROBABLY EXHCANGE CONTROLS.
3. WHILE BANK OF MEXICO COMMUNIQUE, REPORTED SEPARATELY,
RE-EMPHASIZES THAT PESO IF FLOATTTING, COMMERCIAL BANKS
ARE RECEEIVING PATES AT WHICH THE BANK OF MEEXICO WILL DEAL
AND THESE ARE FOLLOWED BY BANKS. RATES FOR TODAY ARE
BUYING AT 26.24 AND SELLING ATTT 26.50. ONE MAJOR DIFFERENCE
FROM PREVIOUS RATE IS NARROWING OF SPREAD. PESO IS NOT
FLOATING IN ANY SENSE, ALTHOUGH BANK OF MEXICO IS TRYING
TO GIVE THE IMPRESSION IT IS.
4. WE VELIEVEE THAT BANK OF MEXICO SEES RE-PEEEGGING AS
TEMPORARY AND HOPES TO BRING DOWN THE RATE NEXT WEEK.
BERALD FORD LIBRARY
WHILE HARD TO PROVE, WE DO NOOOOTT BELIEVE PESO OVER-
VALUED AT 19.7, BUT RATHER WAS SLIGHTLY UNDER-VALUED.
FURTHER 25 PERCENT DEVALUTION IS NOT JUSTIFIED ON
ECONOMIC GROUNDS AT THIS TIMEE. THUS, MEASURE APPEARS TO
BE A SORT OF DESPERATION ATTEMPT TO SLOW CAPITAL OUTLFOW.
OF
DEPARTMENT THE TREASURY
THE
MESSAGE
RECEIVED AT
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5. WE UNDERSTAND THAT BANKS ARE NET SELLEERRS OF DOLLARS
TODAY, BUT NOT IN AMOUNTS EXCEEDING RECENT DAYS. WE HAD
BELIVED, AS DID BANK OF MEXICO, THAT FURTHER DEPRECIATION
OF RATE WOULD ONLY AGGRAVATE CAPITAL OUTFLOW. WHETHER
THIS IS TRUE REMAINS TO BE SEEN, BUT RATE CHANGE HAD NOT
BROUGHT ABOUT CAPITAL OUTFLOWS.
6. OUR INITIAL SOUNDINGS INDICATE INCREASED CONFUSION
AND BITTERNESS AS WELL AS FURTHER LOSS OF CONFIDENCE
IN THE GOVERNMENT.
7. TWO CHIEF EXECUTIVES OF MAJOR U.S.-OWNED COMPANIES
HERE SOUGHTT US OUT TO EXPRESS THEIR CONCERN AND SEEK OUR OPINIONS.
BOTH WERE SERIOUSLY CONSIDERING LIQUIDATING INVENTORIES,
CONVERTING PROCEEEDS INTO DOLLARS, AND REDUCING THEIR
OPERATIONS TO A MINIMUM IN ORDER TO AVOID ANOTHER MAJOR
LOSS TO THEIR COMPANIES. WHILE WE DO NOT KNOW HOW
WIDESPREAD THSE VIEWS ARE, WE DOUBT IF THEY ARE
UNIQUE TO THESE TWO. THE EARLIER VIEWS OF THHESE TWO
MEN WERE REFLECTED IN PARAGRAPH FOUR OF MEXICO 13372.
THEIR VIEWS TODAY WERE A RAHTER SHARP AND DISTURBING
REVERSAL.
8. CONFIDENCE PROBLEM REMAINS AND NEW EXCHANGE RATE
WILL ONLY WORSEN MATTERS. IF NOT REDUCED WITHIN A WEEK,
IT IS LIKELY TOO BRING ABOUT A FURTHER REDUCTION IN
ECONOMIC ACTIVITY.
JOVA
BT
# 37 48
FORD & LIBRARY GERALD
4d
NNNN VZCZCCRQ628
RTTCZYUW RUESMOA3923 3070025-CCCC--RUEATRS.
ZNY CCCCC 7ZH
R 0123332 NOV 76
RM.
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 8357
INFO RUEATRS/TREASURY WASHDC
Plexic
"CONFIDENTL
BT
C N F I D E N I L MEXICO 13923
Э-С MT BLDG.
BRANCH
TELEGOMUNICATIONS
Nov 1 10 06 PM '76
TELECOMMUNICATIONS
TREASURY
dal 7/25/07
EO 11652: GDS
TAGS: EFIN MX
SUBJECT: POSSIBLE REVISION OF IMF PROGRAM
1. SUMMARY: IN OCT. 28 CONVERSATION, BANK OF MEXICO
OFFICIAL TOLD FINATT THAT SPECIFIC TARGETS IN IMF PROGRAM
IN 1977 MAY HAVE TO BE RE-NEGOTIATED. END SUMMARY.
2. IN COURSE OF CONVERSATION WITH BANK OF MEXICO OFFICIAL
ON OCT. 28, FINATT ASKED WHETHER IMPACT OF RECENT
DEVELOPMENTS ON THE ECONOMIC OUTCOME FOR CURRENT YEAR MIGHT
NOT MAKE ATTAINMENT OF THE SPECIFIC TARGETS IN THE EFF 1977
PROGRAM MORE DIFFICULT. PARTICULAR REFERENCE WAS MADE TO
THE 90 BILLION PESO BUDGET DEFICIT TARGET. OFFICIAL
INDICATED THAT HE THOUGHT THIS TARGET MIGHT HAVE TO BE
RENEGOTIATED, BUT THAT THE IMPORTANT TARGETS IN THE PROGRAM
WERE THE REIATIONSHIPS TO GDP RATHER THAN THE SPECIFIC
TARGETS SUCH AS THAT FOR 1977 PUBLIC DEFICIT.
FORD is LIBRARY GERALD
3. BASIS FOR QUESTION I OUR BELIEF THAT THE IMPAC OF
DEVELOPMENTS IN THE FINAL FOUR MONTHS OF THIS YEAR MAY
LEAD TO A HIGHER PUBLIC SECTOR DEFICIT THAN FORESEEN IN
THE FUND PAPERS ON MEXICO. THE DEVALUATION IS LIKELY
TO HAVE A SIGNIFICANT IMPACT ON CORPORATE TAX REVENUES.
A NUMBER OF BUSINESMEN HAVE TOLD US THEY ARE LOWERING
THEIR PERIODIC TAX PAYMENTS ON THE BASIS OF HIGHER COSTS
RESULTING FROM THE EXCHANGE RATE CHANGE. CORPORATE
INCOME TAX RECEIPTS ACCOUNT FOR ABOUT 20 PERCENT OF
FEDERAL GOVERNMENT REVENUES. RE PUBLIC SECTOR COMPANIES,
THE INCREASED COSTS FOR WAGES AND FOREIGN DEBT SERVICE
HAVE NOT YET BEEN OFFSET BY INCREASED PRICES. IN THIS
REGARD, WE KEEP HEARING THAT PRICE INCREASES IN THEPUBLIC
SECTOR ARE IMMINENT, ONLY TO HAVE THEM POSTPONED, MOST
RECENTLY BECAUSE OF THE SECOND DEVELATUION AND THE FEAR
OF THE REACTION TO SUCH PRICE INCREASES AT A TIME WHEN
THE GOM IS MAKING AN EFFORT TO CONVINCE THE PRIVATE SECTOR
NOT TO INCREASE PRICES AND THE LABOR UNIONS NOT TO DEMAND
ANOTHER WAGE INCREASE.
4. SHOULD THE 1977 PUBLIC SECTOR DEFICIT BE IN THE RANGE
OF 120-130 BILLION PESOS, IT WILL BE MORE DIFFICULT THAN
EARLIER ANTICIPATED TO BRING THE 1977 DEFICIT TO 90 MILLION
PESOS WHICH WOULD BE THE EQUIVALENT OF 72 BILLION 1976
PESOS, ASSUMING A 20 PERCENT PRICE DEFLATOR FOR 1977.
5. WHILE BANK OF MEXICO OFFICIALS STATEMENTS WAS INFORMAL,
AND MAY NOT REFLECT THE GOM POSITION, WE ARE
CONCERNED FOR SEVERAL REASONS. ONE IS THATIT INDICATES
A MORE RAPID DETERIORATION IN THE CURRENT ECONMIC
SITUATION THAN OTHERWISE EXPECTED. ANOTHER IS THAT
WE HAD PRESUMED THAT THE SPECIFIC TARGETS MENTIONED
IN THE FUND PROGRAM WERE OVERRIDING.
JOVA
BT
#3923
GERALD FORD LIBRARY
SECRET
soot
MEXICAN ECONOMIC SITUATION
file Mexico
the following information concerning the economic situation in
Mexico:
Based on everything gleaned from Mexican and local American
contacts, President Echeverria has lost the confidence not only of
the business sector as such but also of virtually everyone who has
savings in Mexico. It is not believed that Echeverria can restore
any degrée of confidence and therefore stabilization cannot become
effective as long as he remains in office. The best the Mexican
Government can do under the circumstances is to slow down capital
flight or at least make it more expensive. There are no immediate
means of improving the psychological climate, to reverse the price
spiral, to stop merchants and suppliers from hoarding, or to dispel
the gloom spreading over Mexico.
It is doubtful that the Government of Mexico has any planned
position in case stabilization does not work. Currency exchange
controls are talked about but always with the recognition of
DESTROY WITHIN 90 DATE
immense difficulty of enforcement, given the long border and
two-way crossings by millions of people daily. As one police
official puts it: "We cannot even control illegal border crossers;
how are we going to control legal travellers who carry money?
There is no doubt that exchange controls would result in immediate
black market and large scale dumping of the peso. A true float of
the peso, with the peso finding its own Ievel would be very difficult
particularly with respect to keeping labor in line. In the final
analysis, some form of stabilization must work, the only alternative
being a rigid dictatorship which would impose its policies by force
DECLASSIFIED . E.O. 12356, Sec. 3.4
With PORTIONS EXEMPTED
E.O. 12356, Sec. 1.3 (a) (4)
SECRET
MR # C/A Hr 7/28/95
SECRET
as in the Soviet Bloc.
We do not foresee this for Mexico within
the time frame of the next several years, but we do expect further
deterioration and high inflation.
Economic policy in Mexico, like any other policy, is deter-
mined by the President. Officials may make suggestions, and
President Echeverria likes long discussions with all possible
options put on the table, but in the final analysis, he alone decides
Lopez - Portillo's private secretary insists his boss is not
exerting any influence at this time. Lopez-Portillo is quoted
as saying that Echeverria's authority must not be diluted and
that he, Lopez-Portillo, does not want a piece of an action which
he cannot control. On the other hand, Echeverria and Lopez-
Portillo have several private meetings each week, and it is
difficult to imagine that there would be no give-and-take during
these get-togethers. It cannot be estimated to what extent
Echeverria may be influenced by what Lopez-Portillo says during
these meetings.
FORD & LIBRARY GERALD
DESTROY WITHIN on DEVO
FILMEXICO
Copyie. Bittner
INTELLIGENCE
Intelligence Information Cable
ROUTINE
IN-078370
AGENCY
PAGE 1 OF 7 PAGES
name &
STATE/INR JCS/MC (DIA) CIA/NMCC SWS NSA TREAS NSC/S SDO NIO CRS
1.3(a)(4)
NLF MR Case No 95-3
D/OF
OER
DIRECTORATE OF
Classified by Recorded Reporting Officer. Exempt from General Declassification Schedule of E.O. 11652 Exemption
OPERATIONS
Category 58 (1),
2
Impossible to Determine Date of Automatic Declassification.
FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO
Document No. #
CONTROLS STATED AT BEGINNING AND END OF REPORT.
THIS IS AN INFORMATION REPORT, NOT FINALLY EVALUATED INTELLIGENCE
CITE
DIST 26 OCTOBER 1976
1.3(a)(4)
COUNTRY: MEXICO
DOI:
MID-OCTOBER 1976
SUBJECT: VIEWS OF
1.3(a)(4)
THAT MEXICO'S
ECONOMIC SITUATION WILL CONTINUE TO DETERIORATE
ACQ
DECLASSIFIED E.O. 12355, See 3.4
MR 95-3 #11 CIAltr 7/28/95
8/23/95
WRL PORTIONS EXEMPTED
E.O. 12356, Sec. 1.3 (a) (4)
SOURCE:
FORDS is SERVIC LIBRARY
Date
1.3(a)(4)
KBH
By NARA,
SUMMARY:
MEXICO'S ECONOMIC SITUATION WILL
CONTINUE TO DETERIORATE. A MAJOR PROBLEM IS THE MEXICAN
PUBLIC'S LACK OF CONFIDENCE IN THE PRESENT GOVERNMENT.
1.3(a)(4)
SINCE THE FLOTATION 0 F THE PESO,
AN AVERAGE OF US$100 MILLION HAS LEFT THE COUNTRY EACH WEEK.
Approved for Release
Date
IUL 1995
IN, 078370
PAGE 2 OF 7 PAGES 1.3(a)(4)
FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO
(classification)
CONTROLS STATED AT BEGINNING AND END OF REPORT.
INFLATION IS RUNNING ABOUT
30 PERCENT AND
ANOTHER DEVALUATION IS A POSSIBILITY
WITHIN THE NEXT TWO TO THREE YEARS.
MEXICO WOULD UNDERGO A SEVERE RECESSION IN 1977 AND
1.3(a)(4)
PRESIDENT- ELECT JOSE LOPEZ-PORTILLO PROBABLY WOULD BE ABLE
TO DO LITTLE TO STOP THE RECESSION/INFLATION SPIRAL.
CRITICIZED PRESIDENT LUIS ECHEVERRIA'S HANDLING OF THE
CURRENT SITUATION,
TWO ADDITIONAL MAJOR
ORIGIN DIO ... WOH A T
PROBLEMS MEXICO WOULD BE FACING IN THE NEXT TWO YEARS:
INSUFFICIENT DOMESTIC FOOD PRODUCTION AND SHORTAGE OF
WATER IN MAJOR- CITIES, END SUMMARY.
1,
1.3(a)(4)
A BLEAK PICTURE OF MEXICO'S CURRENT
AND LONG-RANGE ECONOMIC SITUATION. A MAJOR PROBLEM IS
THE MEXICAN PUBLIC'S LACK OF CONFIDENCE IN THE PRESENT
LIBRARY
GOVERNMENT.
SINCE THE
31 AUGUST FLOTATION OF THE PESO, AN AVERAGE OF US$100 MILLION
HAS LEFT THE COUNTRY WEEKLY.
COMMENT: THIS RATE WOULD
1.3(a)(4)
BE NEARLY DOUBLE THE CAPITAL LOSS ESTIMATED DURING THE FIRST
EIGHT MONTHS OF 1976 BUT CORRESPONDS TO OTHER INFORMATION
9-75 JOU/
EDITIONS
IN078370
PAGE 3 OF 7 PAGES 1.3(a)(4)
FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO
CONTROLS STATED AT BEGINNING AND END OF REPORT.
(classification)
ON THE TOPIC.) THIS AMOUNT WAS HIGHER DURING THE
1.3(a)(4)
MID-SEPTEMBER BANK RUN WHICH WAS CAUSED BY RUMORS THAT THE
GOVERNMENT INTENDED TO FREEZE BANK ACCOUNTS, BUT THE DAILY
AVERAGE OF US$20 MILLION CAPITAL OUTFLOW STILL HOLDS TRUE.
PEOPLE ARE CONTINUING TO TAKE THEIR MONEY OUT OF BANKS*
AND ARE EITHER KEEPING IT AT HOME OR PUTTING IT INTO U.S.
BANKS.
SINCE
THE FIRST OF THE YEAR, THE NET OUTFLOW OF U.S. DOLLARS HAS
1.3(a)(4)
Photocopy from Gerald K. Ford Library
BEEN OVER THE US$1.2 BILLION LOAN MEXICO WILL RECEIVE FROM
THE INTERNATIONAL MONETARY FUND (IMF).
COMMENT: THE
US$1.2 BILLION IMF LOAN WAS REQUESTED BY PRESIDENT LUIS
ECHEVERRIA AL VA RE Z TO SUPPORT THE FLOTATION OF THE
PESO,
1.3(a)(4)
2,
EXPECTATIONS
THAT MEXICO CAN PULL OUT OF THE CURRENT ECONOMIC SITUATION
ARE SLIM. INFLATION IS RUNNING ABOUT 30 PERCENT ANNUALLY.
FORD VIRITY
AFTER THE DEVALUATION, MEXICO GAINED THE ORETICALLY ALMOST
60 PERCENT OF THE WORTH OF THE PESO (IN TERMS OF INCREASED
COMPETITIVENESS), AT THE END OF ONE YEAR, THE NET GAIN WILL 1.3(a)(4)
IN 078370
PAGE 4 OF? PAGES 1.3(a)(4)
FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO
CONTROLS STATED AT BEGINNING AND END OF REPORT.
(classification)
BE ONLY 20 PERCENT; AT THE END OF TWO YEARS (AT 30 PERCENT
INFLATION), IT WILL BE MINUS 10 PERCENT; AT THE END OF THE
THIRD YEAR, IT WILL BE MINUS 40 PERCENT, ETC. THUS, AT A
CERTAIN POINT, THERE WILL HAVE TO BE ANOTHER DEVALUATION,
JUST TO KEEP EVEN,
3, ANOTHER DEVALUATION POSSIBLY COULD OCCUR IN THE
NEXT FEW MONTHS, BUT WILL CERTAINLY HAPPEN IN THE NEXT
THREE TO FOUR YEARS IF STRONG ECONOMIC MEASURES ARE NOT
UNDERTAKEN BY PRESIDENT- ELECT JOSE LOPEZ - PORTILLO.
ORIGIN D'O ... nman WOH T
WHILE
ANOTHER DEVALUATION MIGHT 1.3(a)(4)
BE THE BEST THING FOR THE COUNTRY IN THE SHORT RUN,
IT WILL NOT BE UNDERTAKEN FOR A VARIETY OF REASONS. FOR
ONE, IT WOULD BE POLITICALLY UNWISE FOR LOPEZ-PORTILLO TO
START HIS TERM WITH SUCH A CONTROVERSIAL MEASURE AS HE WOULD
FORD
LOSE THE PEOPLE'S ALREADY SEVERELY SHAKEN CONFIDENCE AND
LIBRARY
CAPITAL FLIGHT WOULD INCREASE BEYOND WHAT IT IS NOW.
4, COMMENTING ON THE REMARKS
1.3(a)(4)
THAT MEXICO WOULD HAVE TO LIVE THROUGH TWO YEARS OF AUSTERITY,
MEXICO COULD NOT MANAGE SUCH A
PROGRAM AS IT IS ALREADY FACING A SEVERE RECESSION IN 1977.
1.3(a)(4)
IN. 078371
PAGE 5 OF 7 PAGES
1.3(a)(4)
FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO
CONTROLS STATED AT BEGINNING AND END OF REPORT.
(classitication)
MAJOR INDUSTRIES OF THE PRIVATE SECTOR IN MEXICO ARE LAYING
OFF PERSONNEL IN LARGE NUMBERS. THE MOTOR INDUSTRY IS
PARTICULARLY HARD HIT. THIS SITUATION HAS COME ABOUT BECAUSE
OF THE VICIOUS CIRCLE CREATED BY THE DEVALUATION, ALL VEHICLES
WILL HAVE TO BE INCREASED IN PRICE BECAUSE OF THE NEW PARITY
WITH THE DOLLAR. THUS, FEWER PEOPLE WILL BE ABLE TO PURCHASE
THESE VEHICLES. FEWER SALES MEAN FEWER PROFITS. ALSO, THE
COMPANIES WILL HAVE TO SAVE MORE MONEY BECAUSE THE PESO IS
Photocopy nom Ocraid n. FOIG Liorary
WORTH LESS WHILE LABOR COSTS HAVE INCREASED. COMPANY SAVINGS
AND LESS PROFITS AND FEWER SALES ME AN FEWER JOBS. FEWER JOBS
MEAN MORE PEOPLE OUT OF WORK WITHOUT MONEY. THIS, IN TURN,
MEANS THAT A LARGER SEGMENT OF SOCIETY WILL NOT BE ABLE TO
AFFORD TO BUY OTHER ITEMS WHICH MEANS FEWER ALES OF OTHER
MERCHANDISE. THE GOVERNMENT WILL HAVE TO PUMP MORE MONEY INTO
THE ECONOMY FOR MORE JOBS AND SALES. MORE MONEY MEANS MORE
INFLATION, HIGHER INFLATION MEANS THE PESO IS WORTH LESS.
LOPEZ-PORTILLO WILL BE ABLE
1.3(a)(4)
TO DO LITTLE TO ST OP THIS RECESSION/INFLATION SPIRAL AND
HIS POLICIES TO COUNTERACT THIS PROBLEM WILL PROBABLY NOT
2000
PRODUCE THE DESIRED OR NEEDED RESULTS.
LIBRARY
1.3(a)(4)
IN 078370
PAGE 6 OF 7 PAGES
1.3(a)(4)
FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO
CONTROLS STATED AT BEGINNING AND END OF REPORT.
(classitication)
5,
THE PRESENT
1.3(a)(4)
GOVERNMENT IS HANDLING THE SITUATION POORLY. THE MAIN
CAUSE OF THE PROBLEM IS PRESIDENT ECHEVERRIA WHO REFUSES
TO TAKE THE ADVICE OF HIS ECONOMIC ADVISERS AND WHO CHANGES
HIS MIND ON ECONOMIC POLICIES FOR THE COUNTRY FROM DAY TO
DAY.
NOT FREEZING BANK
ACCOUNTS OR ADOPTING POLICIES TO RESTRICT CAPITAL FLIGHT AT
1.3(a)(4)
THE TIME OF THE PESO DEVALUATION WERE TWO MAJOR BLUNDERS
Photocopy from Geraid R. Ford Library
COMMITTED BY ECHEVERRIA.
6,
ONE OF ECHEVERRIA'S
ECONOMIC ADVISERS SAID THAT IN TWO YEARS MEXICO WILL BE FACED
WITH TWO ADDITIONAL PROBLEMS OF MONUMENTAL PROPORTIONS. FIRST,
MEXICO WILL NOT RAISE SUFFICIENT FOOD FOR ITS GROWING POPULATION.
IT WILL THUS HAVE TO IMPORT FOOD PRODUCTS WHICH WILL INCREASE
CERACO
LIDRARY
1.3(a)(4)
IN 078370
PAGE 7 OF 7 PAGES 1.3(a)(4)
FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO
CONTROLS STATED AT BEGINNING AND END OF REPORT.
(classification)
IMPORTS AND WORSEN THE BALANCE OF PAYMENTS PROBLEM. SECOND,
MEXICO CITY AND OTHER METROPOLITAN AREAS WILL FACE A WATER
CRISIS BECAUSE RURAL SECTOR POVERTY WILL DRIVE THE PEOPLE
TO URBAN CENTERS, PRIMARILY MEXICO CITY, THEREBY COMPOUNDING
AN ALREADY DEFICIENT WATER SUPPLY SITUATION. SUCH CONDITIONS
WILL INCREASE THE ILLEGAL IMMIGRATION OF MEXICANS INTO THE
UNITED STATES.
1.3(a)(4)
7,
Photocopy from Geraid R. Ford Library
<0 GERALD
1.3(a)(4)
OF
THE
THE TREASURY
MESSAGE
4g
RECEIVED AT
1789
MAIN TREASURY TELECOMMUNICATION CENTER
FOR INFORMATION AND SERVICE - 8114
FOR RETRIEVAL AND COPIES 2061
CONFIDENTIAL
TRB 085
PAGE 01
MEXICO 13934 020134Z
File MEXICO
64
ACTION ARA-10
INFO OCT-01 ISO-00 CIAE-00 DODE-00 PM-04 H-02 INR-07 L-03
NSAE-00 NSC-05 PA-01 PRS-01 SP-02 SS-15 USIA-06
AID-05 COME-00 EB-07 FRB-03 TRSE-00 XMB-02 OPIC-03
CIEP-01 LAB-04 SI-01 OMB-01 IO-13 EUR-12 / 109 W
054755
R 02001 0Z NOV 76
FM AMEMBASSY MEXICO
TO SECSTATE WASHDC 8364
G ONFIDENTIAL MEXICO 13934
GERALD FORD LIBRARY
EO 11652: GDS
TAGS: PINT MX EGEN EFIN PFOR PINS
SUBJECT: MONTHLY POLITICAL HIGHLIGHTS: OCTOBER
POUCHED: CARACAS, GUATEMELA, MANAGUA, SAN JOSE, SAN SALVADOR,
MADRID, USUN, ALL CONSULATES IN MEXICO
REF MEXICO 12831
1. SUMMARY: EVENTS IN OCT, PART ICULARLY ECONOMIC, INDICATED THAT
LONG ANTICIPATED DIMINUTION OF POWER OF OUTGOING ADM INSTRATION
IS OCCURING, BUT WITH PRES-ELECT LOPEZ PORTILLO CONSTRAINED POLI-
TICALLY AND CON ST IT UT IONALLY FROM ACT ACTIVE IVE ROLE, RESULT IS POWER
VACUUM IN WHICH GOM IS UNABLE PROVIDE LEADERSHIP WHICH ECONOMIC
SITUATION REQUIRES. GOM'S CREDIBILITY IS AT ALL TIME LOW, PUBLIC
TEND ING TO BEL IEVE OPPOSITE OF GOM PUBLIC PRONOUNCEMENTS. THIS
LACK OF CONF IDENCE LED TO FURTHER CAPITIAL FLIGHTS AND SECOND
DEVALUATION IN TWO MONTHS, TO MORE RUMORS, AND TO MORE OPEN
CRITICISM OF PRESIDENT. WITH ONE MONTH TO GO BEFORE INAUGUR-
ATION, MEXICANS ALL HAVE FINGERS CROSSED, HOPING MEXICO WILL
MAKE IT. END SUMMARY.
2. ECONMIC SITUATION
MEXICAN ECONOMY IN OCT REMAINED CHARACTERIZED BY CONFUSION OVER
GOVT POLICIES AND LACK OF CONFIDENCE IN GOM'S ABILITY TO COPE
CONFIDENTIAL
DECLASSIFIED
AUTHORITY state Dept sys Rw 5/4/06
BY dal NARA, DATE 2/12/15
HE
MESSAGE
THE
TREASURY
RECEIVED AT
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MAIN TREASURY TELECOMMUNICATION CENTER
FOR INFORMATION AND SERVICE - 8114
FOR RETRIEVAL AND OOPIES (20G1)
CONF IDENT IAL
PAGE 02
MEXICO 13934 0201342
WITH CRISIS. TWO SPECIFIC DEVELOPMENTS OF NOTE WHERE REDUCTIONS IN
EXPORT TAXES AND SECOND DEVAL UAT ION. FORMER WAS APPARENTLY
DECIDED BY PRESIDENT IN RESPONSE TO PRIVATE SECTOR PRESSURES.
TWO DAYS LATER BANK OF MEXICO ANNOUNCED RESUMPTION OF FLOAT,
RAISING PE SO BUYING RATE NEXT DAY FROM 19.9 TO 26.5 PESOS PER
DOLLAR. NOV. 1 RATE IS 25.58. DECISION TO RESUME FLOAT, WHICH
TECHNICALLY TECHN ICALLY NEVER ENDED, WAS APPARENTLY TAKEN TO STEM CONTINUING
FLIGHTS OF CAPITAL. IT APPEARS THAT MEASURE REDUCED CAPITAL OUT-
FLOWS, BUT BY HOW MUCH IS UNCERTAIN. ONE HOPEFUL DEVELOPMENT WAS
MEASURE REACTION OF LABOR, WHICH FOR MOMENT IS REFRAINING FROM
MAKING NEW WAGE DEMANDS. BUT NEW RATE SENT SHIVERS DOWN SPINES OF
BUSINESSMEN WITH LARGE FOREIGN DEBT S. GOM ECONOMIC OFFICIALS ARE
AWARE OF CONF IDENCE PROBLEM, AND LAMENT THAT, FOR "POLITICAL
REASONS", (READ ECHEVERRIA'S SENSIT IVITY), PRE S-ELECT JLP
CANNOT COMMENT PUBL ICLY ON PRESENT SITUAT ION. THIS MAKES
NOV. LOOK LIKE ANOTHER BLEAK MONTH.
3. THERE IS NO CURRENT DATA ON ECONOMIC SITUATON, BUT WE
SUSPECT THAT CAPITAL FLIGHT SINCE SEPT. 1, HAS RESULTED IN ZERO
GROWTH RATE OF MONEY SUPPLY. IN LIGHT OF PRICES INCREASES SINCE THIS
TIME, IT SEEMS TO US LIKELY THAT VOLUME OF TRANSACT IONS WILL
DECLINE. THIS WOULD LEAD TO LOWER REAL GROWTH RATE FOR 1976 THAT
4 PERCENT BEING FORECAST BY IMF.
4 ECHEVERRIA, JLP AND INTERREGNUM
TRUE TO HIS PROMISE YEAR AGO, TO "WORK FOR MEXICO" UP TO HIS
LAST MOMENT IN OFFICE, PRES ECHEVERRIA HAS BEEN CRISSCROSSING
COUNTRY AS THOUGH HE WERE CAMPAIGNING, MEETING ALL NIGHT WITH
CAMPESINO GROUP IN SONORA,
IN AU GURATING PUBLIC WORKS IN HIDALGO, BLASTING PRIVATE SECTOR
IN NUEVO LEON (SEE MEXICO 13366), INSPECTING MILITARY FACILITIES
AND PRAISING ARMED FORCES IN QUERETARO, AND, IN OAXACA, ACCUSING
"CERTAIN SECTORS" OF TRYING TO CREATE PROBLEMS FOR JLP.
5. WHILE PRESS HAS HEADLINED THESE PRESIDENTIAL PRONOUNCEMENTS
AND ACTIVITIES, THERE IS ALSO BEGINNING TO BE MORE OPEN CRITICISM
F ECHEVERRIA. FORMER PRES ALEMAN, ASKED BY REPORTERS TO CHARACTER -
IZE LEA ADMINSTRATION, SAID HISTORY WOULD HAVE TO BE JUDGE,
COMMENT WIDELY INTERPRETED TO MEAN THAT SINCE ALEMAN HAD NOTHING
NICE TO SAY, HE SAID NOTHING AT ALL. UNAM RECTOR SOBER AON CRITI-
CIZED "BUREAUCRATIC EXPLOSION" FOR CONTRIBUTING TO GOVT
DEFICIT, ECONOMIC COMMENTARY INCREASINGLY BLAMED MALA-
ADMINSTRATION AS CHIEF CAUSE OF DEVALATION, PRIVATE SECTOR SPOKES-
MAN OPENLY SAID GOM 'S LACK OF CREDIBILITY WAS REASON FOR CONTINUING
CONF IDE NT IAL
GERALD FORD LIBRARY
THE
TREASURY
MESSAGE
THE
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PAGE 03
MEXICO 13934 0201342
CAPITAL FLIGHT, AND MONTERREY BUSINESS COMMUNITY REACTED TO
EC HEVERRIA 'S BLAST WITH DEVASTATINLY HOST ILE POLITICAL ADS.
6. WHILE ECHEVERRIA HAS BEEN PLAYING WITH SYMBOLS OF POWER, JLP
HAS BEEN IN VIRTUAL SECLUSTION IN IHIS COYOACAN HQS, CONST IT U- CONST
TIONALLY AND POL IT ICALLY CONSTRAINED FROM EXERCISE OF POWER.
DURING OCT HE APPEARED IN PUBLIC TWICE, BOTH TIMES WITH ECHEVERIA.
CONSEQUENCE IS INTERREGNUM, AT TIME WHEN MEXICO CAN ILL AFFORD IT.
7. RUMORS CONT INUE
RUMORS CONTINUED TO FLOURISH DURING OCT AND GOM CONTINUED TO
TRY TO REFUTE THEM IN LOW KEY MANNER, PROBABLY REAL IZING THAT
DIRECT REFUTATION WOULD ONLY LEND THEM CREDENCE (FOLLOWING GOM
DENIAL THAT OCT 12 BLACKOUT AFFECT ING FEDERAL DISTRICT AND FIVE
STATES HAD BEEN CAUSED BY SABOTAGE, MEXICANS WERE SAYING "I TOLD
YOU IT WAS SABOTAGE -- THEY DENIED II.") ALTHOUGH JLP'S CAN-
CELLATION OF HIS PANAMA AND COLOMBIA TRIP PROBABLY WAS, AS HE
SAID, DUE TO HIS WISH TO WORK ON HIS ECONOMIC PROGRAM, MANY
SUGGESTED PRIVATELY THAT HE WAS AFRAID TO LEAVE COUNTRY FOR
FEAR PRESIDENT WOULD SOME HOW TAKE ADVANTAGE OF HIS ABSENCE.
RUM ORS ABOUT ARMY'S INTENTIONS SUDDENLY APPEARED, LEADING
PRESIDENT PUBLICLY TO PRAISE ARMY'S LOYALTY AND SEMI-OFFICIAL
EL NACIONAL TO DO LIKEWISE IN BOTH EDITORIALS AND CART 000NS
(MEXICO 13749). VERSIONS OF THIS RUMOR VARIED, ONE SUGGESTING ARMY
OFF ICERS HAD THREATENED BOTH ECHEVERRIA AND JLP WITH MILITARY
INTERVENTION UNLESS CERTAIN UNSPECIFIEDCHANGES WERE MADE, ANOTHER
VERSION (SOMEWHAT CLOSER TO TRUTH, WE SUSPECT) HAVING IT THAT MIDDLE
GRADE OFF ICERS HAD EXPRESSED THEIR UNHAPPINESS IN GENERAL TERMS
TO MEX SE CDEF CUENCA DIAZ. WITH RUMORS AND ECONOMIC SITUATION
EACH ENCOURAGING OTHER, MOST MEXICANS HAVE FINGERS CROSSED,
ANXIOUSLY AWAITING DEC. 1 INAUGURATIO OF JLP.
8. FOREIGN AFFAIRS, MORE DISAPPOINTMENTS
DIPLOMATS, POL OBERSERVERS, AND EVEN SOME FOREIGN SECRETARIAT
OF ICIALS WERE TAKEN BY SURPRISE BY OCT 18 ANNOUNCEMENT OF
OF PRES ECHEVERRIA'S AVAILABILITYFOR UN SECY GENERALSHIP.
ALTHOUGH ECHEVERRI'A DESIRE FOR POSIT IONWAS NO SECRET, IT HAD BEEN
ASSUMED HE WOUD NOT DECLARE CANDIDACY DOOMED TO FAILURE.
WHY ECHEVERRIA AND GOM APPARENTLY BELIEVE BEL IEVE HE HAS CHANCE IS
NOT CLEAR. OUTSIE POSSIBIL EX XISTS OF PR C VETO OF ANY NON-
THIRD WORLD CANDIDATE (ALTHOUGH (ALT REPORTS INDICATE THIS IS NOT SO).
IT IS ALSO POSSIBLE THAT ECHEVERRIA EXPECTS, IN LOSING, TO BE
OFFERED ANOTHER SENIOR UN POSIT ION. OR ECHEVERRI'A DECLARATION MAY
HAVE RESULTED FROM PERSONAL FRUSTRATION AT NOT HAVING BEEN
CONF IDENT IAL
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MEXICO 13934 0201342
AWARDED NOBEL PRIZE (ANNOUNCED OCT 15) AND PERHAPS UNWITTINGLY
ENCURAGED BY MEXICAN UN MISSION LACKING COURAGE TO GIVE HIM HONE ST
APPRAISAL OF HIS CHANCES.
9. FINAL FORE IGN AFFAIRS DISAPPOINTMENT ALMOST CERTAINLY AWAITS
ECHEVERRIA. PRESIDENT HAS MADE IT CLEAR ( THREE TIMES IN PAST WEEK
ALONE) THAT WE WOULD LIKE TO END HIS REGIME WITH RESTORAT ION
OF DIP RELATIONS WITH SPAIN AND SENT HIS TOP FOREIGN TRADE MAN
TO RENEW TRADE RELAT IONS, INTERRUPTED LAST YEAR WHEN ECHEVERRIA
MOVED TO GET SPAIN OUTSTED FROM UN FOR EXECUTIVE BASQUE TERRORISTS.
YET ALL REPORTS INDICATE SPAIN, ST ILL HIGHLY RESENTFUL OF
ECHEVERRIA'S ACTIONS, WILL WITHHOLD FORMAL DIP RELAT IONS UNTIL
JP TAKES OFFICE ON DEC. 1.
JOVA
CONF IDENT IAL
FORD i LIBRARY GERALD
BP.
ROUTINE
COMITAL THE INTELLIGENCE TABLET IDENCE of AGENCY
Intelligence Information Cable
IN 081931 1.3(a)(4)
95-3
STATE/INR JCS/MC (DIA) CIA/NMCC sws NSA TREAS NSC/S SDO NIO CRS PAGE 1 OF 4 PAGES
DIRECTORATE OF
Category 58 (2 Impossible to Determine Date of Automatic Declassification.
Classified by Recorded Reporting Officer. Exempt from General Declassification Schedule of E.O. 11652 Exemption
OPERATIONS
#
Document 12
FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO
CONTROLS STATED AT BEGINNING AND END OF REPORT.
AL
THIS IS AN INFORMATION REPORT, NOT FINALLY EVALUATED INTELLIGENCE
CITE
DIST 27 OCTOBER 1976
NCF
1.3(a)(4)
COUNTRY
: MEXICO
DOI
:
LATE OCTOBER 1976
SUBJECT
:
DISCREPANCIES BETWEEN VIEWS OF OUTGOING AND
INCOMING ADMINISTRATIONS IN MEXICO
GERALD FORD )
Photocopy from Gerald R. Ford Library
:
#
DECI DECLAREMENT E.O. 12356, See 3.4
HONS EXEMPTED
Sec. 1.3 (a) (=) (9) (4)
CIA CAltr 7/28/95 MR-95312 ACQ
SO CE
:
By 16H Date 8/23/95
1.3(a)(4)
1, ALTHOUGH INCOMING PRESIDENT JOSE LOPEZ
PORTILLO WAS HANDPICKED BY PRESIDENT LUIS ECHEVERRIA
ALVAREZ AND THERE HAVE BEEN MANY SIGNS OF COOPERATION AND
IDENTIFICATION BETWEEN THE TWO, IN RECENT WEEKS DIFFERENCES OF
Approved Date for Release JUL 1995
1.3(a)(4)
9-75 3007
EDITIONS
IN 081931
1.3(a)(4)
PAGE 2 OF 4 PAGES
FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO
CONTROLS STATED AT BEGINNING AND END OF REPORT.
(classification)
OPINION, PARTICULARLY WITH RESPECT TO THE HANDLING OF ECONOMIC
PROBLEMS, APPEAR TO HAVE DEVELOPED BETWEEN THE TWO MEN.
2, ASSOCIATES OF LOPEZ-PORTILLO HAVE INDICATED THAT,
WHILE ECHEVERRIA REMAINS IN OFFICE, THE PRESIDENT- ELECT WILL
REFRAIN FROM MAKING ANY COMMENTS WHICH COULD BE INTERPRETED
AS CRITICAL OF THE PRESENT ADMINISTRATION. AT THE SAME TIME,
HOWEVER, THEY ARE NOT HIDING THEIR VIEWS THAT THE ECONOMY OF
THE COUNTRY HAS BEEN MISMANAGED BY ECHEVERRIA AND THAT THE
Photocopy from Gerald R. Ford Library
CURRENT INFLATIONARY WAVE AND DRAMATIC WEAKENING OF THE
PE SO AFTER THE 31 AUGUST FLOTATION HAVE BEEN CAUSED PRIMARILY
BY THE LOSS OF CONFIDENCE IN THE ECHEVERRIA ADMINISTRATION
AND THE LATTER'S UNNECESSARY CATERING TO LABOR.
3, THOSE CLOSE TO LOPEZ-PORT ILLO FEEL THAT PRESIDENT
ECHEVERRIA HAS MISMANAGED BOTH THE FLOTATION OF THE PESO AND
THE SUBSEQUENT HANDLING OF THE ECONOMY. THE RESULT IS THAT
NONE OF THE BENEFITS WHICH COULD HAVE BEEN EXPECTED FROM
FLOTATION WERE REALIZED AND THAT THE UNCERTAINTIES REGARDING
THE ECONOMY ARE AS GREAT, IF NOT GREATER, TWO MONTHS AFTER
FORD
THE ORIGINAL FLOTATION AS THEY WERE PREVIOUSLY.
CERALS
SIGNIFICANT DIFFERENCES EXIST BETWEEN THE OUTGOING
THE
1.3(a)(4)
RM
3G
OBSOLETE PREVIOUS
1-75
EDITIONS
IN 081931
PAGE 3 OF 4 PAGES
1.3(a)(4)
FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO
CONTROLS STATED AT BEGINNING AND END OF REPORT.
(classification)
AND INCOMING PRINCIPALS WITH RESPECT TO ATTITUDE TOWARD THE
PRIVATE SECTOR, EMPHASIS ON FOREIGN POLICY, FOREIGN TRADE
AND INFORMATION POLICY. GENERALLY SPEAKING, THE LOPEZ-PORTILLO
CAMP WISHES TO CREATE CONDITIONS TO RESTORE INVESTOR CONFIDENCE
WHILE AT THE SAME TIME REDUCING GOVERNMENT EXPENDITURES BY
APPLYING ESSENTIALLY COMMERCIAL CRITERIA TO FOREIGN POLICY
AND FOREIGN TRADE. WITH RESPECT TO INFORMATION POLICY, IT IS
INTENDED TO CENTRALIZE INFORMATION GUIDANCE AND TO UTILIZE
Photocopy from Gerald R. Ford Library
IT PRIMARILY FOR THE PROMOTION OF THE ECONOMIC OBJECTIVES OF
THE GOVERNMENT.
5, LOPEZ-PORTILLO IS DETERMINED To WITHHOLD BOTH POLICY
STATEMENTS AND THE ANNOUNCEMENT OF APPOINTMENTS IN THE NEW
ADMINISTRATION UNTIL 30 NOVEMBER IN ORDER TO AVOID DEROGATORY
REFLECTIONS ON ECHEVERRIA. HE FEELS THAT THE PROPOSED
APPOINTMENT OF CERTAIN INDIVIDUALS OR THE FAILURE TO APPOINT
OTHERS WOULD BE ANALYZED AS REFLECTING DIFFERENCES IN POINTS
OF VIEW. WHILE SUCH DIFFERENCES EXIST AND WILL BECOME
OBVIOUS, HE DOES NOT WANT THEM PUBLICIZED AND DISCUSSED
WHILE ECHEVERRIA IS STILL PRESIDENT.
GERAIL FORD LIBRARY
6,
1.3(a)(4)
7
FORM
9-75
3007
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EDITIONS
IN 081931
PAGE 4 OF 4 PAGES 1.3(a)(4)
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CONTROLS STATED AT BEGINNING AND END OF REPORT.
(classi/ication)
1.3(a)(4)
Photocopy from Gerald R. Ford Library
CERT
DESCRIBE PREVIOUS
CDITIONS
11
1.3(a)(4)
0 ROUTINE
Intelligence Information Cable
IN 081947
STATE/INR ICS/MC (DIA) CIA/NMCC SWS NSA TREAS NSC/S SDO NIO CRS PAGE 1 OF E PAGES
CIEP STR BIC OER
Class diad by Registed Officer. Exempt from General Declassification Schedule of E.O. 11652 Exemption
OF
Calacory 33 (1),12) impossible 10 Determine Dais of Ausomatic Declassification.
FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO
CONTROLS STATED AT BEGINNING AND END OF REPORT.
15 AN INFORMATION REPORT, NOT FINALLY EVALUATED INTELLIGENCE
NLF MR Case No 95-3
CITE
Document No # 13
DIST 27 OCTOBER 1976
1.3(a)(4)
SCUNTRY
: MEXICO
DCI
:- LATE OCTOBER 1976
SUBJECT
1. POLICY GUIDELINES FOR THE INCOMING ADMINISTRATION
OF PRESIDENT-ELECT JOSE LOPEZ-PORTICLO
Photocopy from Gerald R. Ford Library
ACG
j
1.3(a)(4)
SQUACE
:
GERALD
SUMMARY:
PRESIDENT-ELECT
JOSE LOPEZ-PORTILLO HAS OUTLINED HIS VIEWS ON A NUMBER OF
With PORTIONS 12356, EXEMPTED Sec. 3.4 FORD
DECLASSIFIED E.O.
E.O. 12356, Sec. 1:3 (a)
POLICIES WHICH HE EXPECTS TO IMPLEMENT ON TAKING OFFICE. HE
MR 95-3, # 7/28/95
By 163H NARA, Date 8/23/95
RECOGNIZES THE UNSATISFACTORY STATE OF THE MEXICAN ECONOMY
AND REGARDS THE UPCOMING PERIOD AS A CRITICAL ONE DURING
Approved for Release
Date
JUL 1995
1.3(a)(4)
0007
DESCRIBE PREVIOUS
EDITIONS
12
IN 031947
1.3(a)(4)
PAGE 20F.8 PAGES
FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO
CONTROLS STATED AT BEGINNING AND END OF REPORT
SPICH HE WILL HAVE TO REESTABLISH PRIVATE-SECTOR CONFIDENCE
IN THE GOVERNMENT. HE ALSO BELIEVES THAT THERE CAN BE NO
BC ONOMIC RECOVERY WITHOUT RESTORING LABOR DISCIPLINE AND
ADUCTIVITY AND WILL TAKE A HARD-LINE STAND ON LABOR POLICIES
TO ACHIEVE THIS, IN LIKE FASHION, THE PROBLEMS OF UNEMPLOYMENT
AND UNDEREMPLOYMENT WILL BE TACKLED. FOREIGN POLICY WILL SE
RECRIENTED TOWARD THE UNITED STATES AND LATIN AMERICA. TIES
NITH THE THIRD WORLD WILL BE MAINTAINED, BUT THE STRESS WILL
Photocopy from Gerald R. Ford Library
93 ON MEXICAN SELF-INTEREST. LOPEE-PORTILLO INTENDS TO
STRENGTHEN MEXICAN OFFICIAL REPRESENTATION IN THE U.S., BUT
93 WILL NOT ALTER OR SURRENDER THE POSITION OF INDEPENDENCE
ICH MEXICO HAS DEVELOPED TOWARD ALL COUNTRIES, INCLUDING
THE U.S. THE FORMATION OF A SECRETARIAT OF INFORMATION IS
BEING CONSIDERED, IN THIS CONNECTION, A SMALL COMMITTEE IS
ANALYSING THE WAYS AND MEANS TO TONE DOWN THE PROVOCATIVE
FORD
FEADLINE POLICY OF MOST MEXICAN NEWSPAPERS. IT HAS BEEN
SUPHASIZED HOWEVER, THAT NO INTERPERENCE WITH THE FREEDOM
GERALD
LIBRARY
OF THE PRESS IS INTENDED. END SUMMARY.
1, WHILE PRESIDENT-ELECT JOSE L OPEZ - PORTILLO
WILL REFRAIN FROM MAKING ANY COMMENTS ABOUT HIS POLICIES
1 .3(a)(4)
OBSOLVTE PREVIOUS
EDITIONS
3
IN 081947
1.3(a)(4)
PAGE 3 OF 8 PAGES
FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO
CONTROLS STATED AT BEGINNING AND END OF REPORT.
1.3(a)(4)
ENDING MIS INAUGURATION ON 1 DECEMBER 1976,
LOPEZ- PORTILLO HAS OUTLINED HIS VIEWS ON A
NUMBER OF POLICY ISSUES WITH THE EXPECTATION THAT HE WILL MOVE
TOWARD THEIR IMPLEMENTATION IMMEDIATELY UPON TAKING OFFICE.
2. LOREE-PORTILLO RECOGNIZES BOTH THE UNSATISFACTORY
STATE OF THE MEXICAN ECONOMY AND THE VIRTUAL IMPOSSIBILITY
07 ANY DRASTIC IMPROVEMENTS WITHIN THE SHORT TERM, BY WHICH
VE HEANS A PERIOD OF SIX MONTHS TO TWO YEARS FOLLOWING HIS
Photocopy from Gerald R. Ford Library
IMAUGURATION. ALTHOUGH OPTIMISTIC ABOUT MEXICO'S LONGER
TERM ECONOMIC POTENTIAL, HE REGARDS THE UPCOMING PERIOD AS A
CRITICAL ONE DURING WHICH HE HAS 70 REESTABLISH PRIVATE-SECTOR
CONFIDENCE IN THE GOVERNMENT, BUT HE MUST DO 50 WITHOUT TOTALLY
MITAGONIZING ORGANIZED LABOR,
3, LOPEZ-PORTILLO FEELS THAT PRESIDENT LUIS
ECHEVERRIA ALVAREE HAS UNNECESSARILY CURRIED FAVOR
WITH MEXICAN LABOR WITH THE RESULT THAT SALARY GAINS BY.
CASOR HAVE EXCEEDED PRODUCTIVITY. HE VIEWS THIS AS A MAJOR
CAUSE 07 THE LOCAL INFLATION. LOPEE-1 RTILLO HOPES TO REACH
AGREEMENT WITH LABOR THAT HENCEFORTH ANNUAL WAGE INCREASES
FORD
IOULD SE IN THE 5 - - 7 PERCENT RANGE, BUT HE IS FULLY AWARE
GERALL
LIBRARY
1.3(a)(4)
PREVIOUS
STATORS
14
IN 081947
PAGE 4 OF 8 PAGES
1.3(a)(4)
FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO
CONTROLS STATED AT BEGINNING AND END OF REPORT.
THAT THERE WILL SE STRONG OPPOSITION TO THIS. HE INTENDS TO
140 THE LINE, HOWEVER, EVEN AT THE RISK OF STRIKES AND RIOTS,
AND WITH FORCE, IF NECESSARY, BECAUSE OF HIS CONVICTION THAT
JAN 96 NO ECONOMIC RECOVERY WITHOUT RESTGRING LABOR
DISCIPLINE AND PRODUCTIVITY.
5, UNEMPLOYMENT AND UNDEREMPLOYMENT ARE REGARDED AS
34310 PROBLEMS, WHICH ARE AND WILL CONTINUE TO BE AGGRAVATED
Photocopy from Gerald K. Ford Library
IV MIGH BIRTHRATES AND LACK OF ADEQUATE INVESTMENT. A STUDY
REQUE HAS ADVISED LOPEZ-PORTILLO THAT ONLY ABOUT TEN PERCENT
7 THE NEW WORK FORCE PER ANNUM CAN BE ACCOMMODATED WITH NEW
5333 33 IN INDUSTRY, THE SITUATION :S UNACCEPTABLE AND ITS LONG-
INPLICATIONS ARE CATASTROPHIC. NOT ONLY MUST MORE
INDUSTRIAL JOBS SE CREATED, BUT THERE MUST BE AN INTENSI-
REGATION OF THE AGRICULTURAL SECTOR TO. PROVIDE EMPLOYMENT
THE RURAL AREAS. THE ALTERNATIVES WOULD SE INTOLERABLE
PRESSURES ON THE CITIES AND INCREASED ILLEGAL MIGRATION TO
DE UNITED STATES,
5. MEXICAN FOREIGN POLICY WILL BE RECRIENTED TOWARD THE
FORD CERRILO GERALD
WHITED STATES AND TOWARD LATIN AMERICA. LOPEE-PORTILLO HAS
VATO THEY HIS THRGE MOST IMPORTANT AMBASSADORIAL APPOINTMENTS
1.3(a)(4)
13007 CORPORTE DESVIOUS
IN 031947
PAGE 5 OF 8 PAGES 1.3(a)(4)
FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO
CONTROLS STATED AT BEGINNING AND END OF REPORT.
information
VIAL 38 TO THE UNITED STATES, TO GUATEMALA AND TO CUBA. THE
FORMER TWO, BECAUSE THEY ARE NEIGHBORS : CUBA, TO MAKE SURE
17 KEEPS ITS HANDS OFF MEXICO,
3. WHILE NOT FORMALLY ALTERING OR RENOUNCING MEXICO'S
WERLY-FOUND STATUS WITH THIRD WORLD COUNTRIES, LOPEZ-PORTILLO
HILL EMPHASIZE RELATIONS WITH THOSE COUNTRIES WHICH ARE IN A
1.3(a)(4)
POSITION TO MAKE A CONTRIBUTION TO MEXICAN RECOVERY.
HE INTENDS TO MAINTAIN CORDIAL RELATIONS WITH ALL, BUT
Photocopy from Gerald R. Ford Library
CITED THE COUNTRIES OF TANEANIA, NIGERIA, ANGOLA AND VIETNAM
AS EXAMPLES WHERE THE MAINTENANCE OF MEXICAN REPRESENTATION
REPRESENTS UNRECESSARY EXPENSE WITH NO CONCEIVABLE BENEFITS
70 MEXICO,
1.3(a)(4)
THE STRESS WILL BE ON MEXICAN SELF INTEREST.
7, THE IDEOLOGICAL FACTOR WILL BE REMOVED FROM FOREIGN
TOADS,
AN EXAMPLE OF THE TYPE C.F ACTIVITY WHICH HE WANTS
TO SEE DISCONTINUED,
11 RECENT CONTRACT WITH
MCP0000, SIGNED BY FRANSICO A L E J 0 LOPEZ, SECRETARY FOR
NATIONAL PATRIMONY, FOR THE PURCHASE OF FERTILIZERS AT A
GERAL EURD LIBRARY
TOTAL PRICE NEARLY FOUR TIMES HIGHER THAN THE PRICE WOULD
HAVE BEEN FOR SIMILAR FERTILIZER BOUGHT FROM THE UNITED STATES,
1.3(a)(4)
1
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EDITIONS
IN 081947
1.3(a)(4)
PAGE b OF 8 PAGES
FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO
CONTROLS STATED AT BEGINNING AND END OF REPORT.
Patient
IL.LO is NO T INTERESTED IN DIVERSIFICATION OF FOREIGN
TRACE FOR THE SAKE OF DIVERSIFICATION AND FEELS THAT THE U.S.
13 SOTH THE BEST AND MOST LOGICAL TRADING PARTNER FOR MEXICO.
3. UCREB PORTILLO INTENDS TO STRENGTHEN THE MEXICAN
MEDICIAL REPRESENTATION IN THE UNITED STATES, BOTH TO HELP
64100 GET A BETTER UNDERSTANDING OF THE AMERICAN REALITIES
= TO PRMOTE MEXICAN EXPORTS IN THE UNITED STATES. JOSE
A LLASTEGUI UNDERSECRETARY FOR FOREIGN RELATIONS,
Photocopy from Gerald K. Ford Library
10 MENTIONED AS THE TYPE OF AMBASS ADOR HE IS SEEKING TO THE
FORD i GERALD LIBRNNK
1.3(a)(4)
IN 061947
1.3(a)(4)
PAGE 7 OF. 8 PAGES
FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO
CONTROLS STATED AT BEGINNING AND END OF REPORT.
If
9. IN EMPHASIZING CLOSE COOPERATION WITH THE UNITED STATES,
LAPEE-PORTILLO HAS MADE IT CLEAR THAT THERE CAN BE NO TURNING
07 THE CLOCK AND THAT HE IS NOT INCLINED TO ALTER OR
THE POSITION OF INDEPENDENCE WHICH MEXICO HAS
DEVELOPED TOWARD ALL COUNTRIES, INCLUDING THE UNITED STATES.
EXAMPLE, LOPEE-PORTILLO WILL NOT ALTER THE REQUIREMENTS
MEXICAN MAJORITY CONTROL OF INDUSTRIAL ACTIVITIES IN
SKICO. FOREIGN INVESTMENT, WHILE ENCOURAGED, WILL NOT BE
Photocopy from Gerald R. Ford Library
ENVICED SY ALTERING THE CURRENT LEGISLATIVE FRAMEWORK.
PORTILLO EXPECTS THAT THE FOREIGN INVESTOR WILL
ПРОФИНОВАТЕ TO MEXICAN GROUND RULES BUT, 4T THE SAME TIME,
00K MILL ADHERE TO THE SAME RULES, THUS PROVIDING
STURANCE OF SECURITY AND CONTINUITY.
10, THE INCOMING ADMINISTRATION IS KEENLY AWARE OF THE
= OF CONFIDENCE AND EVEN CYNICISM WITH WHICH ALL SECTORS
MEXICAN PUBLIC OPINION VIEW THE GOVERNMENT AND ITS
INVOICEMENTS. THIS LACK OF CONFIDENCE IS VIEWED AS INTERFER-
1TH THE NORMAL FUNCTIONING OF THE ECONOMY. THE EXISTING
FOND
IS ATTRIBUTED TO THE INADEQUATE INFORMATION POLICY
GERALD
EVERSIA ADMINISTRATION AND TO MUTUALLY EXCLUSIVE
LIBRARY
1.3(a)(4)
IN 061947
.3(a)(4)
PAGE 8 OF 6 PAGES
FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO
CONTROLS STATED AT BEGINNING AND END OF REPORT.
STATEMENTS ON SPECIFIC POLICY AND IMPLEMENTATION EMANATING
FROM THE DIFFERENT SECTORS OF THE GOVERNMENT THE ESTABLISHMENT
!
:- A SECRETARIAT OF INFORMATION is BEING CONSIDERED, ALONG
NITH TH WAYS AND MEANS TO TONE DOWN THE PROVOCATIVE HEADLINE POLICY
X MOST MEXICAN NEWSPAPERS. IN THIS CONNECTION, LOPEZ-PORTILLO
RAS APPOINTED A SMALL COMMITTEE TO ANALYZE FOUR IMPORTANT
11
ENSPAPERS, INCLUDING TWO U.S. PAPERS, THE LONDON "TIMES"
AND THE PARIS "LE MONDE," WITH THE OBJECTIVE OF DRAWING UP
CERTAIN GUIDELINES WHICH MIGHT BE SUGGESTED TO THE LEADING
Photocopy from Gerald R. Ford Library
EXTCAN PUBLICATIONS. IT IS EMPHASIZED, HOWEVER, THAT NO
INTERFERENCE WITH THE FREEDOM OF THE PRESS IS INTENDED.
1.3(a)(4)
LIBRARY GERALS ? FORD
1.3(a)(4)
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THE OCTOBER 16 REFERENDUM GAVE FIM A MANDATE TO
CRACK DOWN ON BUREAUCRATIC BACKSLIDERS.
THE PERFORMANCE OF MANY LOCAL OFFICIALS IS UNDER
CLOSE SCRUTINY.
EMBASSY COMMENT: IT WOULD NOT BE SURPRISING IF, WITH THE
REFERENDUM OVER, MARCOS NOW MOVES TO EASE OUT UNCOOPERATIVE
GOVERNMENT OFFICIALS AND PETIRE AGING CABINET MEMBERS. BY
UTILIZING A GRADUAL APPROACH, HE MAY AVOID THE STRONG BACK-
LASH OF RESENTMENT CAUSED BY THE SUDDEN AND BADLY-EXECUTED
PURGE OF LATE 1975. (LIMITED OFFICIAL USE) MANILA 16622,
10/27.)
3. MEXICO: HINTS OF MILITARY DISCONTENT
AN AMERICAN BUSINESSMAN ALLEGED TO EMBASSY MEXICO THAT
MIDDLE GRADE MILITARY OFFICERS SENT A LETTER TO DEFENSE
SECRETARY CUENCA DIAZ, EXPRESSING UNPAPPINESS OVER THE
STATUS OF THE MILITARY WITHIN THE NATIONAL POWER STRUC-
TUPE. PURPORTEDLY, THE LETTER:
WAS DEFERENTIAL IN TONE BUT VOICED CONCERN OVER
CORRUPTION AND OTHER SOCIAL AND ECONOMIC PROPLEMS;
AND
-DIPLOMATICALLY CONTENDED THAT THE MILITARY IS CAP-
ABLE OF MAKING A LARGER CONTRIBUTION AND SHOULD HAVE
A ROLE IN NATIONAL DECISION MAKING.
EMBASSY COMMENT: THAT SOMETHING IS ASTIR IS EVIDENT.
RUMORS OF THE LETTER, WHICH DOES REFLECT THE VIEWS OF MOST
MID-LEVEL OFFICERS, HAVE EMERGED FROM OTHER SOURCES. AND
PRESIDENT ECHEVERRIA, ON A TOUR OF MILITARY INSTALLATIONS,
PUBLICLY CONDEMNED SMALL MINORITIES WHO LOOK TO THE
ARMED FORCES FOR REPETITION OF COUPS WHICH HAD OCCURRED
IN OTHER COUNTRIES (CONFIDENTIAL) MEXICO 13749, 10/28.)
KISSINGER
BT
#5585
002
DECLASSIFIED
E.O. 12356, Sec. 3.4.
MR 9.51, ,# 14 State Hr. 2/15/95
By KBH NARA, Date 2/24/95
GERALO FORD LIBRARY
DECLASSIFIED
E.O. 12958 Sec. 3.6
SECRET
DRAFT
MR 95-2, #15; Treasury Hr. 3/7/96
By let NARA, Date 5/3/96
Date: November 3, 1976
MEMORANDUM FOR: SECRETARY SIMON
From:
William N. Morell, Jr.
Special Assistant for National Security
BERALD R. FORD LIBRANT
Subject:
National Intelligence Estimate (NIE) on Mexico
Embassy Mexico has prepared a lengthy and useful cable input
to the NIE that the Director, Central Intelligence, is having
prepared at your request. The Treasury Attache was extensively
involved in the preparation of the Embassy message, the highlights
of which are summarized below.
Deteriorating economic conditions in Mexico have already
caused considerable social and political turbulence. Nevertheless,
because of the Mexican political and social structure, the Embassy
sees little threat to political stability as long as there is
relative unity among key interest groups in the ruling party (PRI).
Organized labor, which in recent years has been moving increasingly
outside of the traditional government party structure, is the most
likely source of trouble.
The Mexican industrial sector is monopolistically organized
and produces a high priced product that, with few exceptions,
cannot compete in the world market. Corruption and import licensing
also impact to diminish the possibilities for the expansion of
Mexican manufactures, even if inflation can be controlled. Removal
of US import restrictions, therefore, would be of limited help to
Mexican manufacturers. It is, nevertheless, anticipated that Mexico
will continue to call for "special treatment" because of her status
as an LDC and because of belief in a "special relationship" with the
US.
The Embassy believes that the IMF has understated the severity
of the economic disequalibrium in Mexico and overestimated Mexico's
growth potential. Wharton forecasts a 1979 Mexican current account
deficit of $4.3 billion. Other studies point to a $500 million
deficit. (Additional analysis is obviously required.) Given
Mexico's balance-of-payments problems, a fairly rigid import control
system will have to be maintained. Capital reflows are not likely
to be sufficient to cover requirements for the public sector, and
financing for private sector investment is uncertain. President-
elect Lopez-Portillo intends to restrain the rate of growth in the
Initiator
Reviewer
Reviewer
Reviewer
Reviewer
Ex. Sec.
CLASSIFIED
Surname
AWLong
Embassy Mexico 13837
FROM
Initials / Date
OWS/Nov3
/
10
Form 0S-3129
SECRET
repossible to determine
Department of Treasury
(culess
SECRET
- 2 -
public sector but not to reduce public sector spending. Thus,
the burden of adjustment will fall heavily on the private sector,
and private sector confidence is the critical factor in stability
and progress.
The Embassy estimates, based upon PEMEX data, that Mexico
has the capacity to expand its oil output by at least 100,000
barrels per day per year for at least the next 5 years. (CIA/OER
maintains that an all out development effort would allow Mexico
to produce 2.7 million barrels per day and export 1.5 million in
1980.) Lopez-Portillo will probably direct a rapid expansion of
oil production to help alleviate Mexico's payment problems. The
Embassy notes that the US could encourage increased Mexican oil
development by providing favorable Ex-Im credits, but cautions
that there is little probability that foreign companies will be
allowed to develop Mexican petroleum resources.
The Embassy also comments extensively on a variety of other
subjects including rationalization of land reform, illegal emigration,
internal political problems, cooperation in narcotics enforcement,
and foreign policy. The Embassy notes that, while Lopez-Portillo's
conduct of foreign policy will be characterized by a decrease in
anti-US rhetoric and a softening of antagonistic public attitudes,
his basic position will remain that of a Mexican nationalist and
that any attempt by the US to "overembrace" him could be counter-
productive.
R.
GERALD
CHOP
LIBRARY
SECRET
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
Date November 3, 1976
Chairman Burns
To
Subject: Governor Baffi's testimony
From Jan W. Karcz My
in the Italian Senate
The attached "Reuters" story is summarized in today's International
Digest (item # 1). You may want to note the paragraph marked in red in the
xeroxed copy.
BERALD R. FORD LIBRABY
1811 BAFFI YS ITALY CAN STILL DRAW
NLN DLRS FROM EEC:
ROME, NOV 3 - ITALY CAN STILL DRAW 700
MLN DLRS IN SHORT-TERM FINANCIAL CREDITS FROM
THE EEC, PART OF WHICH COULD BE USED TO COVER
REPAYMENT OF 486 MLN DLRS TO BRITAIN, BANK
OF ITALY GOVERNOR PAOLO BAFFI SAID
2
THE SHORT-TERM CREDITS WOULD SUBSEQUENTLY
BE CONVERTED INTO A MEDIUM TERM CREDIT LINE EDBA
FFI TOLD THE SENATE FINANCE COMMISSION IN
ILLUSTRATION OF BORROWING POSSIBILITIES STILL
OPEN TO ITALY
REUTER
THIS YEAR ITELY WILL HAVE TO PAY 11 BILLION
DLRS IN INTEREST ON FOREIGN LORNS, EXCLUDING
SHORT TERM COMMERCIAL BORROWINGS, BAFFI SAID
ITALY WILL ALSO HAVE TO REPAY 548 MLN DLRS
KIN MATURING EUROCURRENCY LOANS AND 826 MLN DLRS
IN REIMBURSEMENT TO THE I.M.F., BAFFI SAID
TOTAL ITALIAN FOREIGN DEBT CURRENTLY STANDS
AT 16 3 BILLION DLRS, HE SAID.
REUTER
LIBRARY GERALD FORD
ALY CAN ALSQ CALL ON SMORT-TERM CREDIT
OF 750 MLN DLRS FROM THE U.S. FEDERAL RESERVE,
IN ANTICIPATION OF CONCLUSION OF A LOAN AGREE-
MENT WITH THE I.M.F., BAFFI SAID.
INFORMED SQUECES SAID A SIMILAR 750 MLN DLRS
WAS MADE AVAILABLE TO ITALY BY THE FED
EARLIER THIS YEAR, AHEAD OF CONCLUSION OF THE
E.E.C. LOAN, OF WHICH 500 MLN WAS DRAWN AND
LATER REPAID
NNNN
1859 : BAFFI SAYS SLEME:
OTHER LOAN POSSIBILITIES INCLUDE A FURTHER
500 MLN DLRS FROM THE BUNDESBANK, UNDER THE GOLD
BACKED CREDIT AGREEMENT, AND AT LEAST 530 MLN
DLRS AND POSSIBLY MORE FROM THE I.M.F.N GIVEN
ITALY'S 5 EXCEPTIONAL CIRCUMSTANCES, BAFFI SAID
BUT NEW RECOURSE TO THE EUROMARKETS APPEARS
EXCLUDED UNDER PRESENT CONDITIONS; HE SAID
RECOMMENDATIONS FROM THE I.M.E. RT RECENT
TALKS IN PARIS 08 OBJECTIVES FOR RE-ESTABLISH-
MENT OF THE ITALIAN ECONOMY APPEARED
SUBSTANTIALLY IN LINE WITH THE GOVERNMENT'S
OWN ECONOMIC AND FISCAL POLICIES, HE SAID
2.
REUTER
FORD
GERALD
LISRAST
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
70 GRACE
3HT
70
LEDEUVE НЕЗЕКЛЕ
November 3, 1976
TE :01 MA
To:
Chairman Burns
03V1333A
ИАМЯНАНЭ 3HT 30 301770
From: Ted Truman EMT
Subject: Cables on Mexico
Attached are four cables that we
received today from Mexico:
Mexico 13923: Possible Revision of IMF Program
Mexico 13924: Ambassador Dent's Visit to
Mexico, Nov. 19
Mexico 13934: Monthly Economic and Political
Highlights: October
Airgram A-28: Businessmen's Roundtable --
September 1976
CC: Governor Wallich
FORD is LIBRARY GERALD
Defense classification of this document is due
to the inclusion of U.S. Government information
officially classified under Exceutive Order 10501
which provides that "A document
shall bear a
classification as least as high as that of its
highest classified component."
CONFIDENTIAL
MUTOYS
3V43738
JARGO33
THT
DL
BOARD OF GOVERNORS
OF THE
этел & тебизуой
FEDERAL RESERVE SYSTEM
1976 NOV -4 AM 10: 37
entrus RECEIVED :of
OFFICE OF THE CHAIRMAN
SECUT beT :worT
column no selded
9W Jadd asídeo Tooi 973
Valor Devisest
margorY THE to golatval :ESSET octroll
00 ItalV :ASPET
er .voll column
bas visitioN :ACREI colume
тобозой :erigildgth
-- :SS-A
aver
dollisW CONTRACT :00
SEMENT STATE
or
Department of State
STATES AMERICA UNITED MAKE
TELEGRAM
OF
DECLASSIBIED
CONFIDENTIAL 4422
AUTHORITY state dept sys rev 5/4/06
PAGE 01
MEXICO 13923 0200582
BY dal NARA, DATE 2/12/15
as
ACTION EB-07
TNFO OCT-01 ARA-06 ISn-20 SP-02 USIA-06 AID-05 NSC-05
CIEP-01 SS-15 STR-04 OMB-01 CEA-01 CIAE-00 COME-00
FRR-03 INR-07 NSAE-00 XMB-02 OPIC-03 LAB-04 SIL-01
L-03 H-02 PA-01 PRS-01 /081 W
054576
R 9123332 NOV 76
FM AMEMBASSY MEXICO
TU SECSTATE WASHDC 8357
INFO TREASURY WASHDC
C 0 N F I D E N T T MEXICO 13923
Internalional Information Cent
Please return to
F O 11652: GDS
TAGS: EFIN 1X
SUBJECT: POSSIBLE REVISION OF IMF PROGRAM
1. SUMMARY: IN OCT. 28 CONVERSATION, BANK OF MEXICO
OFFICIAL TOLD FINATT THAT SPECIFIC TARGETS IN IMF PROGRAM
TN 1977 MAY HAVE TO BE RE-NEGOTIATED. END SUMMARY.
0. IN COURSE OF CONVERSATION WITH BANK OF MEXICO OFFICIAL
ON OCT. 28, FINATT ASKED WHETHER IMPACT OF RECENT
DEVELUPMENTS ON THE ECONOMIC OUTCOME FOR CURRENT YEAR MIGHT
NOT MAKE ATTAINMENT OF THE SPECIFIC TARGETS IN THE EFF 1977
PROGRAM MORE DIFFICULT. PARTICULAR REFERENCE WAS MADE TO
THE 90 BILLION PESO BUDGET DEFICIT TARGET. OFFICIAL
INDICATED THAT HF THOUGHT THIS TARGET MIGHT HAVE TO BE
RENEGOTIATED, BUT THAT THE IMPORTANT TARGETS IN THE PROGRAM
WERE THE RELATIONSHIPS TO GDP RATHER THAN THE SPECIFIC
TARGETS SUCH AS THAT FOR 1977 PUBLIC DEFICIT.
3. BASIS FOR QUESTION IS OUR BELIEF THAT THE IMPACT OF
NEVELOPMENTS IN THE FINAL FOUR MONTHS OF THIS YEAR MAY
LEAD TO A HIGHER PUBLIC SECTOR DEFICIT THAN FORESEEN IN
THE FUND PAPERS ON MEXICO. THE DEVALUATION IS LIKELY
FORD is GERALD LIBRARY
CONFIDENTIAL
97
or
DEPARTMENT
STATE
Department of State
UNITED STATES OF AMERICANCE
TELEGRAM
CONFIDENTIAL
PAGE 02
MEXICO 13923 0200582
TO HAVE A SIGNIFICANT IMPACT ON CORPORATE TAX REVENUES.
A NUMBER OF BUSINESSMEN HAVE TOLD US THEY ARE LOWERING
THEIR PERIODIC TAX PAYMENTS ON THE BASIS UF HIGHER COSTS
RESULTING FROM THE EXCHANGE RATE CHANGE. CORPORATE
INCOME TAX RECEIPTS ACCOUNT FOR ABOUT 20 PERCENT OF
FEDERAL GOVERNMENT REVENUES. RF PUBLIC SECTOR COMPANIES,
THF INCREASED COSTS FOR WAGES AND FOREIGN DEBT SERVICE
HAVE NOT YET BEEN OFFSET BY INCREASED PRICES. IN THIS
REGARD, WE KEEP HEARING THAT PRICE INCREASES IN THEPUBLIC
SECTOR ARE IMMINENT, ONLY TO HAVE THEM POSTPONED, MOST
RECENTLY BECAUSE OF THE SECOND DEVELATUION AND THE FEAR
OF THE REACTION TO SUCH PRICE INCREASES AT A TIME WHEN
THF GOM IS MAKING AN EFFORT TO CONVINCE THE PRIVATE SECTOR
NOT TO INCREASE PRICES AND THE LABOR UNIONS NOT TO DEMAND
ANOTHER WAGE INCREASE.
4. SHOULD THE 1977 PUBLIC SECTOR DEFICIT BE IN THE RANGE
OF 120-13n BILLION PESOS, TT WILL BE MORE DIFFICULT THAN
FARLIER ANTICIPATED TO BRING THE 1977 DEFICIT TO 90 MILLION
PESOS WHICH WOULD BE THE EQUIVALENT OF 72 BILLION 1976
PESOS, ASSUMING A 20 PERCENT PRICE DEFLATOR FOR 1977.
5. WHILE BANK OF MEXICO OFFICIALS STATEMENTS WAS INFORMAL,
AND MAY NOT REFLECT THE GOM POSITION, WE ARE
CONCERNED FOR SEVERAL REASONS. ONE IS THATIT INDICATES
A MURE RAPID DETERIORATION IN THE CURRENT ECONMIC
SITUATION THAN OTHERWISE EXPECTED. ANOTHER IS THAT
WE HAD PRESUMED THAT THE SPECIFIC TARGETS MENTIONED
TN THE FUND PROGRAM WERE OVERRIGING.
JOYA
2.
FORD
GERALD
LIBRARY
CONFIDENTIAL
DEPARTMENT OF STATE
Department of State
AMERICA UNITED
TELEGRAM
STATES OF
LIMITED OFFICIAL USE
4423
DECLASSIFIED
PAGE 01
MEXICO 13024 0201012
AUTHORITY state dept sup nev. 5/4/06
73
BY dal NARA, DATE 2/12/15
ACTION STR-04
TNFO OCT-01 ARA-06 TO-13 180-00 STRE-00 AGRE-60 CTAR-04
CUME-09 EP-07 INR-07 LAB-04 NSAE-00 SP-02 TREE-00
CIEP-81 FRB-03 0M8-01 L-03 1052 W
054584
R 0123347 NOV 76
FM AMEMBASSY MEXICO
TO SECSTATE WASHOC 8358
TNFO USMISSION MTN GENEVA
LIMITED OFFICIAL USE MEXTCO 13924
International Information Center
DEPT PASS STR
FO 11652: NA
TAGS: ETRD UVIP (DENT), MX MTN
SUBJECT: AMBASSADOR DENT'S VISIT TO MEXICO
1. MARIO RODRIGUEZ, GARRIDO'S DEPUTY IN TREASURY FOR
INTERNATIONAL AFFAIRS, TOLD EMB ECONOFF FRIDAY, OCT. 29,
THAT MEXICAN TREASURY OFFICIALS MUCH INTERESTED IN AMB DENT
HAVING LONG DISCUSSION CONE AND ONE -HALF HOURS OR MORE)
WITH MARIO RAMON BETETA, SECRETARY OF TREASURY, DURING HIS VISIT
NOV. 19. MEETING SUGGESTED FOR MORNING OF NOV. 19 ABOUT
10:00 OR 10:30. EMBASSY STRONGLY CONCURS IN SUGGESTION.
2. DISCUSSION TOPICS COULD INCLUDE CURRENT MEXICAN
ECONOMIC SITUATION AND EFFECT ON MEXICAN-US TRADE,
SPECIAL AND DIFFFRENTIAL TREATMENT FOR LDC'S VS
RECIPROCITY, MEXICAN VIEWS ON GATT REFORM, TP NEGUTIATIONS
AND POSSIBLY SPECIAL BTLATERAL TRADE PROBLEMS SUCH AS
TENUTLA AND SHOES.
3. ALTHOUGH BETETA UNLIKELY TO RETAIN POSITION IN JLP
ADMINSTRATTON RECAUSE HIS REPUTATION HAS BEEN TARNISHED
BY MEXICAN DEVALUATION HF REMAINS RESPECTED GOM OFFICIAL
GERALD FORD LIBRARY
LIMITED OFFICIAL USE
DEPARTMENT OF STATE
Department of State
UNITED OF the
TELEGRAM
STATES
LIMITED OFFICIAL USE
PAGE 02
MEXICO 13924 020101Z
AND INFLUENTIAL ADVISOR OF JOP. HE SPEAKS FLUENT
ENGLISH. ALSO WE NOTE TREASURY SEEMS INTERESTED IN
MONOPOLYZING DENTIS TIME IN MEXICO PRUBARLY TO STRENGTHEN
TTS HAND WITH SECRETARIAT OF INDUSTRY AND COMMERCE AS GOM
AGENCY WITH RESPONSIBILITY ON TRADE MATTERS. SINCE
TREASURY TAKES MUCH BROADER VIEW OF TRAUE QUESTIONS THAN
SIC'S NAPROW INDUSTRY-ORIENTED APPROACH WE BELTEVE IT IS
TN OUR INTEREST TO DISCRETELY HELP TREASURY.
1. ROORIGUEZ ALSO SUGGESTED THAT AFTER SPEECH IN LATE
AFTERNOON AMR DENT MIGHT WANT TO HAVE FOLLOWUP
DISCUSSION WITH SECOND LEVEL GOM OFFICIALS SALES AND
GARRIDO OF TREASURY.
JOVA
GERALD R. FORD LIBRAMA
LIMITED OFFICIAL USE
OF STATE
Department of State
AMERICA UNITED
TELEGRAM
STATES OF
DECLASSIFIED
CONFIDENTIAL
4463
AUTHORITY state dept sysee 5/4/06
PAGE w1
MEXICO 13034 0201342
BY dal NARA, DATE 2/12/15
64
ACTION ARA-19
INFO OCT-01 TSO-00 CIAE-00 0005-00 PA-04 H-02 INR-07 L-03
NSAE-00 NSC-05 PA-P1 PRS-01 SP-02 SS-15 USTA-06
A10-05 COME-00 ER-97 FRA-03 TRSE-00 XMB-02 OPIC-03
CIEP-01 LA8-04 STL-01 OMB-01 In-13 EUR=12 /109 W
054755
R 020010Z NOV 75
FM ANEMBASSY MEXICO
TO SECSTATE WASHDC 8364
return to
is
E
international Information Center
N
D
N
I
I
A
MEXICO
13934
EO 11652: GOS
Economy
TAGS: PINT MX EGEN EFIN PFOR PINS
SUBJECT: MONTHLY POLITICAL HIGHLIGHTS: OCTOBER
POUCHED: CARACAS, GUATEMELA, MANAGUA, SAN JOSE, SAN SALVADOR,
MADRID, USUN, ALL CONSULATES IN MEXICO
REF MEXICO 12831
1. SUMMARY: EVENTS IN OCT, PARTICULARLY ECONOMIC, INDICATED THAT
LUNG ANTICIPATED DIMINUTION OF POWER OF OUTSOING ADMINSTRATION
75 OCCURING, BUT WTTH PRES-ELECT LOPEZ PORTILLO CONSTRAINED POLI-
TICALLY AND CONSTITUTIONALLY FROM ACTIVE ROLE, RESULT TS POWER
VACOUM IN WHICH GOM TS UNABLE PROVIDE LEADERSHIP WHICH ECONOMIC
SITUATION REQUIRES. GUMIS CREDITILITY TS AT ALL TIME LOW, PUBLIC
TENDING TO BELIEVE OPPOSITE OF 60M PUBLIC PRONDUNCEMENTS, THIS
LACK UF CONFIDENCE LED TO FURTHER CAPITIAL FLIGHTS AND SECOND
DEVALUATION IN TWO MONTHS, TO MORE RUMORS, AND 10 MORE OPEN
CRITICISM OF PRESIDENT. WITH ONE MONTH TO GO BEFORE INAUGUR-
ATTON, MEXICANS ALL HAVE FINGERS CROSSED, HOPING MEXICO WILL
MAKE IT. END SUMMARY.
2. ECONMIC SITUATION
MEXICAN ECONOMY IN OCT REMAINED CHARACTERIZED BY CONFUSION OVER
GOVT POLICIES AND LACK OF CONFIDENCE IN GOM'S ABILITY TO COPE
FORD
GERALD
LIBRARY
CONFIDENTIAL
DEPARTMENT OF STATE
Department of State
UNITED STATES OF AMERICA
TELEGRAM
CONFIDENTIAL
PAGE 02
MEXICO 13934 020134Z
WITH CRISIS. TWO SPECIFIC DEVELOPMENTS OF NOTE WHERE REDUCTIONS IN
EXPORT TAXES AND SECOND DEVALUATION. FORMER WAS APPARENTLY
DECIDED BY PRESIDENT IN RESPONSE TO PRIVATE SECTOR PRESSURES.
TWO DAYS LATER BANK OF MEXICO ANNOUNCED RESUMPTION OF FLOAT,
RAISING PESO BUYING RATE NEXT DAY FROM 19,9 TO 26.5 PESOS PER
DOLLAR. NOV. 1 RATE IS 25.58. DECISION TO RESUME FLOAT, WHICH
TECHNICALLY NEVER ENDED, WAS APPARENTLY TAKEN TO STEM CONTINUING
FLIGHTS OF CAPITAL. IT APPEARS THAT MEASURE REDUCED CAPITAL OUT-
FLOWS, BUT BY HOW MUCH IS UNCERTAIN. ONE HOPEFUL DEVELOPMENT WAS
MEASURE REACTION OF LABOR, WHICH FOR MOMENT IS REFRAINING FROM
MAKING NEW WAGE DEMANUS. BUT NEW RATE SENT SHIVERS DOWN SPINES OF
BUSINESSMEN WITH LARGE FOREIGN DEBTS. GOM ECONOMIC OFFICTALS ARE
AWARE OF CONFIDENCE PROBLEM, AND LAMENT THAT. FOR "FOLITICAL
REASONS", (READ ECHEVERRIA'S SENSITIVITY), PRES-ELECT JLP
CANNOT COMMENT PUBLICLY ON PRESENT SITUATION. THIS MAKES
NOV. LOOK LIKE ANOTHER BLEAK MONTH.
3. THERE IS NO CURRENT DATA ON ECONOMIC SITUATON, BUT WE
SUSPECT THAT CAPITAL FLIGHT SINCE SEPT. 1, HAS RESULTED IN ZERO
GROWTH RATE OF MONEY SUPPLY. IN LIGHT OF PRICES INCREASES SINCE THIS
TIME, IT SFEMS TO US LIKELY THAT VOLUME OF TRANSACTIONS WILL
DECLINE. THIS WOULD LEAD TO LOWER REAL GROWTH RATE FOR 1976 THAT
: PERCENT BEING PORECAST BY IMF.
4. ECHEVERRIA, JLP AND INTERREGNUM
FORD
TRUE TO HIS PROMISE YEAR AGO, TO "WORK FOR MEXICO" UP TO HIS
LAST MOMENT IN OFFICE, PRES ECHEVERRIA HAS BEEN CRISSCROSSING
COUNTRY AS THOUGH WE WERE CAMPAIGNING, MEETING ALL NIGHT WITH
GERALD
LIBRARY
CAMPESING GROUP IN SONORA,
INAUGURATING PUBLIC WORKS IN HIDALGO, BLASTING PRIVATE SECTOR
TN NUEVO LEON (SEE MEXICO 13366), INSPECTING MILITARY FACILITIES
AND PRAISING ARMED FORCES IN QUERETARD, AND, IN OAXACA, ACCUSING
"CERTAIN SECTORS" OF TRYING TO CREATE PROBLEMS FOR JLP.
5. WHILE PRESS HAS HEADLINED THESE PRESIDENTIAL PRONOUNCEMENTS
AND ACTIVITITES, THERE IS ALSO BEGINNING TO BE MORE OPEN CRITICISM
OF ECHEVERRIA. FORMER PRES ALEMAN, ASKED BY REPORTERS TO CHARACTER-
T2F LEA ADMINSTRATION, SAID HISTORY WOULD HAVE 10 BE JUDGE,
COMMENT WIDELY INTERPRETED TO MEAN THAT SINCE ALEMAN HAD NOTHING
NICE TO SAY, HE SAID NOTHING AT ALL. UNAM RECTOR SOBERAON CRITI-
CIZED "BUREAUCRATIC EXPLOSION" FOR CONTRIBUTING TO GOVT
DEFICIT, ECONOMIC COMMENTARY INCREASINGLY BLAMED MALA-
ADMINSTRATION AS CHIFF CAUSE OF DEVALATION, PRIVATE SECTOR SPOKES-
MAN OPENLY SAID GUM'S LACK OF CREDIBILITY WAS REASON FOR CONTINUING
CONFIDENTIAL
DIPARTMENT
OF
STATE
Department of State
AMERICA UNITED
TELEGRAM
STATES OF
CONFIDENTIAL
PAGE 03
MEXICO 13934 020134Z
CAPITAL FLIGHT, AND MONTERREY BUSINESS COMMUNITY HEACTED TO
FCHEVERRIA'S BLAST WITH DEVASTATINLY HOSTILE POLITICAL ADS.
6. WHILE ECHEVERRIA HAS BEEN PLAYING WITH SYMBOLS OF POWER, JLP
HAS BEEN IN VIRTUAL SECUSTION IN IHIS LOYOACAN HWS, CONSTITU.
TIONALLY AND POLITICALLY CONSTRAINEDFROM EXERCISE MF POWER
DURING OCT HE APPEARED IN PUBLIC TWICE, BOTH TIMES WITH ECHEVERIA,
CONSEQUENCE IS INTERREGNUM, AT TIME WHEN MEXICO CAN ILL AFFORD IT,
7. RUMORS CONTINUE
RUMORS CONTINUED TO FLOURISH DURING OCT AND GOM CONTINUED TO
TRY TO REFUTE THEM IN LOW KEY MANNER, PROBABLY REALIZING THAT
DIRECT REFUTATION WOULD ONLY LEND THEM CREDENCE (FOLLOWING 60M
DENIAL THAT OCT 12 BLACKOUT AFFECTING FEDERAL DISTRICT AND FIVE
STATES HAD BEEN CAUSED BY SABOTAGE, MEXICANS WERE SAYING " y TOLD
YOU IT WAS SABOTAGE -- THEY DENIED IT. ") ALTHOUGH JLP'S CAN
CELLATION OF HIS PANAMA AND COLOMBIA TRIP PROBABLY WAS, AS HE
SATD. DUE TO HTS WISH TO WORK ON HIS ECONOMIC PROGRAM, MANY
SUGGESTED PRIVATELY THAT HE WAS AFRAID TO LEAVE COUNTRY FOR
FEAR PRESIDENT WOULD SOMEHOW TAKE ADVANTAGE OF MIS ABSENCE.
RUMORS ABOUT ARMY'S INTENTIONS SUDDENLY APPEARED, LEADING
PRESIDENT PUBLICLY TO PRAISE ARMY'S LOYALTY AND SEMI-OFFICIAL
FL NACIONAL TO on LIKEWISE IN ROTH EDITORIALS AND CARTOOONS
(MEXICO 13749). VERSIONS OF THIS RUMOR VARIED, ONE SUGGESTING ARMY
OFFICERS HAD THREATENED ROTH ECHEVERRIA AND JLP WITH MILITARY
INTERVENTION UNLESS CERTAIN UNSPECIFIEOCHANGES WERE MADE, ANOTHER
VERSION (SOMEWHAT CLOSER TO TRUTH, WE SUSPECT) HAVING TT THAT MIDDLE
GRADE OFFICERS HAD EXPRESSED THEIR UNHAPPINESS IN GENERAL TERMS
TO MEXSECUFF CHENCA DIAZ. WITH RUMORS AND ECONOMIC SITUATION
EACH ENCOURAGING OTHER, MOST MEXICANS HAVE FINGERS CROSSED,
ANYIOUSLY AWAITING DEC. 1 INAUGURATION OF JLP.
8. FOREIGN AFFAIRS, MORE DISAPPOINTMENTS
DIPLOMATS, POL DRERSERVERS. AND EVEN SOME FOREIGN SECRETARIAT
OFFICIALS WERE TAKEN BY SURPRISE BY OCT 18 ANNOUNCEMENT OF
OF PRES ECHEVERRIA'S AVAILABILITYFOR UN SECY GENERALSHIP,
ALTHOUGH ECHEVERRI'A DESTRE FOR POSITIONWAS NO SECRET, IT HAD BEEN
ASSUMED HE WOULD NOT DECLARE CANDIDACY DOUMED TO FAILURE.
WHY ECHEVERRTA AND GOM APPARENTLY BELIEVE HE HAS CHANCE IS
NOT CLEAR. OUTSIE POSSIBILITY EXISTS OF PRC VETO OF ANY NON-
THIRD WORLD CANDIDATE (ALTHOUGH REPORTS INDICATE THIS TS NOT SO).
TT IS ALSO POSSIBLE THAT ECHEVERRIA EXPECTS, IN LOSING, TO BE
OFFERED ANOTHER SENIOR UN POSITION. OR ECHEVERRI'A DECLARATION MAY
HAVE RESULTED FROM PERSONAL FRUSTRATION AT NOT HAVING BEEN
FORD
GERALD
LIBRARY
CONFIDENTIAL
OF STATE
Department of State
UNITED STATES OF AMERICA
TELEGRAM
CONFIDENTIAL
PAGE 04
MEXICO 13934 020134Z
AWARDED NOBEL PRIZE CANNOUNCED OCT 15) AND PERHAPS UNWITTINGLY
ENCURAGED BY MEXICAN UN MISSION LACKING COURAGE TO GIVE HIM HONEST
APPRAISAL OF HIS CHANCES.
9. FINAL FOREIGN AFFAIRS DISAPPOINTMENT ALMOST CERTAINLY AWAITS
FCHEVERRIA. PRESIDENT HAS MADE IT CLEAR ( THREE TIMES IN PAST WEEK
ALONE) THAT WE WOULD LIKE TO END HIS REGIME WITH RESTORATION
OF DIP RELATIONS WITH SPAIN AND SENT HIS TOP FOREIGN TRADE MAN
TO RENEW TRADE RELATIONS, INTERRUPTED LAST YEAR WHEN ECHEVERRIA
MOVED TO GET SPAIN OUTSTED FROM UN FOR EXECUTIVE BASQUE TERRORISTS,
VET ALL REPORTS INDICATE SPAIN, STILL HIGHLY RESENTFUL OF
FCHEVERRIA'S ACTIONS, WILL WITHHOLD FORMAL DIP RELATIONS UNTIL
ILP TAKES OFFICE ON DEC. 1.
10VA
FORDS & GERALD LIBRARY
CONFIDENTIAL
DEPARTMENT OF STATE
AIRGRAM-
0614
82 :01 AV STATE to 130 JLL
49
HANDLING
CLASSIFICATION
MESSAGE REFERENCE NO.
LIMITED OFFICIAL USE
A-28
TO:
US DEPARTMENT OF STATE, WASHDC
INFO:
US DEPARTMENT OF COMMERCE, WASHDC
AMEMBASSY, MEXICO CITY
AMCONSUL, GUADALAJARA
FROM:
AMCONSUL, MONTERREY
International Information Center
Please return to
DATE: Oct. 12, 1976
E.O. 11652:
NA
TAGS:
EIND, MX
FORD
SUBJECT:
BUSINESSMEN'S ROUNDTABLE - --SEPTEMBER, 1976
GERALD
REF:
LIBRARY
DEPT. DISTRIBUTION
ORIGIN EB ACTION
SUMMARY
AF
ARA
CU
EA
The latest in the series of monthly Businessmen's
L
Roundtables was held at the Consulate General
EB
EUR
INR
10
on September 30, 1976. Nine local executives
joined Consul General Lambert, Commercial
L
NEA
PER
PM
Officers Carter and Glass, and Branch Public
\
Affairs Officer Niemeyer for a wideranging
REP
SCI
SS
SY
discussion of the business outlook in the after-
math of the peso devaluation, the labor situa-
5/12
tion in each of the companies represented,
business/government relations in Mexico, and
AGR
AID
AIR
ARMY
other topics. After introductory remarks by
the Consul General, each of the businessmen
CIA
COM
DOD
DOT
made his presentation in turn.
FRB
HEW
INT
LAB
976 OCT 28 PM I 37
NAVY
NSA
NSC
OPIC
DEVALUATION
STR
TAR
TRSY
USIA
Most of the companies represented were fairly well
prepared for the devaluation. At the same time, the
XMB
executives expressed the belief that the second order
effects of the devaluation would be serious and neg-
ative.
SUGGESTED DISTRIBUTION:
A manufacturer of cutlery and springs confided that
he had clearly foreseen a devaluation, but had been
LIMITED, ASSIFICATION OFFICIAL USE
DRAFTED BY:
DRAFTING DATE
PHONE NO.
ECON/COMM: 10/5/76
CONTENTS AND CLASSIFICATION FFF APPROVED BY:
CG: FXLambert
CLEARANCES
/mlg.
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October 12,1976
surprisedby the magnitude of the parity change. Holding large,
precautionary dollar balances, his firm made a "fabulous" peso
profit from the float but now faces a substantial GOM tax bite
on its speculative earnings. A manufacturer of chemical and
refinery equipment noted that he had moved from dollar to peso-
denominated obligations as early as March and took out a large
peso loan in May. A manufacturer of cylinder liners said
he also had kept his dollar-denominated obligations small,
except for a relatively small dollar loan. A crane manufacturer
happily reported that his firm's financial commitments had a
dollar exposure of no more than 20,000 dollars.
LABOR RELATIONS
Labor relations were the greatest concern of the roundtable par-
ticipants. Slack orders and cancellations have forced the
manufacturer of cylinder liners to lay-off fifteen percent of his
workforce and further lay-offs are possible. His firm now faces
demands for a full 23% wage hike, after having negotiated an
18.5% increase in May. He added, however, that the 18.5% figure
included some readjustments in fringe benefits such as lunch
hours and transportation allowances, His firm's real labor costs
rose only about 10% in May. A motel manager noted that he was
presently negotiating with his workforce and that he would pay
the 23% hike proposed by the GOM only if the workers agreed to
a lay-off of 35 percent of his employees. The alternative to a
cut in staff, he said, was to close down the motel, which has been
losing money for several years. The crane manufacturer had too
big an order backlog to lay-off staff but was troubled by the
23% wage hike. His firm had already boosted wages by close to
23% in June and was now faced with the GOM's de facto decree to
raise salaries another 23%. He felt he had no option save to
pay the 23% or face a GOM labor relations board where "the cards
are stacked" against his firm. A manufacturer of farm machinery
observed he was currently in the throes of negotiating a wage
increase. Despite GOM sanctionfor a 23% increase, his workers
had already lowered their demands to 12% and he intended to pay
no more than 10%, even at the cost of a strike. However, the
manufacturer of chemical equipment stated that he had already
granted his workforce the "recommended" 23% wage raise and was
reviewing an increase for his white collar workers.
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BUSINESS TRENDS
The Monterrey-based representative of a US railroad estimated
that the post-devaluation volume of Mexican imports was down
70%, while export levels were unchanged. The drop in import
volume was due largely to a flurry of cancellations of orders
placed prior to devaluation. Some items, he opined, are of
such vital importance to companies operations that their import
levels cannot be reduced. Scrap for the steel industry and
silica sand for glassmakers are in these categories. He believes
that business recovery will take 4-6 months --as it did after
the peso devaluation in 1954.
Surprisingly, the motel manager stated that devaluation has pro-
duced no tangible benefits. He could only conclude that word
has not yet reached to American tourists, who comprise 90% of
his normal clientele. He does not plan to raise lodging prices
(despite GOM authorization for a 20% hike) since he seeks to
maximize volume. Monterrey hotel managers, he said, have or-
ganized in self-defense to boycott hotel suppliers who raise
prices without justification. For example, when fish suppliers
raised prices by one third, hotel kitchens stopped preparing
fish dishes. Overall, business is not good and he estimates
his hotel will be in the red by 3 million pesos in the current
fiscal year. This will follow several years of losses, which
his firm has accepted as the "price" for the opportunity of
selling hotel franchises in Mexico. Since Mexicans usually seek
foreign equity to go along with their hotel franchises, franchise
sales have not gone well. His firm now sees better prospects in
Central America.
The manufacturer of cutlery and springs had to raise prices
close to 40%. He cancelled a backlog of orders to be filled at
former prices. As a result, cutlery sales fell by 35% in peso
value in September, but he is optimistic for a full sales re-
covery within 4-5 months. September sales of springs fell to
50% of normal, with some price resistance from spring consumers
who are themselves subject to price controls. Management does not
expect a quick recovery in demand for springs.
The manager of the company producing chemical and refinery
equipment presented a brighter picture, stating that many of his
orders were written with escalation clauses and that the customized
nature of his products eliminated the restrictiveness of price
controls.
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An engineer/consultant for the plastics and diecasting indus-
tries was patently pessimistic. He knows of five pending plas-
tics projects that have been shelved. One project may go forward,
since the Mexican partner has funds in the US which he can now
"safely" repatriate in the form of US machinery, using invoices
pre-dated prior to devaluation. This ruse will conceal the fact
that the original purpose of his deposits in the US was purely
speculative. One proposed machine tool project is probably dead
since it aimed at exporting 80% of its production. A 7.5% export
tax, coupled with an estimated 40% wage hike over the next year,
will make exports noncompetitive.
According to the plastics consultant, in-bond assembly firms
are being seriously affected by the government-mandated wage
raise. One such firm, he said, has moved from the Mexican to the
US side of the border and has found that higher productivity more
than compensates for higher US wage rates. Lack of CTM union
pressures in Texas, according to him, was another gain realized
by the company's move to the US.
The manager of the farm equipment firm computed that devaluation
has decreased his firm's export competitiveness by 8%. He
explained that local costs are up 25-30%, that GOM export
subsidies Certificado de Devolución de Impuestos (CEDIs) with a
22% after-tax value are now gone, that a 6.8% export tax is now
in effect, and that imported components, even with lower duties,
are up 47-50%. The chemical equipment manufacturer joined in
to note that his imported component costs are up 47% in terms of
pesos, despite lower import duties. The manufacturer of cylinder
liners noted simply that, unless CEDIs are restored, his firm
just cannot quote for export sales. In addition to removal of
the CEDIs, his firm's exports now face a 10.5% export tax, which,
when combined with higher labor costs and increased costs for
imported machinery and components, removes any incentives to
export that might have arisen from the devaluation.
GOVERNMENT RELATIONS
The manufacturer of agricultural machinery is very pessimistic
about his firm's future. Since agriculture in Mexico is such a
politically sensitive area, his firm has been subject to rigorous
price control measures, which he expects will continue at both
wholesale and retail levels. In addition, he estimates that the
GOM now controls 65% of the agricultural machinery sector, which
means his firm is in direct competition with the GOM. He has
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responded to "Mexicanization" presures by selling 25% of his
shares to a Mexican financial institution and placing 20% in
escrow. He rejected a recent Nacional Financiera, S.A.'s
attempt to acquire 51% equity role in his firm.
Several participants scored the GOM for being a "slow payer".
The manufacturer of refinery equipment cited Petróleos Mexicanos
(PEMEX) as slow to meet its obligations, but his firm has no
choice but to bid on big, new PEMEX contracts. He conceded that
PEMEX met its obligations quickly on international procurement
since these transactions are funded out of dollar balances
maintained in New York. He also noted that PEMEX was more prompt
in paying for necessary repair parts than for the original items.
The spring manufacturer concurred that REMEX normally paid
domestic suppliers after a 150-180 day delay; he noted that his
firm simply stopped selling to the Mexican railroads as collections
took 2-3 years. The manufacturer of agricultural equipment added
that his firm had traditionally avoided direct sales to the slow-
paying GOM and could afford to do so since there was no lack of
private demand.
Executives of several firms commented on their relations with
MEXINOX, a French-Mexican firm established for the eventual
manufacture of stainless steel in Mexico. Until such time as
production starts, MEXINOX will hold exclusive rights to import
stainless steel into Mexico and the concomitant right to charge
a commission on stainless steel imported for the use of other
firms. The crane manufacturer noted that MEXINOX is close to
a year behind schedule in starting-up production and that there
were rumors that MEXINOX would lose its import monopoly. He
confided that he had "persuaded" MEXINOX to import stainless
steel for his firm's account by threatening to withhold supply
of cranes his company is constructing for the MEXINOX plant.
The manufacturer of refinery equipment volunteered that his firm
had obtained limited success in obtaining GOM import licenses
for stainless steel, despite MEXINOX's official monopoly. In
addition, he had persuaded PEMEX to apply for stainless steel
import licenses to avoid paying MEXINOX's high commissions.
The manufacturer of refinery equipment, heavily dependent on
PEMEX for sales in Mexico and unsure of its export competitiveness
in the wake of devaluation, is concerned about a GOM slowdown
in public sector spending. Although his firm has not had any
of its contracts with PEMEX cancelled, a prominent seller of
tubing to PEMEX has already had at least one of its major
contracts cancelled.
FIF
LAMBERT
FORD & LIBRARY 938670
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30ARD OF GOVERNORS OF THE ERAL RESERVE SYSTEM
Date 11-3-76
To
Chairman Burns
From
Henry C. Wallich
Ted Truman said you wanted to see
this right away.
FORD :- LIBRARY GERALD
5-chine
5:30 MEY
October 2, 1976
bido Cor
TO: Chairman Burns
FROM: Edwin M. Truman
EMT
SUBJECT: Status of Mexico's Applications for Drawings
from the IMF
I. The IMF has issued two papers presenting the background
material on Mexico's applications to make IMF drawings.
These papers will be discussed by the IMF Executive Board
on October 27. The drawings are: SDR 134 million on the
first credit tranche; SDR 185 million under the Compensatory
Financing Facility; and a drawing that would eventually
total SDR 518 million under the Extended Fund Facility.
(Mexico this week drew its SDR 98 million reserve -- gold --
tranche.)
II. The most important of these proposals is that for a
drawing under the Extended Fund Facility (EFF), the actual
drawings would be phased over a three-year period starting
on January 1, 1977. These drawings will involve an agreed
program with the IMF. The program that has already been
agreed with the IMF management will have to be "ratified"
by the new Mexican Government after it has taken office on
December 1.
III. The objectives of the three-year EFF program are
as follows.
A. Raise the investment-to-GDP ratio by at least
one per cent per year over the next three years. (The
ratio averaged a bit over 21 per cent in 1972-75.)
B. Reduce the public-sector deficit to 2.5 per cent
of GDP by 1979. (The IMF figures show a 9.3 per cent figure
for 1975 and an estimated 8.2 per cent for 1976.)
C. Follow an incomes policy directed at achieving
a convergence between Mexican and U.S. nominal wage increases
adjusted for productivity.
D. Reduce external public-sector borrowing to at
least one per cent of GDP by 1979. (The figure for 1975
was 5.2 per cent.)
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E. Follow an exchange rate policy consistent with
balance-of-payments equilibrium without resorting to import
restrictions and export subsidies, which have already been
reduced somewhat.
IV. 1977 drawings under the EFF program would be SDR 200 million.
The one-year targets associated with this three-year plan
are as follows.
A. Achieve an increase in the Bank of Mexico's net
international reserves that is no less than the increase
in domestic currency issue. This target will be applied
quarterly.
B. Public sector external borrowing in 1977 will be
limited to no more than $3,000 million compared with more
than $5,000 million in 1976. This target will be applied
quarterly. An effort will also be made to lengthen the
maturity of the external public debt.
C. The public sector deficit in 1977 will be limited
to Mex $90 billion compared with an estimated Mex $88 billion
for 1976. This target will be applied quarterly. The
reduction in the size of the public sector deficit as a per
cent of GDP will be achieved primarily through an increase
in taxes and other public sector revenues. The increase in
public sector employment is supposed to be less than 2 per
cent.
D. Monetary policy will be conducted in a manner
consistent with the reserve and budgetary targets.
E. Mexico is also pledged not to increase non-tariff
barriers or impose other payments restrictions for balance-
of-payments purposes.
cc: Governor Wallich
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