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324801948
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Mexico, 4/76-10/77 (9)
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324801948
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document
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Mexico, 4/76-10/77 (9)
citationUrl
collections
Arthur F. Burns Papers
Federal Reserve Board Subject Files
subjects
Mexico
International Monetary Fund. (07/1944 - )
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International economy
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324801948
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1977-10-31
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10
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1977
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1976-04-01
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4
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1976
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The original documents are located in Box B80, folder "Mexico 4/76 - 10/77 (9)" 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States of America his copyrights in all of his unpublished writings in National Archives collections.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. memo case, Truman to Bunns, c. 3/10/77
opened
4/22/96 KBH
la. memo
Ted Truman to Burns re cables from Mexico (1 p.)
c.3/10/77
C(A)
lb. telegram
American Embassy Mexico to Sec. of State,
3/8/77
A
A
Mexico 2875, re debt renegotiation rumors (2 pp.)
DECLASSIFIED
3/10/08
lc. telegram
American Consul, Hermosillo, to Sec. of State,
3/8/77
A
Hermosillo 066, re land reform in Sonora (4 pp.
DECLASSIF ED 2/12/15
2. memo case, Truman to Burns, 3/22/77
2a. telegram
American Embassy Mexico to Sec. of State,
3/11/77
A
Mexico 3051 re Mexican economic and financial
package (3 pp.)
DECLASSIFIED
3. memo case, Truman to Burns, 3/23/77
3a. memo
Yves Maroni to Mr. Truman re IMF mission to
3/23/77
C(A)
Mexico and Mexican negotiations with Export-
Import Bank (3 pp. )
opened 4/22/96 143H
4. memo case, Truman to Burns, 3/28/77
4a. telegram
American Embassy Mexico to Sec. of State,
3/24/77
A
Mexico 03576, re Mexico' external borrowing
(3 pp. 0 ASSIFIED 3/10/08
4b. telegram
American Embassy Mexico to Sec. of States,
3/24/77
A
Mexico 03581, re Mexican Bankers Convention
(6 pp. ) DECLASSIFIED 3/10/08
5. memo
Ted Truman to Burns re visit of Kolbeck and Phillips
4/1/77
C(A)
(2 pp. opened 4/22/96 KBH
6. memo
Ted Truman to Burns re possible multilateral standby
4/4/77
C(A)
credit for Mexico (4 pp. ) opened 4/22/96 KOBH
7. memo
Ted Truman to Burns re Burns' meeting with Lopez-
4/4/77
C(A)
Portillo in February (1 p.) (1 opened 4/22/96 10BH
FILE LOCATION
Arthur Burns Papers
SR
Federal Reserve Board Subject File, Box B80
8/14/84
Mexico, Mar. -Apr1977
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
DOCUMENT
RESTRICTION
8. memo
Ted Truman to Burns re possible multilateral swap
4/7/77
C(A)
arrangements for Mexico (2 pp. ) opened 4/22/96 KBH
9. memo
Treasury memo re possible multilateral swap arrange-
n.d.
A
ments for Mexico (7 pp. ) DECLASSIFIED iet 5/96.
(c. 4/77)
10a. memo
Ted Truman to Burns re cable from Mexico opened (1 p.) 4/22/96 KBH
4/14/77
C(A)
10b. telegram
American Embassy Mexico to Sec. of State,
4/8/77
A
Mexico 04844, re current economic situation (5 pp.
DECLASSIFIED
11. memo caBe, T ruman to Burns, 4/22/77
lla memo
Ted Truman to Burns re visit by Mexican officials
4/22/77
C(A)
(2 pp.)
opened 4/22/96 KBH
1lb. paper
Mexico's Current Economic Situation and Prospects
4/77
A
Under Secretary Solomon's Trip to Mexico,
April 12-15, 1977 (7 pp. ) DECLASSIFIED
hts/96.
llc. memo of
Treasury officials and Mexican financial officials,
4/14/77
A
conversation
Mexíco City, April 13, 1977 (2 pp. ) DECLASSIFIED
1ld. memo of
Lopez-Portillo, Romero Kolbeck and U.S. Treasury 4/14/77
A
conversation
officials, Mexico City, April 13, 1977 (2 pp.
)
lle. memo
Yves Maroni Board Briefing re Mexican economic
4/8/77
C(A)
situation (5 pp. ) sanitized 4/22/96 193H
1lf. memo
Recent Fiscal Policy and Wage Policy Trends in
4/22/77
C(A)
Mexico (3 pp.)
opened 4/22/96
12. memo case, Truman to Burns, 4/26/77
12a. memo
Notes on Meeting with Mexican Officials by Ted
4/26/77
C(A)P
Truman (6 pp. ) sanitized 4/22/96 KBH
FILE LOCATION
Arthur Burns Papers
SR
Federal Reserve Board Subject File, Box B80
8/14/84
Mexico, Mar. - Apr. 1977
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)
March 1, 1977
TO:
FROM: E.M. Truman
Chairman Burns EMT
Attached are the latest cables from Mexico including two
on Mexico's external debt (State 042442 and Mexico 2385), one on
the Bank of Mexico's Annual Report (Mexico 2328), and two on 1976
economic statistics.
Attachments
cc: Governor Wallich
Detense classification of this document is due
to the inclusion of It.S. Government information
efficially classified under Executive Order 10501
which provides that A document... shall bear I
classification at least as high as that of its
highest classified component."
FORD & LIBRARY GERALD
OFFICE OF THE CHAIRMAN
RECEIVED
1977 MAR - 1 -1 AM11:46 46
FEDERAL RESERVE SYSTEM
3HI do
BOARD OF GOVERNORS
EMT
IMITED OFFICIAL USE
OUTGOING
Department of State
TELEGRAM
PAGE 01
STATE 042442
0085
ORIGIN EB-08
INFO OCT-01 ARA-06 ISO-00 TRSE-00 AID-05 CIAE-00 COME-00
FRB-03 INR-07 NSAE-00 USIA-06 XMB-02 OPIC-03 SP-02
LAB-04 SIL-01 OMB-01 L-03 PA-01 PRS-01 IO-13 /067 R
DRAFTED BY EB/IFD/OMA: BGCROWE
APPROVED BY EB/IFD: EHPREEG
EB/PAS: JGERVERS
ARA/MEX: GFALK
ARA/ECP: RTAYLOR
TREASURY: SCANNER
TREASURY: SWOFFORD
252030 046612 /50
R 251708Z FEB 77
FM SECSTATE WASHDC
TO AMEMBASSY MEXICO
LIMITED OFFICIAL USE STATE 042442
E.O. 11652: N/A
Please return to
International Information Center
TAGS:
EFIN
SUBJECT:
RENEGOTIATION OF MEXICAN DEBT
REF: MEXICO 1587
1. WE WOULD BE INTERESTED IN ANY OTHER REPORTS YOU RECEIVE
REGARDING GOM INTENTION TO RENEGOTIATE ITS EXTERNAL DEBT.
AS YOU WELL KNOW, MEXICO IS SECOND LARGEST (AFTER BRAZIL)
LDC DEBTOR AND ANY MOVE TO "RENEGOTIATE" DEBT WOULD HAVE
BROAD IMPLICATIONS.
2. WE SHARE YOUR BELIEF THAT IT IS HIGHLY UNLIKELY THAT
GOM INTENDS TO RENEGOTIATE DEBT. MEXICO CONTINUES TO SEEK
SUBSTANTIAL PRIVATE BANK BORROWINGS, AND BY EMPHASIZING
FAVORABLE ECONOMIC PROSPECTS HOPES TO ENHANCE ITS IMAGE
OF "CREDITWORTHINESS". MOVES TO RENEGOTIATE DEBT WOULD
CAST DOUBTS ON MEXICO' S CREDIT STANDING, AND JEOPARDIZE
GOM ACCESS TO PRIVATE MARKETS. MOVEOVER, THE "PARIS CLUB"
TRADITIONALLY RESCHEDULES ONLY GOVERNMENT OR GOVERNMENT
GUARANTEED DEBT. USUALLY SHORT-TERM CREDITS, ALL BANK
CREDITS AND ALL LOANS FROM THE INTERNATIONAL LENDING
INSTITUTIONS (WORLD BANK, ETC.) HAVE BEEN EXCLUDED. THERE-
FORE, ONLY A SMALL PORTION OF MEXICO' S CURRENT DEBT
SERVICE COULD BE COVERED BY A PARIS CLUB RESCHEDULING.
VANCE
GERALD FORD LIBRARY
LIMITED OFFICIAL USE
DEPARTMENT OF STATE
EMT
*
STATE UNITED NAME AMERICA
Department of State
TELEGRAM
OF
UNCLASSIFIED 1638
PAGE 01
MEXICO 02385 252321Z
ACTION ARA-10
INFO OCT-01 ISC-00 AID-05 CIAE-00 COME-00 EB-08 FRB-01
INR-07 NSAE-00 USIA-15 TRSE-00 XMB-04 OPIC-06 SP-02
CIEP-00 OMB-01 /060 W
250858 052130 /13
R 252237Z FEB 77 25
FM AMEMBASSY MEXICO
TO SECSTATE WASHDC 0564
INFO TRSY WASHDC
UNCLAS MEXICO 2385
E.O. 11652: N/A
International Please Information Center
return to
TAGS: EFIN MX
SUBJ: PUBLIC SECTOR EXTERNAL DEBT.
REF: 76 MEXICO 15938
1. BANK OF MEXICOIS ANNUAL REPORT INCLUDES DATA ON THE
PUBLIC SECTOR'S EXTERNAL DEBT AS OF DECEMBER 31, 1975
AND 1976. THIS DATA IS ATTRIBUTED TO MEXICAN TREASURY
BUT DIFFERS SLIGHTLY FROM THAT REPORTED IN REFTEL. ALL
FIGURES ARE IN US$ MILLIONS; FIGURES IN PARENTHESES ARE FOR
END-UTI
1975?
2. TOTAL DEBT
19,600.2
(14,419.0)
A. DEBT WITH MATURITY
OVER ONE YEAR
15,923.4
(11,612.0)
1. FEDERAL GOVERNMENT
2,863.8
( 1,550.6)
2. PUBLIC SECTOR ORGANISMS
COMPANIES
6,893.7
( 5,515.4)
3. FEDERAL DISTRICT AND
GERALD R. FORD jekyw LIBRARY
UNCLASSIFIED
3)
OF STATE
*
*
UNITED NAME AMERICA
Department of State
TELEGRAM
STATES OF
UNCLASSIFIED
PAGE 02
MEXICO 02385 252321Z
METRO
763.4
( 712.8)
4. OTHER, NON-FINANCIAL
1795.7
( 1601.5)
5. FINANCIAL INTERMEDARIES
3606.8
( 2231.7)
B. SHORT-TERM
3676.8
( 2837.0)
PUBLIC SECTOR ORGANISMS
AND COMPANIES
656.8
( 670.8)
FEDERAL DISTRICT AND METRO
59.1
(
61.5)
FINANCIAL INTERMEDIARIES
2960.9
( 2104.7).
THOMPSON
lereckyw
JNCLASSIFIED
or STATE
EMT
Department of State
of I AMERICA UNITED
TELEGRAM
LIMITED OFFICIAL USE
0465
PAGE 01
MEXICO 02328 01 OF 02 2517397
ACTION ARA-10
INFO OCT-01 ISO-00 AID-05 CIAE-00 COME-00 EB-08 FRB-03
INR-07 NSAE-00 USIA-06 XMB-02 OPIC-03 SP-02 LAB-04
SIL-01 OMB-01 NSC-05 SS-15 STR-04 CEA-01 H-01 PRS-01
PA-01 AGRE-00 FEAE-00 L-03 INT-05 /089 W
251915 046632 /46
R 251710Z FEB 77
FM AMEMBASSY MEXICO
Please
TO SECSTATE WASHDC 0538
INFO TRSY WASHDC
International Information Center
/Azatt
LIMITED OFFICIAL USE SECTION 1 OF 2 MEXICO 2328
E.O. 11652: N/A
TAGS: EFIN, MX
SUBJ: BANK OF MEXICO ANNUAL REPORT
1. SUMMARY: BANK OF MEXICO ISSUED ITS PRELIMINARY ANNUAL
REPORT ON FEBRUARY 23. AS USUAL REPORT CONCENTRATES ON PAST,
BUT CONTRARY TO TRADITION, REPORT DETAILS WHAT HAS PROBABLY
BEEN THE BLEAKEST ECONOMIC YEAR SINCE 1945, IN CONSIDERABLE
FRANKNESS. REMARKS ON 1977 ARE VERY GENERAL. THIS
CABLE SUMMARIZES REPORT. SUBSEQUENT CABLES WILL GO INTO
GREATER DETAIL. END SUMMARY.
2. NATIONAL ACCOUNTS. MEXICO'S GDP INCREASED BY ABOUT TWO
PERCENT IN REAL TERMS, THE LOWEST GROWTH RATE SINCE 1953.
OUTPUT IN AGRARIAN SECTORS WAS DOWN 2.10 PERCENT.
PETROLEUM AND ELECTRICAL ENERGY WERE ONLY INDUSTRIAL SECTORS
TO GROW MORE THAN 3.5 PERCENT. MANUFACTURERS OUTPUT UP
1.8 PERCENT. GOVERNMENT SERVICES WERE UP 8.5 PERCENT. NO
PRICE DEFLATOR PUBLISHED. PRIVATE CONSUMPTION EXPENDITURES
DID NOT INCREASE DUE TO LOSS OF PURCHASING POWER FROM
INFLATION BY MAJOR SECTORS OF THE POPULATION: I.E., THE
UNDER-EMPLOYED. INVESTMENT REMAINED THE SAME IN REAL
FORD & 076830 LIBRARY
LIMITED OFFICIAL USE
0
FORM
DS-1652
9.66
OF STATE
Department of State
of STATE AMERICA UNITED NAME
TELEGRAM
LIMITED OFFICIAL USE
PAGE 02
MEXICO 02328 01 OF 22 251739Z
TERMS.
3. BALANCE OF PAYMENTS. CURRENT ACCOUNT DEFICIT WAS
$3,024 MILLIONI ERRORS AND OMISSIONS WERE MINUS $2,199
MILLION; LONG-TERM CAPITAL NET INFLOWS WERE $4,890 MILLION
OF WHICH $331 MILLION RESULTED FROM DIRECT INVESTMENT
INFLOWS. RESERVES DECLINED 6333 MILLION, TO A YEAR-END
TOTAL OF $1,412 MILLION. THIS FIGURE INCLUDES GOLD
REVALUED AT MARKET PRICES. THIS REVALUATION AMOUNTED
TO $136 MILLION. THE ERRORS AND OMISSIONS IS IN EFFECT
UNDERSTATED BY THIS AMOUNT.
4. MONETARY DEVELOPMENTS. CURRENCY IN CIRCULATION
INCREASED BY 52.8 PERCENT; DEMAND DEPOSITS WERE UP 13.7
PERCENT. MONEY SUPPLY GREW BY 30.9 PERCENT. TOTAL
RESOURCES OF THE BANKING SYSTEM INCREASED BY 44.3 PERCENT.
ADJUSTING THIS FIGURE FOR REVALUATION OF DOLLAR-DENOMINATED
LIABILITIES OF THE BANKING SYSTEM, THE INCREASE WAS 44.3
PERCENT, OR 128.3 BILLION PESOS. ROUGHLY HALF OF THIS
CAME FROM FOREIGN BANK LOANS, INTEREST BEARING DEPOSITS
DENOMINATED IN PESOS DECLINED.
5. BANK OF MEXICO. CENTRAL BANK CREDIT TO THE GOVERNMENT
INCREASED 43.9 BILLION PESOS AND CENTRAL BANK CREDIT TO
THE BANKING SYSTEM INCREASED 20.1 BILLION PESOS, MOSTLY
IN THE LAST FOUR MONTHS OF THE YEAR AND IN ORDER TO
OFFSET WITHDRAWALS. THIS FIGURE COMPARES TO 40 MILLION
PESOS IN 1975. DEPOSITS (FROM RESERVE REQUIREMENTS) IN
THE BANK OF MEXICO INCREASED ONLY 14.9 BILLION PESOS
IN 1976 COMPARED TO 46.2 BILLION PESOS IN 1975. REPORT
NOTES THAT A LARGE PART OF INCREASES IN ITS FINANCING
WAS USED BY INDIVIDUALS TO ACQUIRE FOREIGN ASSETS.
THIS PUT PRESSURE ON RESERVES WHICH REQUIRED BANK OF
MEXICO TO OBTAIN CREDITS FROM IMF, U.S. TREASURY, THE
FEDERAL RESERVE, AND "OTHER SOURCES" TO SUPPORT ITS
RESERVES.
LIMITED OFFICIAL USE
0
FORM
DS-1652
9.65
i
STATE
Department of State
of STATE UNITED AMERICA
TELEGRAM
LIMITED OFFICIAL USE
PAGE 03
MEXICO 02328 01 OF 02 251739Z
6. PUBLIC SECTOR FINANCES. PUBLIC SECTOR REVENUE WAS
UP 29.1 PERCENT IN 1976, EXPENDITURES GREW 28.9 PERCENT,
AND THE DEFICIT INCREASED 28.5 PERCENT TO 124 BILLION
PESOS. 67 PERCENT OF DEFICIT FINANCED EXTERNALLY.
FEDERAL GOVERNMENT REVENUES WERE 134.7 BILLION PESOS
AND EXPENDITURES WERE 192.0 BILLION PESOS. CURRENT
EXPENDITURES INCREASED MORE THAN CAPITAL EXPENDITURES.
7. COMMENT. THE TWO PERCENT REAL GROWTH RATE IS LOWER
THAN GENERALLY EXPECTED. IT IS POSSIBLE THAT, ONCE THE
BAD ECONOMIC NEWS SINKS IN, THERE WILL BE INCREASING
PRESSURE ON THE GOM TO PURSUE EXPANSIONARY MEASURES.
REPORT WAS UNUSUALLY FRANK FOR A MEXICAN GOVERNMENT
ENTITY. REPORT BLAMES MEXICO'S PROBLEMS IN PART ON THE
INCREASE IN THE PUBLIC DEFICIT FROM 3.4 PERCENT OF GDP
IN 1970 TO 9.8 PERCENT IN 1975, AND ON THE INCREASE IN
THE CURRENT ACCOUNT DEFICIT FROM 2.8 PERCENT OF GDP IN
1970 TO 4.8 PERCENT IN 1975. REPORT ALSO MAKES A POINT
OF MENTIONING THAT MEXICO'S MANUFACTURED EXPORTS DID
NOT INCREASE IN 1976 AS MUCH AS MIGHT BE EXPECTED BY THE
INCREASE IN WORLD DEMAND.
FORD & LIBRARY GERALD
LIMITED OFFICIAL USE
FORM
DS-1652
9.66
DEPARTMENT OF STATE
Department of State
of STATE UNITED AMERICA
TELEGRAM
LIMITED OFFICIAL USE 0459
PAGE 01
MEXICO 02328 02 OF 02 251814Z
ACTION ARA-10
INFO OCT-01 ISO-00 AID-05 CIAE-00 COME-00 EB-08 FRB-03
INR-07 NSAE-00 USIA-06 XMB-02 OPIC-03 SP=02 LAB-04
SIL-01 OMB-01 NSC-05 SS-15 STR-04 CEA-01 H-01 PRS-01
PA-01 AGRE-00 FEAE-00 L-03 INT-05 /089 W
251915 047179 146
R 251710Z FEB 77
FM AMEMBASSY MEXICO
TO SECSTATE WASHUC 0539
INFO TREASURY WASHDC
LIMITED OFFICIAL USE SECTION 2 OF 2 MEXICO 2328
8. WHILE REPORT DOES A REASONABLY GOOD JOB OF EXPLAINING
HOW AND WHY MEXICOO'S ECONOMIC CRISIS DEVELOPED. IT DOES
NOT OUTLINE IN ANY DETAIL POLICIES AIMED AT RESTORING
FINANCIAL STABILITY OR ELIMINATING THE DISEQUILIBRIA THAT
CAUSED THE PRESENT PROBLEMS IT DOES STATE THAT THE NEW
ADMINSTRATION IS TAKING MEASURES TO "RECONCILE THE
NATIONAL OBJECTIVES OF ECONIMIC DEVELOPMENT WITH THOSE OF
SOCIAL JUSTICE AND SPECIFIC DEMANDS FROM VARIOUS FACTORS
OF PRODUCTION. SUCH MEASURES ARE GEARED TO INCREASE THE
RATE OF GROWTH IN A WAY TO SATISFY BASIC CONSUMPTION NEEDS
AND GENERATE MORE EMPLOYMENT OPPORTUNITIES. WHILE THE
REPORT MENTIONS THAT THE NEW ADMINISTRATION HAS RATIFIED
THE OCTOBER 27, 1976 AGREEMENT WITH IMF, IT DOES NOT
ELABORATE FURTHER ON THE MEASURES REFERRED TO ABOVE,
EXCEPT TO NOTE THE ADMINISTRATIVE REFORM, TAX REFORM AND
PUBLIC DEBT LAW.
9. SEPARATELY, THE REPORT MAKES THE POINT THAT
EQUKLBRIUM CAN BE RESTORED ONLY THROUGH A COORDINATED
POLICY COVERING THE BUDGET, SALARIES, PRICES AND PROFITS,
PLUS APPROPRIATE MONETARY AND CREDIT POLICITES, ADDING
THAT THE EFFECTS OF THESE CAN BE SEEN ONLY IN THE MEDIUM-
LIBRARY GERALD R. FORD
LIMITED OFFICIAL USE
D
FORM
DS-1652
9.56
DEPARTMENT on STATE
Department of State
STATE UNITED AMERICA
TELEGRAM
OF
LIMITED OFFICIAL USE
PAGE 02
MEXICO 02328 02 OF 02 251814Z
TERM. IT WOULD APPEAR THAT THE BANK OF MEXICO IS CALLING
FOR A BROADER RANGE OF POLICIES THAN ARE NOW IN PLACE AND
THAT THE NEXT YEAR OR SO IS LIKELY TO BE DIFFICULT.
10. THE BANK'S REPORT TRADITIONALLY DOES NOT FORECAST
ECONOMIC DEVELOPMENTS. THIS YEAR IS NO EXCEPTION. IT
DOES, HOWEVER, NOTE THAT THE CURRENT ACCOUNT DEFICIT
SHOULD CONTINUE TO DECLINE AND THAT CURRENT CONDITIONS
IN THE FINANCIAL MARKET SUGGEST THE DESIRABILITYOH
MORE FLEXIBLE MEANS OF INCREASING SAVINGS. THIS WOULD
SEEM TO INCLUDE HIGHER INTEREST PATES.
THOMPSON
LIMITED OFFICIAL USE
FORM
DS-1652
DEPARTMENT OF STATE
EMT
*
*
Department of State
OF STATE UNITED AMERICA
TELEGRAM
UNCLASSIFIED 1646
PAGE 01
MEXICO 02383 2523272
ACTION ARA-10
INFO OCT-01 ISO-00 AID-05 CIAE-00 COME-00 EB-08 PRB-01
INR-07 NSAE-00 USIA-15 TRSE-00 XMB-04 OPIC-06 SP-02
CIEP-00 LAB-04 SIL-01 OM8-01 NSC-05 SS-15 STR-04
CEA-01 AGRE-00 1090 W
260901 052230 /13
R 2522357 FEB 77 25
FM AMEMBASS MEXICO
TO SECSTATE WASHOC 563
INFU TREASURY WASHDC
International Information Center
UNCLAS MEXICO 2383
EO 11652 : N/A
TAGS : EFIN MX
SUBJ : NATIONAL ACCOUNT DATA FOR 1976.
1. BANK OF MEXICO'S ANNUAL REPORT CONTAINS PARTIAL AND
PRELIMINARY NATIONAL ACCOUNT DATA FOR 1976, AS WELL AS COM-
MENTARY ON THE ECONOMY DURING THE PAST YEAR.
2. BELOW IS A TABLE SHOWING OUTPUT CHANGES FROM 1975 TO
1976 IN PERCENT FOR PRIMARY AND SECONDARY SECTORS, BASED
ON 1960 PRICES. FIGURES IN PARENTHESIS ARE 1975/74 CHANGES.
A) AGRICULTURE, LIVESTOCK, FORESTRY
AND FISHING -2.1 (1.4)
B) PETROLEUM AND DERIVATIVES 9.0 (11.0)
C) PETROCHEMICALS 3.5 (11.9)
D) MINING
3.5 (-5.3)
E) ELECTRICAL ENERGY 8.0 (5.7)
F) CONSTRUCTION 0.0 (5/7)
G) MANUFACTURES 1.8 (3.9)
3. THE TEXT OF THE REPORT STATES THAT THE VOLUME OF
SERVICES IN THE TRANSPORTATION AND COMMUNICATION SECTOR
GERALD FORD LIBRARY
UNCLASSIFIED
D
FORM
OF
STATE
Department of State
of I AMERICA UNITED NAME
TELEGRAM
UNCLASSIFIED
PAGE 02
MEXICO 02383 2523272
INCREASED 6.5 PERCENT (8.5 PERCENT) WHILE GOVERNMENT
SERVICES GREW 8.5 (10.9 PERCENT).
4. DATA IS NOT YET AVAILABLE ON COMMERCE AND OTHER
SERVICES, HOWEVER, TOTAL GROSS DOMESTIC PRODUCT IS
ESTIMATED TO HAVE INCREASED ABOUT 2 PERCENT, IN REAL TERMS.
5. THERE IS NO DATA FOR AGGREGATE DEMAND, BUT
THE REPORT STATES THAT PRIVATE CONSUMPTION DID NOT
CHANGE SUBSTANTIALLY IN REAL TERMS. THIS IS ATTRIBUTED
TO THE DETERIORATION IN THE PURCHASING POWER OF SIGNIFICANT
PARTS OF THE POPULATION DUE TO INFLATION. REPORT STATES
THAT PUBLIC SECTOR CURRENT SPENDING WAS EXPANSIONARY
FACTOR. TOTAL INVESTMENT SPENDING DID NOT INCREASE IN
REAL TERMS, IN PART BECAUSE PUBLIC SECTOR INVESTMENT
SLOWED DOWN TOWARD THE END OF THE YEAR AND IN PART DUE
TO HESITANCY ON THE PART OF PRIVATE INVESTORS COMBINED
WITH TIGHT CREDIT CONDITIOONS.
6. THE POOR SHOWING IN AGRICULTURE IS ATTRIBUTED TO
LOWER LEVELS OF WATERS IN DAMS, LONG DRY PERIODS, IRREGULAR
RAINS, FREEZES IN THE NORTH, AND LOW LEVEL OF PRIVATE
INVESTMENT. OUTPUT OF SAFFLOWER, SOYBEANS, RICE,
SORGHUM, BEANS AND SUGAR CANE DECLINED. OUTPUT OF
WHEAT, COTTON AND BARLEY INCREASED. REPORT SAYS THAT
FURTHER IMPORTS OF CORN AND VEGETABLE OILS CAN BE
EXPECTED.
7. INDUSTRIAL PRODUCTION GREW AT PROGRESSIVELY
LOWER RATES THROUGHOUT THE YEAR. THE LOW RATE OF GROWTH
OF MANUFACTURES IS ATTRIBUTED TO THE LOSS OF PURCHASING
POWER. REPORT HAS FOOTNOTE SAYING THAT ONLY 20-25
PERCENT OF ECONOMICALLY ACTIVE POPULATION BELONGS TO
WORKERS GROUPS. THE IMPLICATION IS THAT THE MINIMUM
WAGE AND NEGOTIATED SALARIES FOR SKILLED, ORGANIZED
WORKERS COVER A SMALL PERCENTAGE OF THE WORKING
UNCLASSIFIED
FORM
DS.1652
DEPARTMENT or STATE
Department of State
STATE UNITED AMERICA
TELEGRAM
OF
UNCLASSIFIED
PAGE 03
MEXICO 02383 2523272
OPPULATION AND THAT THE UNORGANIZED AND UNDER-EMPLOYED
HAVE BEEN BADLY BURNT BY MEXICO'S INFLATION. THE
IMPACT OF THIS LOSS OF PURCHASING POWER WAS FELT IN
THE NON-DURABLE CONSUMER GOODS INDUSTRIES. DURABLE
CONSUMER GOODS FARED POORLY AS WELL, DUE IN LARGE PART
TO LOWER PRODUCTION OF AUTOS. OUTPUT OF CAPITAL GOODS
DECLINED 5.0 PERCENT, FROM 1975 TO 1976, DUE TO REDUCED
PRODUCTION OF TRUCKS AND BUSES, AGRICULTURAL MACHINERY
AS WELI AS OFFICE AND ELECTRICAL EQUIPMENT.
THOMPSON
GERALO, FORD LIBRARY
UNCLASSIFIED
FORM
MENT
of
DEPART
STATE
EMT
Department of State
STATES UNITED AMERICA
TELEGRAM
OF
UNCLASSIFIED 1634
PAGE 01
MEXICO 02384 252318Z
ACTION ARA-10
INFO OCT-01 ISO-00 MMO-04 AID-05 CIAE-00 COME-00 EB-08
FRB-01 INR-07 NSAE-00 USIA-15 XMB-04 OPIC-06 SP-02
CIEP-00 LAB-04 SIL-01 OMB-01 NSC-05 SS-15 STR-04
CEA-01 AGRE-00 1094 w
260854 052053 /11
R 252236Z FEB 77 25
FM AMEMBASSY MEXICO
TO SECSTATE WASHDC 556
INFO TREASURY WASHDC
UNCLAS MEXICO 2384
International Please Information Center
EO 11652 : N/A
TAGS : EFIN MX
SUBJ : MEXICO'S BALANCE OF PAYMENTS IN 1976. CERP 0102
1. BANK OF MEXICO HAS RELEASED PRELIMINARY BALANCE OF
PAYMENTS DATA FOR 1976 CALL FIGURES IN US$ MILLIONS).
2. TOTAL CURRENT ACCOUNT RECEIPTS WERE 6,971.4, BROKEN
DOWN AS FOLLOWS: EXPORTS OF GOODS, 3,297.8; SILVER EXPORTS,
157.8; TOURISM, 821.3; INTERNATIONAL TRAVEL 100,6; FRONTIER
TRANSACTIONS, 1,609.4; IN-BOND ASSEMBLY PLANTS 520.1; OTHER
464.4.
3. TOTAL CURRENT ACCOUNT EXPENDITURES WERE 9,995.1, BROKEN
DOWN AS FOLLOWS: IMPORTS OF GOODS, 6,029.6; TOURISM, 382.9;
INTERNATIONAL TRAVEL, 154.5; FRONTIER TRANSACTIONS, 1,052.8;
DIVIDENDS AND INTEREST OF PRIVATE SECTOR DEBT, 781.6;
INTEREST ON PUBLIC SECTOR DEBT, 1057.6; OTHER 536.1.
4. CURRENT ACCOUNT DEFICIT WAS 3,033.7. ERRORS AND
OMISSIONS WERE MINUS 2,199.4.
5. NET LONG-TERM CAPITAL INFLOWS WERE 4,889.9, BROKEN
FORD is LIBRARY 076839
UNCLASSIFIED
0
FORM
DS-1652
9-66
DEPARTMENT
STATE
OF STATES UNITED AMERICA
Department of State
TELEGRAM
UNCLASSIFIED
PAGE 02
MEXICO 02384 252318Z
DOWN AS FOLLOWS: DIRECT FOREIGN INVESTMENT, 330,6;
OPERATIONS WITH SECURITIES, 344.2, PURCHASE OF FOREIGN
COMPANIES, MINUS 12.0, NET FOREIGN CREDITS, 3,077.2, OF
WHICH PUBLIC SECTOR ACCOUNTED FOR 2701.9 (DISBURSEMENTS
OF 3,806.8 AND AMORTIZATION PAYMENTS OF 1,104,9);
GOVERNMENT DEBT (NET) 1,188.7, FOREIGN CREDITS, MINUS
38.9.
6. RESERVES DECLINED 333.1 TO 1,411.7. LATTER FIGURE
INCLUDES GOLD REVALUED AT MARKET PRICE. THIS AMOUNTS
TO 135.9. HENCE, REAL RESERVE DECLINE WAS 469,7.
7. BANK OF MEXICO'S ANNUAL REPORT NOTES THT REDUCTION
IN CURRENT ACCOUNT DEFICIT FROM 3768.9 IN 1975 WAS DUE
TO 1002 DECLINE IN TRADE (PLUS SILVER) DEFICIT. EXPORTS OF
GOODS WERE UP 15.4 PERCENT DUE TO INCREASES IN THE VALUE OF
COFFEE, CRUDE OIL, LIVESTOCK, COOTON AND TOMATO EXPORTS.
EXPORTS OF OIL AND DERIVATIVES WERE UP 97 TO 557, EXPORTS
OF MANUFACTURES, EX-SUGAR, WERE UP 11.5, BUT THIS INCREASE
DOES NOT, THE REPORT STATES, CORRESPOND TO THE INCREASE
IN DEMAND IN WORLD MARKETS. IMPORTS DECLINED 8.4 PERCENT
DUE TO LEVELING OFF OF INDUSTRIAL ACTIVITY AND A REDUCTION
IN THE IMPORTS OF CERTAIN FOODSTUFFS DUE TO HIGH INVENTORIES
PREVAILING AT THE BEGINNING OF 1976.
7. TOURISM RECEIPTS DID NOT INCREASE SIGNIFICANTLY IN
SPITE OF NEW HOTEL SPACE, PUBLICITY, ETC., ACCORDING TO
THE REPORT, WHICH ATTRIBUTES THIS TO THE U.S. BICENTEN-
NIAL, THE OLYMPIC GAMES IN CANADA, NEGATIVE PUBLICITY,
INCREASE IN AIRFARES, DELAYS IN NEGOTIATING A NEW AIR
AGREEMENT, AND THE INCREASE IN INTERNAL PRICES.
9. DIVIDEND AND INTEREST PAYMENTS BY COMPANIES WITH
FOREIGN PARTICIPATING TOTALED 782, OF WHICH 358 WERE
SHORT AND LONG-TERM INTEREST PAYMENTS, UP 23.4 PERCENT
FROM 1975, AND 423 FOR DIVIDENDS, TECHNICAL ASSISTANCE,
UNCLASSIFIED
FORM
DS-1652
9.66
OF STATE
Department of State
UNITED STATES OF 1)
TELEGRAM
UNCLASSIFIED
PAGE 03
MEXICO 02384 2523182
ROYALTIES, ETC., UP 3.8 PERCENT FROM 1975. THIS SMALL
INCREASE PROBABLY REFLECTS THE IMPACT OF DEVALUATION
ON COMPANY PROFITS.
10 REPORT NOTES UNPRECEDENTED VOLUME OF PUBLIC SECTOR
LONG-TERM BORROWING, ATTRIBUTING THIS TO LARGE BUDGET
DEFICIT, LIMITED DOMESTIC SAVINGS AND THE LARGE INCREASE
IN FOREIGN ASSETS HELD BY MEXICANS. REPORT ALSO STATES
THAT IN SPITE OF CORRECTION OF CURRENT ACCOUNT IN THE
FOURTH QUARTER, THE CONFIDENCE OF INTERNATIONAL CAPITAL
MARKETS IN MEXICO WAS "ALTERED" AND CREDIT TERMS WERE
LESS FAVORABLE.
11. COMPARATIVE DATA FOR 1975 CAN BE FOUND IN BANK
OF MEXICO'S MONTHLY ECONOMIC INDICATORS.
THOMPSON
GENETA 11. FORD ADDRESS
UNCLASSIFIED
FORM
DS-1652
9.66
DEPARTMENT
OF
EMT
STATE
*
Department of State
STATES UNITED AMERICA
TELEGRAM
OF
CONFIDENTIAL 1
1024
PAGE 01
HERMOS 00066 0900342
ACTION ARA-10
INFO OCT-01 ISC-00 CIAE-00 DODE-00 PM-04 H-01 INR-07 L-03
NSAE-00 NSC-05 PA-01 PRS-01 SP-02 5S-15 USIA-06 EB-08
AID-05 COME-00 AGRE-00 DHA-02 FR8-03 TRSE-00 XMB-02
OPIC-03 LAB-04 SIL-01 OMB-01 MCT-01 /086 W
0905027 078667 122
R 081730Z MAR 77
FM AMCONSUL HERMUSILLO
TO SECSTATE WASHOC 1192
INFO AMEMBASSY MEXICO
Please return to
C 0 N F I 0 E N T I A t HERMOSILLO 066
International Information Center
E.O. 11652: GDS
TAGS
: ECON, MX
SUBJECT
: LAND REFORM IN SONORA; DEVELOPMENTS AT
SAN IGNACIO, RIO MUERTO, SONORA
SUMMARY: FOR THE FIRST TIME SINCE OCTOBER 1975, WHEN SONORA
GOVERNOR CARLOS ARMANDO BIEBRICH WAS SUMMARILY REMOVED FROM
OFFICE FOLLOWING THE KILLING OF CAMPESINO INVADERS AT SAN
IGNACIO, RIO MUERTO, SONORA, THE STATE GOVERNMENT IS TALK-
ING BACK TO CONTINUED DEMANDS OF CAMPESINOS, EJIDATARIOS,
DECLASSIFIED
AND THEIR LEADERSHIP. GOVERNOR CARRILLO MARCOR ADDRESSED
THREE HUNDRED EJIDATARIOS FROM SAN IGNACIO IN THE SHARPEST
TONE HEARD FROM THIS OLD CHAMPION OF "AGRARIAN REFORM"
AUTHORITY state dept sep rev 5/23/09
WHEN THEY DEMANDED, MARCH 7, THE RETURN OF TWO OF THEIR
BY dal NARA, DATE 2/12/15
LEADERS WHO RECENTLY DISAPPEARED AND ARE BELIEVED UNDER
ARREST AND INVESTIGATION ON VARIOUS CHARGES INCLUDING RAPE
OF A MINOR FEMALE. CARRILLO MARCOR, FOR THE FIRST TIME SHOW-
ING IMPATIENCE WITH THE COMPLAINTS AND DEMANDS OF THE
EJIDATARIOS, TOLD THEM IT WAS NOW TIME TO WORK AND NOT TO
CONTINUE TO CREATE PROBLEMS: HE REMINDED THEM THAT MANY OF
THEM WERE NOT EVEN FROM SONORA, BUT FROM SINALOA, AND THAT
NUMEROUS SONORANS HAD BEEN DISPOSSESSED TO GIVE THEM THE
LANDS OF THEIR NEW EJIDO; AND HE DENIED CHARGES THAT STATE
GERALD FORD LIBRARY
CONFIDENTIAL
D
CHARTMENT OF STATE
STATES AMERICA
Department of State
TELEGRAM
OF
CONFIDENTIAL
PAGE 02
HERMOS 00066 0900342
OFFICIALS WERE NOT INFORMING HIM OF THE TRUE SITUATION IN
THE SAN IGNACIO AREA. AS A CONCILIATORY GESTURE AT THE CON-
CLUSION OF A STORMY SESSION, HOWEVER, CARRILLO MARCOR
ALLOWED THE EJIDATARIOS TO REMAIN IN "OCCUPATION" OF THE
PLAZA ZARAGOZA IN FRONT OF THE GOVERNOR'S PALACE AND ONE
BLOCK FROM CONGEN. THE PRESS REPORTS THAT THE MAJORITY OF
THE EJIDATARIOS ARE CARRYING PISTOLS. END SUMMARY
1. THE "MASSACRE AT RIO MUERTO" OF OCTOBER 25, 1975, WHICH
LED TO THE NOVEMBER 1975 CONFISCATION OF OVER FOUR THOU-
SAND HECTARES HITHERTO OWNED BY SOME EIGHTY SMALL PROPERTY
OWNERS, MARKED THE BEGINNING OF ONE OF THE LONGEST YEARS
IN THE VIOLENCE PRONE PROCESS OF "AGRARIAN REFORM" IN
SONORA. OVERRULING "AMPAROS" OR COURT WRITS, DISREGARDING
EVIDENCE ADVANCED BY THE PREVIOUS OWNERS THAT THEIR TITLES
WERE LEGAL AND CONSTITUTIONALLY CORRECT, PRESIDENT ECHE-
VERRIA AND HIS AGRARIAN REFORM SECRETARY BARRA GARCIA
TREATED THE PRIVATE FARMERS OF SONORA AS THE LAST BASTION
OF REACTION TO PROGRESS AND JUSTTICE. ON NOVEMBER 19,
1976, ELEVEN DAYS BEFORE THE END OF ECHEVERRIA'S PRESIDEN-
TIAL TERM, BRIGADES OF SUVERYORS FROM THE AGRARIAN REFORM
SECRETARIAT FLEW INTO SOUTHERN SONORA IN THE NIGHT TO
"EXECUTE" CONFISCATION DECREES SIGNED BY THE PRESIDENT,
BUT NOT YET PUBLICHED IN THE OFFICIAL GAZETTE, WHICH GAVE
NEARLY 100,000 OF THE BEST IRRIGATED LANDS IN NORTHWEST
MEXICO TO SOME EIGHT THOUSAND CAMPESINO CLAIMANTS.
2. THE MASSIVE IMPACT OF THE NOVEMBER 1976 LAND CONFISCA-
TIONS HAS NOT COMPLETELY OVERSHADOWED WHAT HAPPENED IN
SAN IGNACIO, RIO MUERTO ONE YEAR EARLIER, WHERE ECHEVERRIA'S
HAND PICKED INTERIM GOVERNOR, CARRILLO MARCOR, TOLD THE
CAMPESINOS THAT THEY WERE BEING GIVEN THE LANDS OF
SAN IGNACIO, RIO MUERTO AS PAYMENT FOR THE BLOOD OF THEIR
MARTYRS. WHAT THE NEWLY ARRIVED GOVERNOR DID NOT MENTION,
AND MAY NOT HAVE KNOWN, WAS THAT THE BULK OF THE NEW
EJIDATARIOS AT SAN IGNACIO WERE NOT SONORAN "WORKERS OF THE
CONFIDENTIAL
FORM
%
STATE
Department of State
OF STATES AMERICA UNITED
TELEGRAM
CONFIDENTIAL
PAGE 03
HERMOS 00066 0900342
SOIL, BUT PEOPLE FROM SINALOA AND OTHER PARTS OF MEXICO WHO
HAD BEEN HAULED TO SONORA BY THE CAMPESINO ORGANIZATIONS
OF THE PACTO DE OCAMPO, NOTABLY BY CELESTINO SALCEDO MON-
TEON. THEY CAME To SONORA HEAVILY ARMED, AND NOT CONTENT
TO OCCUPY THE LANDS AWARDED THEM BY PRESIDENTIAL DECREE,
THEY ALSO SEIZED ADJOINING LANDS THAT HAD NOT BEEN CON-
FISCATED. CONTRARY TO EARLIER PRACTICE, THE NEWLY ENDOWED
EJIDATARIOS KEPT THE CROPS STILL ON THE GROUND, AND OF THE
FARMS BUILDINGS AND MACHINERY OF THE PREVIOUS OWNERS. NOW,
MORE THAN FIFTEEN MONTHS AFTER THEY "INVADED" LANDS THAT
HAD NOT BEEN AFFECTED BY THE PRESIDENTIAL DECREES, THEY
ARE STILL OCCUPIING THESE LANDS WHICH INCLUDE 300 HECTARES
BELONGING TO DESCENDENTS OF PRESIDENT PLUTARCO ELIAS CALLES.
3. UNVERIFIED REPORTS HAVE REACHED us OF PROBLEMS AT
SAN IGNACIO, RIO MUERTO. THESE INCLUDED CONFICTS BETWEEN
RIVAL EJIDATARIO LEADERS AND THEIR FOLLOWERS, AND BETWEEN
EJIDATARIOS AND THE FARM WORKERS OF THE FORMER OWNERS.
TWO HUNDRED OF THE LATTER HAVE LOST THEIR JOBS AND HOMES.
THERE HAVE BEEN REPORTS OF IMPROPER HANDLING OF FUNDS.
THERE ARE RUMORS THAT THE EJIDO LEADERS HAVE BEEN STOCK-
PILING ARMS AND THAT INCIDENTS INVOLVING BLOODSHED HAVE
TAKEN PLACE IN THE RECENT PAST. THE EJIDATARIOS NOW IN
FRONT OF THE GOVERNOR'S PALACE DEMAND THE RETURN OF TWO OF
THEIR LEADERS, URBANO TERAN ENRIQUEZ AND ALEJO CARDENAS,
WHO ARE REPORTEDLY UNDER ARREST BY THE FEDERAL JUDICAL
POLICE FOR CONTRABAND OF ARMS. (THIS IS BORNE OUT BY THE
FACT THAT EARLY LAST WEEK THE FEDERAL DISTRICT ATTORNEY,
CHIEF OF THE FEDERAL JUDICIAL POLICE, AND CHIEF OF THE
CUTO RPT CUSTOMS POLICE, ALL OF HERMOSILLOA, WERE IN THE
CIUDAD OBREGON AREA ON OFFICIAL BUSINESS.)
4. A FEW DAYS AGO, A MEMBER OF THE ELIAS CALLES FAMILY TOLD
THE UNDERSIGNED THAT THE SITUATION IN SAN IGNACIO WAS EX-
TREMELY TENSE. THE FEW PRIVATE FARMERS WHO STILL HAVE LAND
IN THE REGION ARE AFRAID TO ENTER THERE, DESPITE THE ALMOST
GERALD FORD LIBRARY
CONFIDENTIAL
0
DEPARTMENT OF STATE
Department of State
OF STATES UNITED sume AMERICA
TELEGRAM
GONF IDENTIAL
PAGE 04
HERMOS 00066 090034Z
CONSTANT PRESENCE OF JUDICIAL POLICE. OUR VISITOR STATED
THAT THE PRIVATE FARMERS ARE NOW ONLY SEEKING SOME FORM OF
COMPENSATION FOR THEIR LOST PROPERTIES; THEY DO NOT BELIEVE
THAT PRIVATE ENTERPRISE CAN COEXIST SIDE BY SIDE WITH
EJIDATARIOS WHO FOLLOW SUCH RADICAL LEADERS AS THOSE OF
SAN IGNACIO.
5. GOVERNOR CARRILLO MARCOR, WHO HAS PROVED FAIRLY ADEPT AT
CARRYING WATER ON BOTH SHOULDERS, DID S0 AGAIN WHEN HE
"SCOLDED" THE VISITING EJIDATARIOS. INSTEAD OF SENDING THEM
HOME AND BACK TO WORK, HE GRANTED THEIR DEMAND THAT THEY BE
ALLOWED TO "CAMP" ON THE PLAZA "UNTIL THE RETURN OF THEIR
MISSING LEADERS." AS THE GOVERNOR DID SO, HE REPEATEDLY
PROFESSED HIS "AGRARIAN REFORMER" CONVICTIONS.
SACKSTEDER
CONFIDENTIAL
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
1977 MAR 10 PM 2:41
BOARD OF GOVERNORS OF THE FEDERAL RESERVE RECEIVED SYSTEM
OFFICE OF THE CHAIRMAN
CONF IDENTIAL
TO:
Chairman Burns
FROM: Ted Truman
Attached are the latest cables from
Mexico. You may be particularly interested
in Mexico 2875. The cable states that
rumors of debt renegotiation by Swiss banks
are incorrect; however, the Swiss banks have
been rolling over their claims on Mexico
which probably total less than $200. The
cable was prepared by the Financial Attache
at Mr. Maroni's request.
Attachments: Mexico 2875
Mexico 2877
Mexico 2882
Mexico 066
CC: Governor Wallich
Defense classification of this document is
to the inclusion of U.S. Government information
officially classified under Executive Order 10501
which provides that "A document. shall bear a
classification at least as high as that of its
highest classified component."
DECLASSIFIED
E.O. 12958 Sec. 3.6
MR95-1,#36 Fed, Res ltr 2/13/96
By KBH NARA, Date 4/12/96
FORD i LIBRARY GERALD
DEPARTMENT OF STATE
EmTw
Department of State
OF STATES AMERICA UNITED immes
TELEGRAM
CONF IDENTIA
1066
PAGE 01
MEXICO 02875 090020Z
ACTION ARA-10
INFO OCT-01 ISUM00 XMB-02 FRB-03 OMB-01 EUR-12 EB-08
COME-00 CIAE-00 INR-07 NSAE-00 SP-02 PA-01 PRS-01
USIA-06 /054 W
090520Z 078534 /23-11
R 0823322 (MAR 77
FM AMEMBASSY MEXICO
TO SECSTATE WASHOC 768
PO TREASURY WASHDC
/A
I
D
iss
N
T
H
n
MEXICO 2875
Please return to
International Information Center
EO 11652 : GDS
TAGS : AFIN MX
SUBJ : DEBT RENEGOTIATION RUMORS
1. SUMMARY : IN RESPONSE TO TREASURY AND FEDERAL RESERVE
PHONE CALLS, FINATT CHECKED ON RUMORS THAT SWISS BANKS
WERE RENEGOTIATING LOANS TO MEXICAN PUBLIC AND PRIVATE
SECTORS. WHILE SWISS BANKS ARE ROLLING OVER MATURING
CREDITS AND TAKING OTHER MEASURES TO EASE SITUATION OF
PRIVATE BORROWERS THEY ARE NOT RENEGOTIATING PUBLIC SECTOR
DEBT. END SUMMARY.
2. RUMORS TO EFFECT THAT SWISS BANKS ARE RENEGOTIATING
THEIR LOANS TO MEXICO MAY BE BASED IN PART ON FEBRUARY 9
FRONT PAGE STORY IN EXCELSIOR. HEADLINE WAS "MEXICO
RENEGOTIATED ITS PUBLIC AND PRIVATE DEBT WITH THE SWISS
BANK. STORY IS BASED ON INTERVIEW WITH REPRESENTATIVE
OF SWISS CREDIT BANK. IN RESPONSE TO QUESTION,
REP SAID THT ALL THE REQUESTS FOR
RENEGOTIATION HAD BEEN MET. HE WAS ALSO QUOTED AS
SAYING THAT HIS BANK WOULD CONTINUE EXTENDING CREDIT
TO MEXICO.
3. ACCORDING TO SWISS EMBASSY COUNSELOR, SWISS 55 CREDIT
DECLASSIFIED
E.O. 12958 SEC. 3.6
MR07-117, #24; stltr 2/22/08
BERALD FORD LIBRARY
BY dol NARA DATE 3/10/08
CONF IDENTIAL
DEPARTMENT OF STATE
Department of State
UNITED
TELEGRAM
DECI STATES OF
SEC 3'8
CONFIDENTIAL
PAGE 02
MEXICO 02875 0900202
BANK REP WAS CALLED BY REPORTER AND HIS
REMARKS WERE DISTORTED, PARTICULARLY IN THE HEADLINE.
APPARENTLY THE REPORTER COULD NOT DIFFERENTIATE BETWEEN
RENEGOTIATION AND RENEWAL OR ROLL-OVER. FINATT CHECKED
WITH REP OF SWISS BANK CORPORATION WHO SAID
THAT WHILE HIS BANK WAS RENEWING MATURING CREDITS AS A
MORE OR LESS NORMAL OPERATION, THEY WERE NOT RENEGOTIATING
ANY PUBLIC SECTOR LOANS.
4. WE REMAIN UNAWARE OF ANY REQUEST BY GOM OR OFFER
B'- BANKS TO RENEGOTIATE PUBLIC SECTOR DEBT. PUBLIC
SECTOR ENTITIES ARE TRYING TO RENEW MATURING SHORT-
TERM CREDITS, BUT THEY ARE NOT FORCING ANY LENDERS
TO RENEW TO THE BEST OF OUR KNOWLEDGE.
5. THERE ARE, WE UNDERSTAND, A NUMBER OF CASES
WHERE LOANS TO PRIVATE SECTOR COMPANIES HAVE BEEN
"RESTRUCTURED" OR WHERE INFORMAL MORATORIUMS ON
INTEREST PAYMENTS HAVE BEEN GRANTED. THE MAJOR CASE
IS FUNDIDORA OF MONTERREY WHICH GOM CONSIDERS A PRIVATE
SECTOR COMPANY, THOUGH THE FOREIGN BANKS PREFER TO
VIEW IT AS SOMETHING VERY CLOSE TO A GOVERNMENT ENTITY
BECAUSE OF THE GOMIS MINORITY HOLDING OF SHARES.
6. ACCORDING TO LOCAL U.S. BANK REPS, TOTAL
EXPOSURE OF BIG THREE SWISS BANKS IN MEXICO WOULD NOT
EXCEED $200 MILLION AND MOST OF THIS WOULD BE IN SHORT
TERM CREDITS. IF THEY IS ACCURATE, SWISS BANKS HOLD A
VERY SMALL SHARE OF MEXICOIS TOTAL FOREIGN DEBT AND
ANY RENEGOTIATIONS BY THEM WOULD HAVE A LIMITED IMPACT
ON MEXICO'S DEBT SERVICING BURDEN,
THOMPSON
DEPARTMENT OF STATE
EMT
*
UNITED and AMERICA
Department of State
TELEGRAM
STATES OF
UNCLASSIFIED 1037
PAGE 01
MEXICO 02877 0901452
ACTION ARA-10
INFO OCT-01 ISO-00 SP-02 USIA-15 AID-05 EB-08 NSC-05 SS=15
STR-04 OMB-01 CEA-01 CIAE-00 COME-00 FRB-01 INR-07
NSAE-00 XMB-04 OPIC-06 LAB-04 SIL-01 IGA=02 PA-02
PRS-01 AGRE-00 /095 W
090509Z 079273 /21
R 082336Z MAR 77
8
FM AMEMBASSY MEXICO
TO SECSTATE WASHDC 771
INFO DEPT OF TREASURY WASHDC
UNCLAS MEXICO 2877
Please return to
International Information Center
E.O. 11652: N/A
TAGS: ELAB, CI.MX
SUBJ: WAGES AND PRICES SINCE THE DEVALUATION
1. CONSUMER PRICE INDICES RECENTLY RELEASED BY THE
BANCO DE MEXICO INDICATE THAT MEXICAN WAGE EARNERS HAVE
NOT LOST AS MUCH PURCHASING POWER SINCE THE DEVALUATION
AS THEIR LEADER ORIGINALLY FEARED (OR AS MANY ARE STILL
CLAIMING). THE GENERAL INDEX OF PRICES ROSE BY 27.2
PERCENT FROM DECEMBER 1975 THROUGH DECEMBER 1976 (INDEX
OF 200.7 TO 255.3 WITH 1968 BASE OF 100). PRICES ROSE
ONLY 8.7 PERCENT FROM DECEMBER 1975 THROUGH THE DATE
OF DEVALUATION, SEPT. 1, AND BY 18.5 PERCENT FROM THAT
POINT THROUGH THE END OF 1976. ON THE AVERAGE, WAGES
INCREASED BY 23 PERCENT DURING THE SAME PERIOD
(COVERING CALENDAR 1976).
2. THOSE SUB-CATEGORIES WHICH MOST AFFECT WAGE EARNERS
RAN SLIGHTLY HIGHER THAN THE GENERAL INDEX. FOOD,
DRINK AND TOBACCO MEASURED A 24.1 PERCENT INCREASE
FOR THE YEAR, 18.3 PERCENT OF THIS BETWEEN SEPT. 1
:
FORD
TO JAN. 1. WEARING APPAREL-SHOES ROSE 37.1 PERCENT
FOR THE YEAR WITH 25.3 PERCENT AFTER SEPT. 1.
GERALD
LIBRARY
UNCLASSIFIED
0
DEPARTMENT OF STATE
Department of State
STATES UNITED AMERICA
TELEGRAM
OF
UNCLASSIFIED
PAGE 02
MEXICO 02877 090145Z
TRANSPORTATION AND COMMUNICATIONS WENT UP BY 47
PERCENT FOR THE YEAR, 33.4 PERCENT OF THIS REGIS-
TERED SINCE THE DEVALUATION.
3. THE GENERAL CPI FOR MEXICO CITY ROSE ONLY 24
PERCENT DURING THE CALENDAR YEAR WITH 8.3 PERCENT
OF THIS FIGURE RECORDED PRIOR TO SEPT. 1 AND 15.7
PERCENT FROM THAT DATE THROUGH DECEMBER 31, 1976.
4. COMMENT: ORGANIZED LABOR, SINCE THE SEPT. 1
DEVALUATION HAS VOICED MUCH CONCERN THAT THEIR
GAINS IN PURCHASING POWER, WON DURING THE PAST FIVE
YEARS, HAVE RAPIDLY EVAPORATED DURING THE PAST FEW
MONTHS. BANCO DE MEXICO FIGURES, IF THEY ACCURATELY
REFLECT CONSUMER PRICE MOVEMENT, LEAVE LITTLE BASIS
FOR THESE CLAIMS. SOME LOSS IN REAL WAGES IS
INDICATED FOR THE PERIOD OF THE LAST ONE-THIRD OF
1976, BUT NOT AS EXTENSIVE AS THAT GENERALLY
CLAIMED BY ORGANIZED LABOR.
THOMPSON
UNCLASSIFIED
EmT
PREARTMENT OF STATE
Department of State
UNITED
TELEGRAM
STATES
OF
LIMITED OFFICIAL USE
1021
PAGE 01
MEXICO 02882 0900532
ACTION ARA-10
INFO OCT-01 ISO-00 AID-05 CIAE-00 COME-00 EB-08 FRB-03
INR-07 NSAE-00 USIA-06 XMB-02 OPIC-03 SP-02 LAB-04
SIL-01 OMB-01 NSC-05 SS-15 STR-04 CEA-01 L-03 H-01
PA-01 PRS-01 /084 W
090501Z 078820 /15
R 082345Z MAR 77
FM AMEMBASSY MEXICO
TO SECSTATE WASHDC 773
INFO TREASURY WASHDC
&
Please return to
LIMITED OFFICIAL USE MEXICO 2882
International Information Center
EO 11652 : N/A
TAGS : EFIN MX
SUBJ : GOM TO ISSUE PETRO BONDS
1. SUMMARY : GOM PLANS TO ISSUE TWO BILLION PESOS OF
PETROBONDS IN APRIL. DETAILS OF PROPOSED BONDS ARE BECOMING
WIDELY KNOWN, THOUGH MORE SHOULD BE KNOWN NEXT WEEK AT
BANKERS' CONVENTION WHEN GOM PLANS PUBLIC ANNOUNCEMENT.
BONDS APPEAR AS EXPENSIVE WAY TO BORROW, BUT FULFILL A
STATEMENT MADE BY LOPEZ PORTILLO IN HIS DECEMBER 1 SPEECH.
END SUMMARY.
2. ACCORDING TO VARIOUS REPORTS, GOM PLANS TO ISSUE TWO
BILLION PESOS OF PETROBONDS SOME TIME IN APRIL. BONDS
WILL HAVE A FOUR YEAR MATURITY AND PAY SEVEN PERCENT
INTEREST. BONDS WILL BE IN THOUSAND PESO DENOMINATIONS,
INDIVIDUAL PURCHASES WILL BE LIMITED TO ONE MILLION PESOS
WHILE INSTITUTIONS WILL BE PERMITTED TO PURCHASE UP TO
FIVE MILLION PESOS OF BONDS. BONDS WILL BE SOLD THROUGH
BOTH PUBLIC AND PRIVATE CREDIT INSTITUTIONS PRESUMABLY
AT PAR.
FORD & LIBRARY 07VH30
LIMITED OFFICIAL USE
0
DEPARTMENT OF STATE
*
Department of State
UNITED
TELEGRAM
STATES
OF
LIMITED OFFICIAL USE
PAGE 02
MEXICO 02882 090053Z
3. INTEREST WILL BE PAID ON THE FACE VALUE OF THE BOND,
WE UNDERSTAND. BONDS WILL BE TRADED ON MEXICAN STOCK
EXCHANGE. GOVERNMENT MAY INTERVENE TO AVOID EXCESSIVE
FLUCTUATIONS. THE PRICE WILL VARY ACCORDING TO THE
DOLLAR PRICE OF CRUDE OIL AND THE PESO-DOLLAR EXCHANGE
RATE. THAT IS, SHOULD THE DOLLAR APPRECIATE VIS A VIS
THE PESO AND/OR THE PRICE OF OIL IN TERMS OF THE DOLLARS
INCREASE THE PESO PRICE OF THE BONDS SHOULD INCREASE.
4. THE BONDS WILL MATURE APRIL 1, 1981. WHEN THE
BONDS ARE SOLD THE TREASURY WILL CONTRACT WITH PEMEX
FOR THE PURCHASE OF A VOLUME OF CRUDE OIL EQUIVALENT.
IT APPEARS, TO THE VALUE OF THE PROCEEDS OF THE
BOND ISSUE. THIS VOLUME OF CRUDE OIL WILL BE SOLD BY
PEMEX FOR THE ACCOUNT OF THE FEDERAL GOVERNMENT AT THE
INTERNATIONAL PRICE PREVAILING AT THE MATURITY DATE FOR
THE BONDS. BONDS WILL BE REDEEMED APPARENTLY AT A PRO
RATED SHARE OF THIS. IT WOULD APPEAR THAT THE MARKET
WOULD KNOW THE VALUE OF EACH BOND IN TERMS OF OIL DURING
THE COURSE OF THEIR LIFE.
5. WE FIND THIS SCHEME COMPLCATED AND EXPECT MORE
DETAILS TO BE AVAILABLE NEXT WEEK. PRIVATE BANKERS
ARE REPORTEDLY NOT ENTHUSIASTIC ABOUT HAVING TO SELL
THE BONDS BECAUSE THEY WILL COMPETE AGAINST THEIR OWN
DEPOSITS.
6. BOND ISSUE SHOULD BE WELL RECEIVED. GOM AUTHORITIES
HOPE THAT IT MIGHT GENERATE SOME CAPITAL REFLOWS AND
NEWSPAPER STORIES TO THE EFFECT THAT SUCH REFLOWS SHOULD
STRENGTHEN THE PESO IN THE NEXT SEVERAL WEEKS HAVE
APPEARED.
7. THESE BONDS SEEM TO BE A VERY COSTLY WAY OF RAISING
FUNDS AND WILL BE A HARD ACT TO FOLLOW. IN HIS
DECEMBER 1, SPEECH, PRESIDENT ALSO MENTIONED BONDS
LIMITED OFFICIAL US.
DEPARTMENT OF STATE
OF UNITED NAME AMERICA
Department of State
TELEGRAM
STATE
LIMITED OFFICIAL USE
PAGE 03
MEXICO 02882 0900532
TIEO TO SILVER, BUT WE HAVE HEARD NOTHING MORE ON THIS.
IN THIS REGARD, THE 100 PESO SILVER COINS HAVE NOT YET
BEEN ISSUED (SEE 76 MEXICO 15939) BUT WE HAVE HEARD
THEY SHOULD BE OUT WITHIN A MONTH OR so.
THOMPSON
FORD & LIBRARY GERALD
LIMITED OFFICIAL USE
March 16, 1977
TO:
Chairman Burns
FROM: Ted Truman EMT
Attached is the latest cable from Mexico.
Attachment: Mexico 3227
cc: Governor Wallich
Defense classification of this document is due
to the inclusion of U.S. Government information
officially classified under Executive Order 10501
which provides that "A document shall bear
highest classified component."
classification at least as high ES that of its a
FORD LIBRARY i
the
mexico
STATE
UNITED
Department of State
TELEGRAM
STATES or
LIMITED OFFICIAL USE
4287
EMT
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ss
PAGE 01
ACTION ARA-10
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AGRE-00 PA-01 PRS-01 SS-15 NSC-05 1070 W
1601157 048972 173
P 160023Z MAR 77
FM AMEMBASSY MEXICO
TO SECSTATE WASHDC PRIORITY 909
INFO TREASURY WASHDC PRIORITY
#
INTERNATIONAL INFORMATION CENTER
RETURN TO
LIMITED OFFICIAL USE MEXICO 3227
FO 11652 : N/A
TAGS : EFIN MX
SUBJ : REPORT ON MEXICAN BANKER'S CONVENTION
REF : MEXICO 3051
1. EMBASSY FINANCIAL ATTACHE ATTENDING ANNUAL MEXICAN
BANKER'S CONVENTION IN ACAPULCO THIS WEEK REPORTS THAT
ATMOSPHERE OF CONVENTION GENERALLY GOOD AT LEAST IN COMPARISON
WITH PREVIOUS CONVENTIONS UNDER ECHEVERRIA ADMINISTRATION. THERE
WERE NO SURPRISES WITH FINANCE SECRETARY MOCTEZUMA CID'S ADDRESS
FOLLOWING LINES REPORTED REFTEL. BANKERS WERE ENCOURAGED BY
HIS SPEECH AND THAT OF ROMERO KOLBECK, DIRECTOR GENERAL
OF BANK OF MEXICO. BANCO DE MEXICO TOOK UNUSUAL STEP OF
PUBLISHING ENTIRE TEXT OF KOLBECK'S SPEECH IN MAJOR
METROPOLITAN NEWSPAPERS.
2. MOCTEZUMA CID ANNOUNCED PACKAGE OF ECONOMIC MEASURES
INCLUDING LOWER RESERVE REQUIREMENTS, THE PETRO-BOND
ISSUE, MORE "FLEXIBLE" INTEREST RATES, "SIMPLIFIED"
SAVINGS INSTRUMENTS, AND MEASURES TO ENCOURAGE TRADE
ON MEXICAN STOCK EXCHANGE. NO DETAILS OR EXPLANATION
OF HOW MEASURES WOULD BE IMPLEMENTED WERE GIVEN. HOWEVER,
GERALD FORD LIBRARY
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0
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UNITED
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/
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of
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MEXICO 03227 160106Z
HE STATED THAT REGULATIONS GOVERNING NEW SAVINGS
INSTRUMENTS AND STOCK EXCHANGE WILL BE PUBLISHED WITHIN
NEXT FEW DAYS.
3. HE REVIEWED MEASURES ALREADY TAKEN BY JLP GOVERNMENT
TO SET FINANCES ON SOUNDER FOOTING. HE ENDED BY SAYING
THAT COUNTRY'S GENERAL ECONOMIC SITUATION SEEMS TO HAVE
IMPROVED AND THAT THE NATION BASED ITS SOLVENCY ON ITS
NATURAL RESOURCES, PETROLEUM, COFFEE AND TOURISM.
4. KOLBECK'S SPEECH WAS SHORT AND FACTUAL COMPARED TO
MOCTEZUMA'S MORE ORTATORY TONE. HE CALLED ATTENTION TO
FACT THAT DOMESTIC BANKS HAD SHOWN AN AVERAGE WEEKLY
INCREASE IN ASSETS DURING THE LAST TWO MONTHS OF ABOUT
1,500 MILLION PESOS, COMPARED TO 164 AND 244 MILLION IN
1976 AND 1975 RESPECTIVELY; THE INCREASES IN EXPORTS
WHICH SOME AGRICULTURAL AND PETROLEUM PRODUCTS HAD
GENERATED, AND INCREASES IN PRODUCTIVE CAPACITY OF
CERTAIN INDUSTRIAL SECTORS. HE ALSO STATED THAT THE
FEBRUARY CPI INCREASED ONLY 2.2 PERCENT COMPARED TO AN
AVERAGE OF 4.0 PERCENT MONTHLY DURING THE LAST FOUR
MONTHS OF 1976. HE ALSO ANNOUNCED THAT THE BANK'S
RESERVES AT THE END OF LAST WEEK HAD ATTAINED 1,517
MILLION DOLLARS AFTER HAVING LIQUIDATED THE LOANS OF THE
FEDERAL RESERVE AND U.S. TREASURY. HE WENT ON TO STATE
THAT ARRANGEMENTS WOULD BE MADE THROUGH ADJUSTMENTS IN
RESERVE REQUIREMENTS TO FREE AN INITIAL 2,000 MILLION OF
PESOS FOR ADDITIONAL CREDIT TO THE GOVERNMENT'S PROGRAMS
OF BASTC ARTICLES AND ALLIANCE FOR PROGRESS.
5. COMMENT: SPEECHES WERE GENERALLY WELL RECEIVED WITH
PARTICULAR INTEREST SHOWN IN CHANGES IN RESERVE REQUIRE-
MENTS AND INTEREST RATES, BUT THIS SOMEWHAT MODERATED BY
LACK OF DETAIL. SPEECHES NOTABLE FOR FACTUAL CONTENT AND
HONEST APPROACH TO MEXICAN DIFFICULTIES COMPARED TO THOSE
OF PREVIOUS YEARS. PRIVATE SECTOR OBVIOUSLY FLATTERED
BY GENERAL TONE OF "LET'S ALL WORK TOGETHER". THOMPSON
LIMITED OFFICIAL USE
DEPARTMENT OF STATE
MEXICO C2o
Department of State
of STATES UNITED AMERICA
TELEGRAM
CONFIDENTIAL
EMT
7466
SS
PAGE 01
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ACTION ARA-06
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OMB-01 INR-07 INRE-00 CIAE-00 NSC-05 SP-02 L-01 PRS-01
/042 W
1118577 128989 /46
0 111811Z MAR 77 ZFF-4
FM AMEMBASSY MEXICO
TO SECSTATE WASHDC IMMEDIATE 0838
INFO TREASURY WASHDC IMMEDIATE
G 0 VEIDENTIAL MEXICO 3051
LIMDIS
PLEASE RETURN TO
INTERNATIONAL INFORMATION CENTER
E, 0. 11652: XGDS
TAGS: FFIN MX
SUBJECT: GOM READIES ECONOMIC FINANCIAL PACKAGE
1 c FINANCE MINISTER MOCTEZUMA CID TOLD PRESS THAT HE WILL
PRESENT A PACKAGE OF ECONOMIC AND FINANCIAL MEASURES AT
THE ANNUAL BANKERS' CONVENTION BEGINNING MARCH 14. HE
DID NOT REVEAL CONTENTS OF PACKAGE, BUT SAID THAT MEASURES
WOULD BE AIMED AT RESTORING CONFIDENCE AND SECURITY TO THE
COUNTRY AND REVITILIZING THE ECONOMY. FINATT OBTAINED
OUTLINE OF FINANCIAL MEASURES FROM BANK OF MEXICO.
2. FINANCIAL MEASURES WILL TOUCH ON LEGAL RESERVE REQUIREMENTS
AND INTEREST RATES. REGARDING THE LEGAL RESERVE REQUIREMENTS
THE TWO PRESENT REQUIREMENTS WILL BE UNITED INTO ONE EQUAL
TO THE EFFECTIVE RATE AT PRESENT. THUS, NO RESERVES WILL
RE FREED BY THIS MEASURE WHICH IS TO BE EFFECTIVE MARCH 14.
ONE OF THE TWO PRESENT RESERVE REQUIREMENTS APPLIES TO
DEPUSITS UP TO A CERTAIN DATE WHEREAS THE SECOND IS A
MARGINAL RATE APPLICABLE TO THE INCREASE IN DEPOSITS AFTER
THIS DATE. THE NEW RATE WILL BE LOWER THAN THE
MARGINAL RATE, THUS, WHILE THE MEASURE WILL HAVE NO
DECLASSIFIED
E.O. 12958, Sec. 3.5
State Dept. Guidelines
By dal
, NARA, Date 7/26/07
GERALD FORD VIBRARY
CONFIDENTIAL
GRAWTHENT
OF
STATE
UNITED
9)
Department of State
TELEGRAM
STATES
OF
CONFIDENTIAL
PAGE 02
MEXICO 03051 1118502
IMMEDIATE IMPACT ON CREDIT AVAILABILITY, AS DEPOSITS
INCREASE IN THE FUTURE, A LARGER PERCENTAGE OF THE
INCREASE WILL BE AVAILABLE FOR CREDIT TO THE PRIVATE
SECTOR. HOWEVER, OVER THE SHORT TERM? BANKS WILL BE
FORCED TO USE PART OF THIS INCREASE IN LENDABLE FUNDS
TO REPAY THE BANK OF MEXICO FOR THE LOANS EXTENDED
TO THE PRIVATE BANKS FROM THE CENTRAL BANK DURING THE
LAST FOUR MONTHS OF 1976, THE BANKS? LIABILITIES TO
THE CENTRAL BANK REACHED 20 BILLION PESOS AT END=75.
THERE ARE NOW SOMEWHAT OVER TEN BILLION PESOS. IN
EFFECT, RATHER THAN LOWER RESERVE REQUIREMENTS DURING
THE RUN ON THE BANKS LAST YEAR THE BANK OF MEXICO
OPENED UP ITS DISCOUNT WINDOW WHICH HAD BEEN USED
ONLY RARELY BEFORE.
3. MULTI-BANKS, I.E., BANKS THAT CARRY ON A VARIETY
OF BANKING FUNCTIONS SUCH AS COMMERCIAL INVESTMENT,
MORTGAGE WILL BE SUBJECT TO A SINGLE RESERVE REQUIRE-
MENT ON ALL DEPOSITS. THIS WILL BE 40 PERCENT WHICH
IS THE AVERAGE RATE FOR THE BANKING SYSTEM PRESENT.
THUS, FOR THOSE INSTITUTIONS MADE POSSIBLE BY
A CHANGE IN THE BANKING LAW IN 1975
OF WHICH THERE ARE NOW TEN, THE SAME RESERVE REQUIRE-
NENT WILL APPLY TO ALL TYPES OF DEPOSITS.
4. THE FINANCE MINISTER WILL ANNOUNCE THE INTENTION
TO FREE INTEREST RATES OVER A PERIOD OF TIME. THE
OBJECTIVE WILL BE TO LET THE MARKET DETERMINE INTEREST
RATES, BUT ONLY GRADUALLY. DETAILS OF THE INTEREST
RATE REFORSM HAVE STILL TO BE WORKED OUT, BUT BANK OF
MEXICO WANTS TO SEE FINANCIAL BONDS-WHICH ARE, IN
EFFECT, INTEREST BEARING DEMAND DEPOSITS- ELIMINIATED.
THEY ARE THINKING OF PERMITTING NO NEW FINANCIAL BONDS
TO BE TSSUED, AND TO GRADUALLY REPLACE THEM WITH SHORT
TERM DEPOSIT INSTRUMENTS FOR THREE OR SEVEN DAYS THAT
PAY INTEREST BELOW THE 9.39 PERCENT GROSS RATE PAID ON
GERALD FORD LIBRARY
CONFIDENTIAL
DEPARTMENT OF STATE
Department of State
STATE UNITED AMERICA
TELEGRAM
OF
CONFIDENTIAL
PAGE 03
MEXICO 03051 111850Z
FINANCIAL BONDS.
5, IN THE PAST, THE BANK OF MEXICO TENDED TO INTRODUCE
NEW TYPES OF SAVINGS INSTRUMENTS RATHER THAN CHANGE
DEPOSIT RATES. NOW IT HOPES TO REDUCE THE NUMBER OF
INSTRUMENTS AND CONCENTRATE ON CERTIFICATES OF DEPOSITS
WITH MATURITIES RANGING FROM ONE MONTH TO ONE YEAR.
THE INTEREST RATE REFORMS WILL BEGIN TO TAKE EFFECT
APRIL 1.
6. BANK OF MEXICO ALSO WANTS TO REDUCE RATES PAID ON
DOLLAR DEPOSITS TO A LEVEL JUST SLIGHTLY ABOVE LONDON
AND NEW YORK RATES. PRESENT RATES ON THREE MONTH
DOLLAR DEPOSITS ARE 8.5 PERECENT FOR NON RESIDENTS AND
7.5 PERCENT FOR RESIDENTS. BANK IS THINKING OF TYING
RATE ON MEX DOLLARS TO LIBO PLUS ONE PERCENT.
7, IT IS NOT CLEAR WHAT IF ANYTHING THE FINANCE
MINISTER WILL SAY ABOUT THE BUDGET. THE BANK OF MEXICO
HAS MADE A CASE TO THE PRESIDENT TO REDUCE SPENDING.
THERE ARE VARIOUS REPORTS THAT BUDGETS ARE BEING CUT,
BUT WE HAVE NO CONFIRMATION FROM OFFICIALS OF THIS.
B. FIRST TOLD BY BANK OF MEXICO OFFICIALS THAT NO
CHANGES IN THE EXCHANGE SYSTEM WOULD BE ANNOUNCED.
THOMPSON
FORD is LIBRARY GERALD
CONFIDENTIAL
CONFIDENTIAL
March 22, 1977
TO:
Chairman Burns
FROM: Ted Truman EMT
Attached is a cable from Mexico giving some back-
ground information on Mexico's economic and financial policies
prior to the Finance Minister's address to the bankers' con-
vention on March 14. (We were not on the original distri-
bution list for this cable; this is the reason why it was
delayed in reaching us.)
Attachment: Mexico 3051
CC: Governor Wallich
Defense classification of this document is due
to the inclusion of U.S. Government information
officially classified under Executive Order 10501
which provides that "A document... shall bear a
classification at least as high 35 that of its
highest classified component."
FORD & LIBRARY GENALD
RESTRICTED
RESTRICTED
HANDLE THE ATTACHED DOCUMENT IN ACCORDANCE WITH INTERNAL
INFORMATION SECURITY PROCEDURES FOR RESTRICTED INFORMATION
FORD is LIBRARY
RESTRICTED
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
Date March 23, 1977
To
Chairman Burns
Subject:
From Ted Truman EMT
RESTRICTED
Attached is an initial report by Mr. Maroni on the IMF
mission that recently returned from Mexico and on the status of
Mexican negotiations with the Export=Import Bank. We will be
following up with the IMF staff on their discussions in Mexico.
For your information, we understand that Secretary Blumenthal will
be having lunch with Mr. Witteveen on Thursday, March 24. At that
time they are expected to discuss the Mexican economic situation.
Attachment
cc: Governor Wallich
FORD & LIBRARY GERALD
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
Date March 23, 1977
To
Mr. Truman
Subject: Update on Mexico
From Yves Maroni Yn
RESTRICTED
QERALE FORD JBRARY
The IMF staff mission which visited Mexico earlier this month
has now returned and has given Mr. Witteveen a discouraging report.
The mission found a lack of current data and government inaction on the
fiscal issue. The Mexican authorities made much of measures being taken
on interest rates and reserve requirements, but the mission considers
these to be in the nature of band-aids, when surgery is indicated.
The above information was given to me by the new Mexico desk
officer at Treasury, Mr. Don Niewiaroski. I asked Mr. Niewiaroski
whether he had any information regarding the progress being made toward
establishing an Eximbank line of credit for PEMEX. He replied that he
did not know of any progress being made. He advised me to verify this
with Eximbank. At Eximbank, the Mexico desk officer, Mr. Peter Gosnell,
told me that the Mexicans had not even initiated discussions about such
a line of credit. He said that he was present when Messrs. Moctezuma and
Romero Kolbeck visited Eximbank officials in February and that the conver-
sation was confined to pending minor issues and generalities. He assured
me that he would know if the matter had been activated as it would have
to go before the Eximbank Board of Directors and he would have to prepare
the background paper on Mexico. An Eximbank staff mission is scheduled
to go to Mexico in April to discuss other matters, and Mr. Gosnell, who
will participate in this mission, speculated that the Mexicans might raise
the issue at that time.
RESTRICTED
MR95-1, 37
ICBH 4/12/96
RESTRICTED
Ted Truman
- 2 -
In this connection, Mr. Niewiaroski told me that the Mexicans
were still formulating their oil strategy and reviewing their needs.
He said that the major oil companies had approached the Mexicans with
proposals covering exploration and production of oil and providing for
the retention of some of the oil by the companies in payment for their
services, but that the Mexicans had other ideas. The Mexicans would
like to get foreign companies to survey and assess their oil reserves
and tell them where the oil is, after which the Mexicans would undertake,
by themselves, to get the oil out of the ground. Eximbank has told the
Mexicans that they would be prepared to finance exploration and exploita-
tion, but that the financing of any infrastructure projects associated
with oil development would have to be obtained from the international
development lending institutions.
It is possible that the Mexicans have not yet initiated dis-
cussions with Exim in part because their international reserve position
is strong enough at the moment to remove any feeling of urgency they
might have had earlier. Mexico's international reserves totalled $1,452
million on March 18 compared with $1,261 million at the end of 1976. In
this connection, at the annual meeting of the Mexican Bankers Association,
held last week, Mr. Romero Kolbeck announced that Mexico's international
reserves rose to $1,615 million on March 11 from $1,412 million last
December 31. However, these figures include holdings of silver and a
paper gain resulting from the revaluation of gold holdings to market prices.
RESTRICTED
FORD & LIBRARY 03RALD
RESTRICTED
Ted Truman
- 3 -
SS:1 119
Mr. Romero Kolbeck was quoted in the press as saying that the increase
was recorded after liquidating loans obtained from the Federal Reserve
System and the U.S. Treasury during the emergency period last year.
However, there have been no repayments to the Treasury in 1977 and the
$150 million Mexico borrowed from the Treasury in November is still
outstanding.
The Mexican measures affecting interest rates and reserve re-
quirements involve a minor relaxation in credit restraints and an in-
creased degree of flexibility in interest rates. The two-tier system
of reserve requirements, whereby one ratio applied to deposits on a base
date and another ratio to the increase in deposits since that date, is
being replaced by a single ratio set at an intermediate level such that
the amount of reserves required to be held by the banks when the switch
takes place will not change. However, as deposits continue to rise, the
additional reserves required under the new arrangement will be smaller
than would have been the case under the previous system. The effect of
this relaxation will be delayed because, before the banks are able to
increase credit, they must repay their indebtedness to the Bank of Mexico,
contracted during the hectic weeks which followed the devaluation last
September. The specific details of the interest rate measure have not yet
become available.
RESTRICTED
FORD i GERALD LIBRARY
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
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1977 MAR 23 PM 22
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CENNID
3a
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
CONF IDENTIAL
1977 MAR 28 AM 11: 42 March 28, 1977
OFFICE OF RECEIVED THE CHAIRMAN
TO:
Chairman Burns
FROM: Ted Truman
Attached are two recent telegrams from Mexico.
The first telegram (Mexico 3576) summarizes available
information on Mexican external borrowing. Apparently, Mexico has
already borrowed or arranged to borrow $350 million for Pemex, about
$40 million in a DM bond placement, and at least $75 million in
private placements. Another $150 million Euro-credit is apparently
in the works and Merrill Lynch may be underwriting a bond issue in
the U.S. market that should amount to less that $100 million.
The second telegram (Mexico 3581) reports on the Mexican
Bankers' Convention.
Attachments
cc: Governor Wallich
Defense classification of this document is due
to the inclusion of U.S. Government information
officially classified under Executive Order 10501
which provides that "A document... shall bear a
classification at least as high as that of its
highest classified component"
FORD is LIBRARY GERALD
EmT
4a
-
STATE
EMT
DE
Department of State
STATE UNITED AMERICA
TELEGRAM
OF
CONFIDENTIAL 2712
PAGE 01
MEXICO 03576 241415Z
ACTION ARA-10
INFO OCT-01 ISU-00 EB-08 AID-05 CIAE-00 COME-00 FRB-03
INR-07 NSAE-00 USIA-06 XMB-02 OPIC-03 SP-02
LAB-04 SIL-01 OMB-01 NSC-05 SS-15 STR-04 CEA-01
IO-13 EUR-12 DODE-00 PA-01 PRS-01 L-03 /108 W
250252Z 077070 /72-61
R 241408Z MAR 77
FM AMEMBASSY MEXICO
TO SECSTATE WASHOC 1032
INFO TREASURY WASHDC
Please return to
6 0 N F I D E N I A MEXICO 03576
International Information Center
E.0.11652:GDS
TAGS: EFIN MX
SUBJECT: EXTERNAL BORROWING
1. SUMMARY: WHILE FOREIGN BANKERS WERE LESS THAN
ENTHUSED WITH WHAT THEY HEARD AT THE MEXICAN BANKERS'
CONVENTION, THEY DID INDICATE THAT A NUMBER OF FOREIGN
BORROWINGS ARE TAKING PLACE. END SUMMARY.
2. FOREIGN BANKERS ATTENDING THE CONFERENCE GRUMBLED A
BIT ABOUT CONTINUING UNCERTAINTIES OVER THE DIRECTION THE
MEXICAN ECONOMY IS TAKING, BUT THEY ARE CONTINUING TO
LEND MEXICO MONEY, THOUGH THE GLOBAL AMOUNTS CANNOT
BE QUANTIFIED,
3. MEXICO HAS CONTRACTED ONLY TWO PUBLICIZED MEDIUM TERM
EXTERNAL LOANS THUS FAR IN 1977, ONE IS THE $350 MILLION
EURODOLLAR CREDIT FOR PEMEX SIGNED MARCH 21. ANOTHER IS
100 MILLION D.M. MEDIUM TERM BONDS FOR NAFINSA, BEING
UNDERWRITTEN BY THE DRESDENER BANK. WHILE THE PROCEEDS
OF THESE LOANS ARE NOT YET AVAILABLE THERE HAVE BEEN AN
UNQUANTIFIABLE NUMBER OF PRIVATELY PLACED MEDIUM TERM
LOANS OF ONE KIND OR ANOTHER. REPRESENTATIVE OF A MEDIUM
DECLASSIFIED
E.O. 12958 SEC. 3.6
MR07-117, #26; state ltr 2/22/08
GERALD FORD LIBRARY
BY doe NARA DATE 3/10/08
CONF IDENTIAL
0
FORM
STATE
Department of State
UNITED
/
TELEGRAM
STATES
OF
CONFIDENTIAL
PAGE 02
MEXICO 03576 241415Z
SIZED Usko MERCHANT BANK SAID HE HAD PUT TOGETHER $75
MILLION IN NEW CREDITS SINCE JANUARY 1. NONE OF WHICH
WERE PUBLICIZED, SEVERAL BANKERS HAVE TOLD FINATT ABOUT
MEDIUM TERM SUPPLIER CREDITS TO PUBLIC SECTOR ENTERPRISES
WITH GOM GUARANTEES. APPARENTLY A GOM-OWNED ENTERPRISE
WILL GO TO A U.S. SUPPLIER AND ASK THE SUPPLIER TO
OBTAIN A MEDIUM TERM CREDIT FROM HIS U.S. BANKERS. CREDIT
IS THEN GUARANTEED BY GOM ENTITY SUCH AS NACIONAL
FINANCIERA. IN SOME CASES THESE SOUND LIKE RESTRUCTURING
OF DEBT. ONE U.S. BANKER TOLD FINATT THAT WHILE HE WAS
UNHAPPY RE THESE LOANS, THE BANK LENDING OFFICER FOR THE
U.S. CORPORATION WANTED TO HELP HIS CLIENT AND THE GOM
GUARANTEE MADE THE PAPER LOOK GOOD. THERE HAS ALSO
BEEN A LOT OF SHORT TERM LOAN SYNDICATION.
4. GOM IS ANXIOUS TO GET AN UNDERWRITING GROUP FOR ITS
NEXT PUBLIC EURODOLLAR ISSUE AND THIS IS LIKELY TO BE
ROUGHLY $150 MILLION FOR THE PUBLIC WORKS BANK. THERE
IS ALSO A BOND ISSUE FOR THE UNITED MEXICAN STATES THAT IS
ABOUT READY TO BE FLOATED IN THE U.S. THE UNDERWRITER IS
MERRILL LYNCH AND THIS MAY BE AN ISSUE THAT WAS ALMOST
READY TO GO TO MARKET WHEN THE INITIAL DEVALUATION WAS
ANNOUNCED. WE ARE NOT SURE OF THE AMOUNT, BUT DOUBT IF
IT EXCEEDS $100 MILLION.
5. DURING THE BANKERS CONVENTION, NAFINSA'S DIRECTOR
TOLD PRESS THAT MEXICO'S PUBLIC SECTOR WOULD BORROW ABOUT
$3 BILLION IN 1977 AS THIS WAS THE LIMIT IMPOSED BY
THE IMF. HE WAS ALSO REPORTED AS SAYING THAT IT WOULD
BORROW ANOTHER $3 BILLION, TO COVER INTEREST AND AMORTIZA-
TION PAYMENTS PLUS SOME FUNDING OF SHORT TERM DEBT.
6. REGARDING THE AGREEMENT WITH THE FUND, MOCTEZUMA
MENTIONED THIS IN HIS SPEECH AS ONE OF THE ACCOMPLISHMENTS
OF THE NEW ADMINISTRATION, ROMERO KOLBECK TOLD
THE PRESS THIS WAS STRICTLY A FINANCIAL AGREEMENT THAT IT
CONFIDENTIAL
FORM
DS-1652
STATE
*
UNITED AMERICA
Department of State
TELEGRAM
STATES OF
CONFIDENTIAL
PAGE 03
MEXICO 03576 241415Z
IN NO WAY INFLUENCES THE COUNTRY'S POLICY. IF THIS WERE
PERMITTED, HE IS REPORTED AS SAYING, IT WOULD BE TANTA-
MOUNT TO LOSING MEXICO'S SOVEREIGNTY. THOMPSON
FORD & 9ERALD LIBRARY
CONFIDENTIAL
FORM
de STATE
EMT
Department of State
UNITED AMERICA
TELEGRAM
STATES OF
CONFIDENTIAL
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Please return to
SUBJECT: MEXICAN BANKERS CONVENTION
International Information Center
REF" (A) MEXICO 3051; (B) MEXICO 3227
1. SUMMARY: PRIOR TO BANKERS CONVENTION MEXICAN PRESS
WAS FORECASTING THAT A MAJOR ECONOMIC PROGRAM WOULD BE
ANNOUNCED. WHILE MEASURES MENTIONED IN FINANCE MINISTER'S
SPEECH REPRESENT SOME DEGREE OF PROGRESS IN COPING WITH
MEXICO'S ECONOMIC PROBLEMS, NO NEW BUDGETARY POLICIES WERE
ANNOUNCED, NOR DID GOM SPOKESMEN PROVIDE ANY FURTHER
GUIDANCE ON WHY THE PESO MUST FLOAT AND WHERE IT MIGHT GO.
END SUMMARY.
2. MEXICAN BANKERS CONVENTION IS PROBABLY THE MOST
SIGNIFICANT FINANCIAL GATHERING IN MEXICO. THIS YEAR'S
CONVENTION WAS SAID TO HAVE ATTRACTED A RECORD NUMBER
OF FOREIGN AND DOMESTIC BANKERS. THE PRESS WAS FORE
CASTING A MAJOR PACKAGE OF ECONOMIC AND FINANCIAL
MEASURES. WHILE FINANCE MINISTER MOCTEZUMA ANNOUNCED A
SIX MEASURE PACKAGE, HE DID NOT SAY ANYTHING THAT COULD
BE INTERPRETED AS CHANGING BUDGETARY POLICY, NOR DID HE
FORD & LIBRARY GERALD
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OR THE BANK OF MEXICO DIRECTOR GENERAL PROVIDE ANY FURTHER
GUIDANCE ON EXCHANGE RATE POLICY. WAGE POLICY WAS NOT
DISCUSSED.
3. THE SIX MEASURES ANNOUNCED BY MOCTEZUMA WERE: (A)
PERMIT PESO INTEREST RATES TO BE FIXED BY MARKET
CONDITIONS AND TIE INTEREST RATES ON MEX DOLLARS MORE
CLOSELY TO INTERNATIONAL RATES: (B) REFORM LEGAL RESERVE
REQUIREMENTS IN ORDER TO PERMIT BANKS TO USE A LARGER
PORTION OF NEW DEPOSITS FOR CREDIT TO THE PRIVATE SECTOR,
"PREFERABLY FOR ACTIVITIES WITHIN THE ALLIANCE FOR
PROGRESS; (C) TIGHTEN RESTRICTIONS ON LOANS TO ONE
BORROWER AND DEPOSITS FROM ONE LENDER IN ORDER TO AVOID
EXCESSIVE DEPENDENCE BY A BANK ON ONE LENDER OR BORROWER'
(D) DEFINE MORE CLEARLY WHICH SECURITIES SOLD TO THE
PUBLIC THROUGH THE STOCK EXCHANGE BENEFIT FROM CERTAIN TAX
ADVANTAGES AND MAKE GREATER RESOURCES AVAILABLE TO
SECURITY HOUSES FROM BANKS; (E) SILVER COINS WILL SOON BE
PUT INTO CIRCUMSTATION. (SEE 76 MEXICO 15939) 1
(F) PETROBONDS WILL BE ISSUED AT END-APRIL AND WILL,
CONTRARY TO PREVIOUS INFORMATION, HAVE A THREE YEAR
MATURITY. (SEE MEXICO 2882). ROMERO KOLBECK ADDED A
SEVENTH MEASURE, A TWO BILLION PESO CREDIT FACILITY TO
FACILITATE THE PRODUCTION OF THE 90 BASIC PRODUCTS (SEE
MEXICO 1018). HE DID NOT ELABORATE ON WHAT FORM THIS
WOULD TAKE.
4. WHILE MOCTEZUMA SAID THAT ONE OF THE BASIC ASPECTS OF
THE GOM'S ECONOMIC POLICY WAS THE "CONTROL OF INFLATION,
AS MUCH TO AVOID ITS ACCELERATION AS TO ACHIEVE, IN
GRADUAL FORM, A REDUCTION." FOLLOWING THE ABOVE STATEMENT,
HE SAID, "THE PUBLIC SECTOR IS READY TO MEET ITS
RESPONSIBILITY IN THIS FIGHT, FUNDAMENTALLY THROUGH THE
RECONSTITUTION OF PUBLIC SAVING IN ORDER TO FINANCE IN A
HEALTHY FORM INVESTMENT AND THE GENERATION OF JOBS. FOR
THIS, ONE OF THE FUNDAMENTAL MEANS CONSISTS IN REDUCING
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THE PROPORTION OF ITS GLOBAL DEFICIT, TO PUT EMPHASIS ON
THE CONTROL OF CURRENT SPENDING AND TO PROVIDE TO THE
STATE REAL RESOURCES THROUGH A SUITABLE PUBLIC INCOME
POLICY." THERE WAS NO MENTION OF REDUCING SPENDING IN
HIS SPEECH, BUT THE FINANCE MINISTER WAS ASKED AT A
SUBSEQUENT PRESS CONFERENCE IF THIS MIGHT NOT BE NECESSARY.
HE REPORTEDLY RESPONDED THAT WHILE THE BUDGET MAY APPEAR
HIGH, IT WAS NOT REALLY, ADDING THAT IT IS AIMED AT
SUPPORTING BASIC ACTIVITIES AND AVOIDS ANY SUPERFLUOUS
SPENDING.
5. ANOTHER SUBJECT THAT WAS NOTABLE FOR THE LACK OF
SPECIFICS WAS THE EXCHANGE SYSTEM. BOTH MOCTEZUMA AND
ROMERO KOLBECK SAID THAT THE PESO WOULD CONTINUE TO FLOAT
AND THAT FREE CONVERTIBILITY WOULD BE MAINTAINED. THEY
NEVER ADDRESSED THE REASONS FOR THE FLOAT, NOR DID THEY
INDICATE WHAT FACTORS MIGHT INFLUENCE THE RATE OVER THE
FUTURE. ROMERO KOLBECK SAID ONLY THAT THE FLOATING RATE
"TENDS TO REFLECT WITH GREATER REALITY OUR POSITION
RELATIVE TO THE EXTERIOR.' HE ALSO NOTED THAT AN
"INCIPIENT AND VERY LIMITED" FUTURES MARKET HAD BEGUN,
BUT ANNOUNCED NO GOVERNMENT MEASURES TO FOSTER SUCH A
MARKET. MOCTEZUMA SAID THE PESO WOULD CONTINUE TO FLOAT.
HE TOLD A REPORTER THAT "CURRENTLY, ALL THE WORLD'S
CURRENCIES ARE SUBJECT TO VARIATION THEREFORE MEXICO
CANNOT WITHDRAW FROM THESE PARAMETERS, AS MUCH FOR
INTERNAL AS EXTERNAL REASONS." HE ADDED THAT "WE COULD
NOT MAKE A DETAILED EXAMINATION OF THE ADVANTAGES OR
DISADVANTAGES OF A FLOATING PESO OR A FIXED PARITY. IT IS
ENOUGH TO SAY THAT WE WOULD GO COUNTER TO THE WORLD
FORD is LIBRARY GERALD
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SITUATION IF WE TRIED TO FIX THE PARITY."
6, PERHAPS THE MOST INTERESTING SPEECH WAS THAT OF
EUGENIO ERANA, THE INCOMING PRESIDENT OF THE BANKERS
ASSOCIATION, HE MADE A VERY STRONG ANTI INFLATION
STATEMENT WITH PARTICULAR EMPHASIS ON THE IMPACT OF
INFLATION ON ECONOMIC GROWTH AND POLITICAL STABILITY.
HE ALSO SPOKE OUT AGAINST PRICE CONTROLS NOTING THAT THEY
DO NOT REDUCE INFLATIONARY PRESSURES. HIS SPEECH, MADE
AT THE CLOSING SESSION, WAS WARMLY APPLAUDED.
7. THE GOM RELEASES A CURRENT RESERVE FIGURE ONLY TWICE
A YEAR, AT THE BANKERS CONVENTION AND IN THE PRESIDENT'S
SEPTEMBER 1 STATE OF THE UNION ADDRESS. ROMERO SAID
RESERVES AS OF MARCH 11, WERE $1,617 MILLION, "AFTER
HAVING LIQUIDATED LOANS FROM THE FEDERAL RESERVE AND
U.S. TREASURY."
8. TWO THEMES PREVAILING IN THE SPEECHES OF FINANCE
MINISTERS AND BANK OF MEXICO DIRECTOR WERE THE NEED TO
GENERATE INTERNAL SAVINGS AND NEW JOBS. ROMERO CRITICIZED
THE OLD "GROWTH WITH STABILITY" POLICIES AS HAVING
GENERATED EXCESSIVE FOREIGN INDEBTEDNESS AND TOO FEW JOBS.
FORD is LIBRARY GERALD
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THE IMPACT OF THE MEASURES ANNOUNCED LAST WEEK WOULD
APPEAR TO BE LIMITED, AT LEAST DURING THE CURRENT YEAR.
THE LOWERING OF INTEREST RATES ON MEX DOLLAR DEPOSITS
MIGHT DISCOURAGE SAVINGS IN THIS FORM. LIKEWISE THE
REDUCTION IN INTEREST RATES ON "FINANCIAL BONDS" COULD
POSSIBLY DISCOURAGE SAVINGS IN THIS INSTRUMENT. WHETHER
THE MONEY WOULD SWITCH TO A LONGER TERM PESO INSTRUMENT
OR TO DOLLARS IS UNKNOWN, BUT THE MEXICANS DO SEEM TO BE
RUNNING SOME RISKS IN THEIR INTEREST RATE REFORM, PARTICU-
LARLY IF THEY MOVE SLOWLY IN INCREASING INTEREST RATES ON
PESO TERM INSTRUMENTS.
9. THE LEGAL RESERVE REQUIREMENT CHANGES MIGHT COMPLICATE
FINANCING OF THE PUBLIC SECTOR DEFICIT AS THESE REQUIRE-
MENTS PROVIDE MUCH OF THE DOMESTIC FINANCING. ON THE
OTHER HAND, THE GOM IS GOING DIRECTLY TO THE PUBLIC FOR
FUNDS IN THE FORM OF PETRO BONDS AND TREASURY UNDER
SECRETARY DE LA MADRID INDICATED THAT PUBLIC SECTOR MAY GO
DIRECTLY TO THE CAPITAL MARKET FOR FUNDS.
10. THE LACK OF ANYTHING NEW ON BUDGET POLICY IS
DISAPPOINTING. WHILE ONE HEARS STORIES OF CURRENT
SPENDING CUTBACKS THERE IS NO PUBLIC STATEMENT TO THIS
EFFECT AND MOCTEZUMA'S STATEMENTS ON THIS SUBJECT WERE
VERY BLAND. THE SIZE OF THE BUDGET DEFICIT HAS BEEN ONE
OF THE MAJOR CONCERNS OF FOREIGN BANKERS.
11. ALSO DISAPPOINTING WAS THE LACK OF A MORE DETAILED
EXPLANATION FOR THE REASONS THAT THE PESO IS FLOATING
AND THE DIRECTION IT MIGHT TAKE. THIS IS NOT WELL
UNDERSTOOD BY MANY LOCAL AND FOREIGN BUSINESSMEN AND IS
OFTEN CITED AS A HINDRANCE TO INCREASED FOREIGN PRIVATE
INVESTMENT. AS IS OFTEN THE CASE IN MEXICO, THE NEED TO
CONTINUE TO FLOAT IS ATTRIBUTED TO FOREIGN MORE THAN
DOMESTIC FACTORS.
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12. A NUMBER OF ATTENDEES COMMENTED THAT THE ATMOSPHERE
AT THIS YEAR'S CONVENTION WAS MUCH BETTER THAN IN THE PAST
SEVERAL YEARS UNDER ECHEVERRIA. LOPEZ PORTILLO WAS WARMLY
RECEIVED BY THE CONVENTION AND THERE WAS A sense THAT
THE COUNTRY WAS MOVING IN THE RIGHT DIRECTION EVEN IF
ECONOMIC POLICIES WERE NOT COMPLETELY TO THE SATISFAC=
TION OF ALL THE ATTENDEES. THOMPSON
FORD & LIBRARY GENALD
in
CONFIDENTIAL
RESTRICTED
April 1, 1977
TO:
Chairman Burns
FROM:
Ted Truman EMT
SUBJECT: Visit by Messrs. Romero Kolbeck and Alfredo Phillips
We have learned from the U.S. financial attache in Mexico
via the Treasury Department that the main purpose of the visit by
Mr. Romero Kolbeck (accompanied by Mr. Alfredo Phillips) to Washington
on Tuesday is to see you. (They will also see Mr. Solomon but only
because they will be here seeing you.)
We understand that the reason for the visit is the Mexicans'
concern about your public statements on bank lending to developing
countries. The Mexicans apparently think that these statements have
been, or will be, damaging to their ability to raise funds from abroad
that they want or need to raise.
According to the U.S. financial attache's conversation with
Mexican officials and with U.S. bankers in Mexico City, Mexican foreign
borrowings have been at a slower rate than had been expected during
the first quarter of 1977. The slower rate of new borrowing has been
attributed to Mexican reluctance to pay higher spreads over LIBOR
(the London inter-bank offer rate) that banks are now demanding. There
is apparently little other evidence of reluctance on the part of banks
to extend new loans to Mexico at this time. There have been no reported
problems with the rolling over of short-term bank claims.
RESTRICTED
MR 95-1,#38
KBH 4/12/96
FORD LIBRARY is QERALD
GRACO
Chairman Burns
-2-
20
RESTRICTED
JAR3037
We will be sending you up-dated background material on
Mexico external borrowing and on the Mexican economic and financial
situation on Monday afternoon.
RESTRICTED
FORD i LIBRARY GERALD
FEDERAL RESERVE SYSTEM
BOARD GOVERNO
BUTUB
1977 APR -1 \ PM 4:05 05
OFFICE OF THE CHAIRMAN beinb-qu sW
bns almonoos gniworzed Immedixe opixeM
no
-
5
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
Date April 4, 1977
To
Chairman Burns
Subject: Possible Multilateral Official
From Ted Truman
EMT
Stand-by Credit for Mexico
RESTRICTED MR95-1,#39 KBH4/12/96
Introduction
1. As you know, preliminary discussions were initiated about
ten days ago about a possible large, multilateral official stand-by
credit facility for Mexico. A figure of $1.5 billion for up to one
year has been mentioned. The participants might be the United States
(through the ESF and the Federal Reserve), Germany, Switzerland,
Venezuela, Japan and, possibly, the BIS and some of the smaller
European countries.
2. The Treasury plans to explore this matter further with
Mr. Romero Kolbeck when he visits Under Secretary Solomon on Tuesday
morning. They plan to discuss the matter first with you at your
breakfast with Solomon and Secretary Blumenthal on Tuesday.
3. Two questions arise: (1) how far to go in discussions with
the Mexicans at this time, (2) what to say to them.
Summary Analysis
1. The arguments in favor of this type of arrangement appear to
be the following.
A. If Mexico were to face a severe external financing crisis
-- a possibility that cannot be ruled out -- it is likely that Mexico
would turn to the United States and the U.S. government would feel
compelled to do something to save the situation. In this context,
FORD & 076970 LIBRARY
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a contingency plan would be desirable, and a plan that involved countries
in addition to the United States would have certain attractions.
B. In principle, the credit arrangement could be designed to
reinforce the conditions on Mexico's economic policies that have been
and will be established by the IMF. For example, this objective might
be accomplished by requiring that (1) the IMF certify Mexico's compliance
with the IMF conditions before agreement is finalized with the potential
creditors and (2) that the IMF certify Mexico's compliance with IMF
conditions before any actual drawings are made.
2. The arguments against this type of arrangement appear to
be the following.
A. The evidence we and the IMF have indicates that Mexico
is probably not now in full compliance with the terms of its program
under the IMF Extended Fund Facility. However, the data to substantiate
this suspicion, or to determine how serious the lack of compliance is,
are not now available. We understand that it is unlikely that they
will be available before mid-May. In this context, the danger exists
that the multilateral stand-by credit package will be established and
used by Mexico at a time when it later turns out that Mexico is in
violation of the IMF agreement.
B. At present, the participants in the multilateral stand-by
credit package would have no assurance of a take out either from the
IMF (since the super-tranche proposal has not yet been approved or even
widely discussed) or from any other source. This suggests that Mexico
should be asked to wait until the new IMF financial arrangements are
in place.
FORD i LIBRARY GERALD
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C. Even if a firm role for IMF conditionality were agreed,
the Federal Reserve might be reluctant formally to subjugate the use
of its swap lines to the IMF's authority.
D. Such an arrangement might be viewed as providing a
bail-out for the banks "with taxpayers' money."
E. Such an arrangement might also be viewed as a precedent
encouraging large borrowers in private capital marketsto turn to
official sources other than the IMF for financial support.
Summary of the Treasury View of a Possible Approach
1. The Treasury wants to proceed slowly in this matter. On the
other hand, consideration has been given to the possibility of presenting
Mr. Romero Kolbeck on Tuesday with a document that would summarize the
conditions that the United States would insist upon with regard to such
an arrangement. The idea is to prevent the Mexicans from believing
that agreement has been reached in principle on terms that we could
not accept.
2. Treasury would like to postpone formal agreement on such an
arrangement until after the Interim Committee has met and, presumably,
reached agreement on the general terms of new IMF borrowing and how
it might be used. Such a delay would provide a greater assurance of
a take-out.
FORD is LIBRARY GERALD
3. Treasury has discussed this matter with Mr. Witteveen. He is
reported to be enthusiastic about the idea because it would strengthen
/ The suggested size of the Federal Reserve's participation implies
that under normal procedures the FOMC should be consulted.
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the IMF's hand. As noted above, before any general agreement was reached
it is envisaged that the IMF would have to declare that Mexico was in full
compliance with IMF's conditions on Mexican economic policies. In addition,
the IMF would have to give a similar certification before any request to
use the multilateral, stand-by credit facility was approved. (Comment.
As noted above, this approach might look good on paper and work somewhat
less well in practice.)
4. Treasury recognizes that problems could arise in defining of
the kind of emergency in which Mexico would have access to the multilateral,
stand-by credit facility and in implementing agreed procedures in such an
emergency.
5. Treasury's preliminary thinking is that the multilateral,
stand-by credit facility might amount to $1.5 billion. Of this amount,
$660 million would come from the United States ($360 million under the
existing Federal Reserve swap arrangement, $150 million that has already
been drawn from the ESF, and another $150 million from the ESF). The
Bundesbank might contribute $400 million. The Swiss National Bank
might contribute $200 million. The remaining $240 million might come
from Japan, Venezuela, the BIS and some of the smaller European countries.
6. Drawings would be for three months with a maximum of three
rollovers.
7. Treasury has given little thought to the question of whether
drawings would be pari passu or to the question of how decisions on
activation would actually be made. (Comment. This raises again the
possibility that the Mexicans might seek to manipulate the arrangements
to their own short-run advantage.)
FORD is LIBRARY GERALD
April 4, 1977
TO: Chairman Burns
FROM: Ted Truman
You asked me to write down for you the three main points
you stressed in your meeting with President Lopez Portillo of Mexico
in February.
1. Mexico must abide by the IMF conditions on its economic
policies.
2. Mexico must bring its inflation rate under control and
establish a productivity plan while at the same time following prudent
demand management policies.
3. Mexico should develop contingency plans in case, as may
well be likely, Mexico is unable to borrow as much as it now plans to
borrow abroad in 1977.
FORD & GERALD LIBRARY
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
April 5,
1977 1977 APR-5 AM 9: 05
RECEIVED
OFFICE OF THE CHAIRMAN
TO:
Chairman Burns
FROM: Ted Truman
Attached are three recent cables from Mexico.
Attachments: Mexico 4214
Mexico 4313
Mexico 4375
cc: Governor Wallich
Defense classification of this document is dus
to the inclusion of U.S. Government information
officially classified under Exacutive Order 10501
which provides that 'A document... shall bear a
classification at least as high 25 that of its
highest classified compenent"
GERALD R. FORD LIBRARA
FINILED
DESICIVE
DEPARTMENT OF STATE
MEXICO
Department of State
of STATE ASLINA AMERICA
TELEGRAM
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E011652:N/A
TAGS: EFIN MX
SUBJECT: PETRO-BONDS
REF: MEXICO 2882
1. GOM IS NOW ORGANIZING A SYNDICATE OF PRIVATE AND
GOVERNMENT-OWNED CREDIT INSTITUTIONS TO UNDERWRITE AND
MARKET TWO BILLION PESO ISSUE OF PETROBONDS. PROSPECTUS
FOR ISSUE IS IN FINAL STAGES OF PREPARATION.
2. CONTRARY TO REF, BONDS WILL HAVE THREE YEAR MATURITY.
ALSO, PRINCIPAL REPAYMENT WILL BE MADE NET OF INTEREST
PAYMENTS OVER THE THREE YEAR PERIOD. THAT IS, IF
PRINCIPAL OF BOND RISES FROM 100 TO 150 BECAUSE OF
INCREASES IN DOLLAR PRICE FOR CRUDE AND/OR BECAUSE OF
DEPRECIATION OF PESO IN TERMS OF DOLLARS, BOND HOLDER
WILL RECEIVE 129 PESOS, 150 PESOS MINUS THREE YEARS OF
INTEREST AT 7 PERCENT. THIS PROVISION WILL MAKE BONDS
LESS ATTRACTIVE THAN WE HAD EARLIER BELIEVED: IT WILL
ALSO REDUCE COST TO GOVERNMENT.
LIBRARY GERALD R. FORD
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3. THE PROCEEDS FROM THIS ISSUE WILL BE FOR GENERAL
REVENUE PURPOSES. PEMEX IS NEITHER THE BORROWER NOR THE
GUARANTOR. THOMPSON
WX
LIMITED OFFICIAL USE
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OF
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UNITED
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020001Z 019923 173
0 0123032 APR 77
FM AMEMBASSY MEXICO
TO SECSTATE WASHUC IMMEDIATE 1269
UNCLAS MEXICO 04313
PASS USDOC
PASS USTREASURY
E.O. 11652: N/A
TAGS: EINV, ETRD, MX
SUBJECT: MINISTER OF COMMERCE SOLANA'S VIEWS ON
U.S.=MEXICAN TRADE AND INVESTMENT
1. EMBASSY UNDERSTANDS THAT MEXICAN MINISTER OF COMMERCE,
FERNANDO SOLANA, HAS APPOINTMENTS TO SEE UNDERSECRETARIES
COOPER AND SOLOMON OF STATE AND TREASURY RESPECTIVELY
APRIL A AND SECRETARY KREPS APRIL 5.
2. SOLANA GAVE SPEECH BEFORE AMERICAN CHAMBER OF COMMERCE
MARCH 31 MAKING FOLLOWING POINTS. MEXICO MUST EXPORT MORE
MANUFACTURED GOODS AND INDUSTRIALIZED COUNTRIES SHOULD NOT
GIVE IN TO TEMPTATION OF PROTECTIONISM. BY END OF 1977
MEXICAN MERCHANDIZE DEFICIT CAN POSSIBLY BE HALVED. THERE
WILL BE A GRADUAL REPLACEMENT OF IMPORT LICENSES BY
TARIFFS BUT IT WILL NOT BE POSSIBLE TO ELIMINATE ALL
IMPORT LICENSES. FOREIGN INVESTMENT WAS COMPLEMENTARY
AND NECESSARY CONTRIBUTION TO RATIONALIZATION OF MEXICAN
GERALD FORD LIBRARY
UNCLASSIFIED
OF STATE
ASLINA AMERICA
Department of State TELEGRAM
STATES OF
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MEXICO 04313 012350Z
INDUSTRIAL AND CUMMERCIAL STRUCTURE AND THERE WOULD BE
EQUAL AND JUST APPLICATION OF THE INVESTMENT LAWS, U.S.
INVESTORS AND ENTREPRENEURS SHOULD ADAPT THEIR
TECHNOLOGY IN MEXICO TO USE MORE LABOR. IN DEVELOPING THE
ECONOMY OF MEXICO, THEY WERE HELPING A NEIGHBOR WHO HAS
BEEN ONE OF THE U.S. BEST CUSTOMERS FOR DECADES.
THOMPSON
FORD i LIBRARY 976839
UNCLASSIFIED
OF STATE
MEXICO
Department of State
UNITED
,
TELEGRAM
STATES OF
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FM AMEMBASSY MEXICO
TO SECSTATE WASHDC 1278
INFO TREASURY WASHDC
AMCONSUL MONTERREY BY POUCH
LIMITED OFFICIAL USE MEXICO 04375
EO 11652: N/A
TAGS: EFIN MX
SUBJECT: INVESTMENT CLIMATE
1. SUMMARY: WHILE LOPEZ-PORTILLO HAS CLEARED AWAY MANY
OF THE BAD FEELINGS TOWARD GOVERNMENT ON THE PART OF
MEXICO/S PRIVATE SECTOR, BUSINESSMEN ARE RELUCTANT
TO UNDERTAKE NEW INVESTMENTS, WAITING FOR MORE SPECIFIC
GOVERNMENT MEASURES. END SUMMARY.
2. IN HIS FIRST FOUR MONTHS IN OFFICE, LOPEZ PORTILLO
HAS MANAGED TO ELIMINATE MUCH OF THE TENSION THAT
DEVELOPED BETWEEN THE GOVERNMENT AND THE PRIVATE SECTOR
UNDER ECHEVERRIA. BUSINESSMEN LIKE JLPPS STYLE
AND FIND THE GOVERNMENT MORE ACCESSIBLE. ON MARCH 28,
JLP VISITED MONTERREY FOR A VIRTUAL LOVE FEAST WITH THE
MONTERREY BUSINESS GROUP. AMCONSULATE GENERAL MONTERREY
REPORTS THAT PRESIDENT SPENT MINIMUM AMOUNT OF TIME
WITH LOCAL GOVERNMENT OFFICIALS AND MAXIMUM AMOUNT OF
TIME WITH PRIVATE BUSINESSMEN. BERNARDO GARZA SADA,
LEADER OF THE MONTERREY BUSINESS COMMUNITY, WAS LAUDATORY
GERALD FORD NERARY
LIMITED OFFICIAL USE
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MEXICO 04375 021948Z
TO LOPEZ-PORTILLO WHO RECIPROCATED, SAYING "HOW BEAUTIFUL
THAT YOUR FIRST PARTICIPATION IN PUBLIC HAS BEEN THIS
EXEMPLARY SPEECH, FULL OF SOCIAL EMOTION, FULL OF
PATRIOTIC SOLIDARITY, FULL OF THAT WHICH THE ANCIENT
ROMANS CALLED THE SENTIMENT OF A GOOD FATHER OF FAMILY.
3. PURPOSE OF MONTERREY MEETING WAS TO SIGN AN AGREEMENT
WITH MONTERREY BUSINESS GROUPS CALLING FOR INVESTMENTS OF
100 BILLION PESOS OVER THE NEXT SIX YEARS, WITH THE
INVESTMENTS TO BE MADE THROUGHOUT THE COUNTRY. THIS IS
ANOTHER IN THE SERIES OF PUBLIC SECTOR-PRIVATE SECTOR
AGREEMENTS THAT HAVE BEEN NEGOTIATED. MONTERREY GROUP
VIEWS THE AGREEMENT AS LARGELY SYMBOLIC WHICH IS THE SAME
ATTITUDE EXPRESSED BY MEXICO CITY BUSINESSMEN TOWARD THE
TEN PUBLIC-PRIVATE SECTOR AGREEMENTS SIGNED LAST DECEMBER.
4, WHILE RELATIONS HAVE IMPROVED, THE PRIVATE SECTOR
REMAINS RELUCTANT TO UNDERTAKE NEW INVESTMENTS, WAITING
TO SEE MORE CONCRETE MEASURES BY THE GOVERNMENT.
MONTERREY BUSINESSMEN SAID THAT ONLY POSITIVE MEASURE TO
DATE HAD BEEN LIMITATION OF MINIMUM WAGE INCREASE TO 10
PERCENT. BUSINESSMEN DISLIKE SEVERAL JLP MEASURES, IN
PARTICULAR THE EXCESS PROFITS TAX AND THE SO-CALLED BASIC
PRODUCTS PROGRAM. THEY ALSO CONTINUE TO COMPLAIN ABOUT
PRICE CONTROLS AND THE GOVERNMENT'S RELUCTANCE TO LOOSEN
THESE, THE GOM SEEMS TO BE RESPONDING TO BUSINESS CONCERNS
ON THE EXCESS PROFITS TAX, BUT REMAINS VERY RELUCTANT TO
LOOSEN PRICE CONTROLS BECAUSE OF THE IMPACT HIGHER PRICES
COULD HAVE ON WAGE SETTLEMENTS.
5. BUSINESSMEN ALSO ARE CONFUSED REGARDING EXCHANGE RATE
POLICY. WITH A WIDESPREAD BELIEF THAT THE PESO WILL
DEPRECIATE TO ABOUT 30:L BY YEAR END, THEY ARE RELUCTANT
TO TAKE ON ADDITIONAL DOLLAR DEBT. THEY ALSO HESITATE
TO REPATRIATE CAPITAL. PESO CREDIT REMAINS LARGELY
UNAVAILABLE.
LIMITED OFFICIAL USE
of STATE
Department of State
OF I AMERICA UNITED
TELEGRAM
LIMITED OFFICIAL USE
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MEXICO 04375 021948Z
6. AS BEST WE CAN DETERMINE THERE HAS BEEN NO INCREASE IN
PRIVATE SECTOR INVESTMENT NOR IS AN INCREASE LIKELY IN
THE NEAR FUTURE.
7. FOREIGN DIRECT INVESTMENT SEEMS TO BE AFFECTED BY THE
SAME FACTORS, PLUS THE GENERAL RESTRICTIONS EMBODIED IN
MEXICAN LAWS. THERE HAS BEEN NO INDICATION OF A SHIFT IN
GOM POLICIES RE FOREIGN DIRECT INVESTMENT, THOUGH SENIOR
GOM OFFICIALS HAVE SPOKEN PUBLICLY ABOUT NEGOTIATING
SPECIAL CONDITIONS FOR INVESTMENT PACKAGES CONSIDERED
PARTICULARLY DESIREABLE.
8. GOM FEELS FRUSTRATED BY PRIVATE SECTOR'S CAUTIOUS
ATTITUDE AND PROBABLY VIEWS QUADRIPARTITE COMMITTEE AS
ANOTHER MEANS TO STRENGTHEN THE AURA OF GOOD RELATIONS
BETWEEN PUBLIC AND PRIVATE SECTORS AND, HOPEFULLY, TO
ACHIEVE CONCRETE RESULTS WHICH HAVE NOT YET EMERGED FROM
THEIR OTHER EFFORTS. THOMPSON
FORD & GERALD LIBRARY
LIMITED OFFICIAL USE
RESTRICTED
April 7, 1977
TO:
Chairman Burns
FROM:
Ted Truman
En)
SUBJECT: Treasury Paper on Possible Multilateral Swap Arrangements for
Mexico
Governor Wallich and I have discussed the Treasury paper on
possible multilateral swap arrangements for Mexico. We have the
following comments and questions.
1. At the present time, there appears to be no need for such
arrangements. Why, therefore, are we pursuing the matter?
2. If Mexico has a need, how large is it? Where did the
figure of $1.5-$1.9 billion come from?
3. Is this a temporary arrangement? How long would it be in
GERALD
FORD LIBRARY &
place?
4. The paper does not mention how long the drawings might be
expected to be outstanding. What is expected?
5. Such an arrangement not only creates a precedent for other
countries to come to the United States and the other participants for
similar arrangements, it also might encourage private lenders to insist
on similar "collateral arrangements" before they lend further to other
developing countries, e.g., Brazil.
6. The paper envisages Mexican drawings only in an emergency and
after IMF certification of Mexican adherence to the IMF conditions under
the Extended Fund Facility. What happens in the case when the last IMF
mission to Mexico was two months before the request for a drawing and
it brought back data that are now five months old? If Mexico truely has
RESTRICTED
MR95-1,#41
KBH 4/12/96
RESTRICTED
-2-
a financial emergency, won't a decision on action have to be made in
a matter of hours?
7. In this connection, the essential missing ingredient in
our knowledge about Mexico -- aside from fiscal data -- is that they
have not provided precise information on their external financing needs
and how they plan to meet them. Shouldn't such information be a pre-
requisite for such an arrangement?
8. Consideration should be given to the proper relationship
between five sources of external financing for Mexico: private lending,
IMF lending under the Extended Fund Facility, Treasury lending to pre-
finance drawings on the Extended Fund Facility, the proposed multilateral
swap arrangement, and the IMF super tranche.
9. The numbers suggested in the Treasury paper look high. It
is unlikely that Belgium and the Netherlands would each contribute $100
million when they contributed only $150 million to the sterling balances
arrangement. It is unlikely that Japan would give as much as $250 million,
or that Canada can contribute at all. Are we in danger of falsely raising
the Mexican's hopes? What about participation by Venezuela?
10. Why should the Federal Reserve put in more than the
Treasury? What kind of a firm take-out provision is available to the
Federal Reserve if Mexico cannot repay within a year?
11. Shouldn't Mexico be explicitly encouraged to repay any
drawings through borrowing either from the IMF or from the market?
cc: Governor Wallich
FORD i GERALD LIBRARY
RESTRICTED
[c.4-77]
CONFIDENTIAL
Multilateral Standby Swap Arrangements for Mexico
I. Overall structure of a Multilateral Standby Swap Arrangement
Mexico is seeking establishment of a multilateral swap
arrangement. The Germans and Swiss have indicated substantial
interest. This section examines several questions related to
the overall structure of a multilateral swap arrangement for
Mexico:
1. Institutional framework;
2. Conditionality prior to setting up such an
arrangement;
3. Size and composition;
4. Conditions for activation of the arrangement
including veto power by the contributors; and
5. Provisions for repayment including possible "take out".
Our thinking on the above considerations is as follows:
1. Institutional framework. The Federal Reserve Bank of
New York could serve as the fiscal agent for all the participants
in the facility. Mexico would make requests to the New York Fed
for drawings on the facility, with the Fed notifying participants.
It is preferable to have the Fed act in the capacity rather
than the BIS largely because it is essential for determinations
by the IMF to be binding on all participants. The BIS manage-
ment, in the Sterling Balance Facility, for example, was
reluctant to be bound be determinations of the IMF Managing
Director even when the BIS acted as agent for member central
DECLASSIFIED
banks.
E.O. 12958 Sec. 3.6
MR 95-2, #42; Treasury Hr. 3/7/96
CONF IDENTIAL
FORD & LIBRARY GERALD
By let NARA, Date 5/3/96
CONFIDENTIAL
- 2 -
Moreover, unlike the Sterling Balance Facility, 1) there is
no precedent for locating a Mexican swap facility in the BIS;
2) unlike the Bank of England the Bank of Mexico is not a
member of the BIS.
2. Prerequisite. A letter or statement from the IMF
that Mexico was fulfilling the conditions of the Extended Fund
establishing
a multilateral swap facility. This would require
the Mexicans to implement economic policies which are needed to
meet the EFF targets and which have not been forthcoming to date.
The requirement of a prior letter from the Fund would also
demonstrate our support of the IMF and make it clear to the
Mexicans that we feel adherence to the stabilization program is
essential for multilateral financial support. (In a telephone
conversation Witteveen and Solomon discussed this issue.
Witteveen expressed support for the idea, and felt that the
very
arrangement itself would be/useful. In addition, he felt that
conditionality based on the IMF program would provide additional
leverage in urging the Mexicans to meet the EFF program targets.)
3. Size and Composition. Our initial thinking indicates that
a facility of $1.5 to $1.9 billion could be arranged, composed of
contributions of the following amounts, with drawings and
repayments being pari passu and proportionate among the
participating countries.
FORD i LIBRARY GERALD
- 3 -
Hypothetical contributions to multilateral fac ity.
Share with
Share with
Millions of $
6 participants
8 participants
U.S.
$660*
(44% )
35%
Germany
$340
(23.5%)
18%
Japan
$250
13%
Switzerland
$200
(13% )
11%
Canada
$150
8%
BIS
$100
( 6.5%)
5%
Netherlands
$100
( 6.5%)
5%
Belgium
$100
( 6.5%)
5%
*The suggested U.S. contribution of $660 million combines
the present $300 million ESF swap arrangement and the $360
million Federal Reserve swap line. The ESF would turn $150
million of"window dressing" into drawable credit and would
extend the entire line on the terms of the multilateral facility.
This does not require a much greater U.S. commitment than already
exists and avoids a completely bilateral U.S. commitment to the
Mexicans.
4. Conditions for Activation. Upon a Mexican request to
draw from the facility, there would be a consultation among the
participating countries to determine whether the request met
two criteria, both of which would be required for the drawing
to be approved.
a. There is a genuing "emergency" need to draw.
FORD i LIBRARY GERALD
What "emergency" would lead to activation of the swap?
This is more difficult to define in advance in that
in many cases it may become a qualitiative rather than
quantitative assessment of a situation. Accordingly,
it may be preferable to develop a more general language
so that drawings could be made only, for example, to
meet "an mergency in Mexico's reser position or
exchange market situation which cannot be dealt with
by other means and which would have serious consequences
for the stability of the international monetary system.
b. That Mexico is meeting the EFF targets.
The IMF would be requested to certify whether or
not the EFF targets were being attained. Attainment
of the EFF targets would thus become a prerequisite
for each drawing as well as for the initial establish-
ment of the standby. This would necessitate the IMF
being fully informed on a continuing basis on the
current economic situation in Mexico.
C. Provisions for Repayment. Unlike similar arrangements pro-
vided for the UK in mid-1976, in the Mexican case there
would be no provisions directly linking repayment to
IMF drawings. If Witteveen's "super tranche" facility
is in place, activation of the swaps would be linked
to Fund resources, e.g., one additional factor in
allowing drawings will be whether Mexico is eligible
to draw like amounts within 3-6 months from the
FORD LIBRARY & GERALD
IMF. (The current availability of IMF credit to
Mexico is limited -- only 100 million SDRs are
available through the remainder of 1977.) At this
point there are no concrete assurances that the new
Fund facility will be in place, therefore the multilateral
swap cannot be explicitly tied to future Fund drawing.
/Note: Where the provisions of (a) above have been
met and IMF management certifies that Mexico would
be eligible to draw the requested amount from the
Fund within 3 months, there would be a strong presump-
tion in favor of activation of the swap to that extent./
- 5 -
II. Advantages and sadvantages of Establishing Such a Facility.
1. Advantages. The obvious advantage which the Mexicans
are fully aware of is that such a multilateral standby
could be used as "collateral" for private financing.
This may add a confidence factor to the Mexican
situation and enhance Mexico's ability to borrow
from the private market. However, current indications
are that Mexico is not experiencing difficulty in rolling
over short term debt nor are we aware of any difficulties
they may be having in floating new issues -- although
the magnitude of these new issues has not been significant.
2. The conditionality, linked to the EFF program, offers
several positive elements:
1. Offers greater incentives for meeting the
performance targets set forth in the IMF
agreement.
2. Provides greater leverage for those Mexican
officials, particularly in the Bank of Mexico
and Finance Ministry, who have been urging
additional cuts in public expenditure. These
FORD i LIBRARY GERALD
officials have been meeting strong resistance
from Carlos Tello (Minister of Planning and
Budget) who has inside access to President Lopez
Portillo and has been pushing for even greater
expenditure than has been budgeted in FY 77.
3. By establishing a multilateral arrangement, should a
crisis occur, the U.S. would not stand alone in providing
financial assistance to Mexico. A positive U.S. effort
in supporting and leading such an arrangement would
exhibit our desire and willingness to assist Mexico
through their current economic difficulties.
CONFIDENTIAL
6
Disadvantages
1. There is no clear indication that such a facility
is really needed and could conceivable generate a
negative market reaction if the private community
interprets the action as "the Governments know something
that we do not know."
2. It may raise a slight problem in explaining to the
Portuguese why such a facility could be arranged
for Mexico given the obvious difficulties that we
have encountered on the Portuguese consortium loan.
(The main difference is that the Mexican situation is a
short-term rather than a medium-term problem, plus
the peso is a convertible currency while the escudo
FORD & LIBRARY CERALD
is not and so is not considered an appropriate asset
for central banks.)
3. Establishment of such an arrangement for Mexico may
lead others to seek similar arrangements.
III. Recommendations:
1. That we clearly indicate to the Mexicans that formal
discussions on establishing the facility will not proceed
until after the IMF mission returns from Mexico (scheduled
for sometime in May) and reports on the economic situation,
with the explicit presumption that the EFF targets are being
attained.
2. That we indicate to the Mexicans our willingness to
proceed with informal discussions on the establishment of a
multilateral swap arrangement and emphasize that this facility
could not be used to undermine or lessen IMF conditionality in
anv wav.
CONFIDENTIAL
- 7 -
3. That we discuss with other potential participating
countries the magnitude of the facility and their potential
contribution.
4. That we make a careful examination of the likelihood
that if established, drawings would be made against the swap
arrangement.
5. That we ascertain what provisions (if any) can be made
to assure payback in the event of emergency situation.
6. Above all, that we proceed slowly in order to better
evaluate the likelihood that the Witteveen facility will be
established which would enable linking any swap drawings to
possible takeout from this facility.
GERALD R. FORD
GONFIDENTIAL
April 14, 1977
TO:
FROM: Ted Truman
Chairman Burns EMT
Attached is the latest cable from Mexico. It is consistent
with most of the information in Mr. Maroni's briefing last Friday. You
might be interested to note paragraph 8 in which it is reported that
the IMF is becoming the "whipping boy" for the president, privately, and
for some private economists writing in the press.
cc: Governor Wallich
Defense classification of this document is due
to the inclusion of U.S. Government information
officially classified under Executive Order 10501
which provides that "A document shall bear a
classification at least as high as that of its
highest classified component."
DECLASSIFIED
E.O. 18958 Sec. 3.6
MR95-1,# 43 Fed.Res Hr. 4/13/96
By 143H NARA, Date 4/12/96
GERALD R. FORD LIBRARY
THE
THE
MESSAGE
Mexico
10b
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BRANCH
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IMMEDIATE
APR 7. 9 28 PH 'If
TREASURY
dal 7/24/07
LIMDIS
E.O. 11652: GDS
SHOULY
TAGS: EFIN, MX
SUBJECT: CURRENT ECONOMIC SIT LAT ION
C.F.
1. SUMMARY: MEXICO ECONOMY, ACCORDING TO MOST ACCOUNTS,
Spr
IS STAGNANT, WITH NO SIGNS OF AN OVERALL RECOVERY.
ECONOMIC POL ICIES CONT INUE TO BE HOTLY DEBATED WITHIN GOM.
Pelihar
IMF IS BECOMING A TARGET OF CRIT ICISM AND LABOR IS SHOWING
SIGNS OF RESTLESSNESS. END SUMMARY.
Bettne
Newne
2. SLOWDOWN IN INDUSTRIAL ACTIVITY THAT BE GAN IN MID-76
AND WAS AGGRAVATED BY SEPTEMBER 1 DEVALUATION DOES NOT
Mun
APPEAR TO HAVE BEEN REVERSED THOUGH IT MAY HAVE REACHED
BOTTOM. AS THERE ARE NO DATA ON INDUSTRIAL ACTIVITY IN
Nie
THE FIRST QUARTER, OUR REMARKS ARE QUAL IVE. PRIVATE
gront
SECTOR INVESTMENT, WHICH DROPPED IN LAST QUARTER OF
1976 DOES NOT APPEAR TO HAVE REVIVED. PUBLIC SECTOR
shiff
SPENDING, ON BOT H CURRENT AND CAPITAL ACCOUNTS, IS SAID
TO BE RUNNING BEL OW BUDGETED LEVELS DUE IN PART TO DELAYS
Pora
DUE TO THE ADMINISTRAT IVE REFORM AND IN PART TO THE NORMAL
Isule
DELAYS IN SPENDING ASSOCIATED WITH A NEW ADMINISTRAT ION.
INCREASED ACTIVITY IN THE PETROLEUM AND RELATEDNDUSTRIES
S.Cro
IS THE ONL Y BRIGHT SPOT.
CONFIDENT IAL
13
CONFIDENTIAL
CERALD FORD LIBRARE
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THE
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3. GOM OFFICIALS MAINTAIN THEY HAVE ATTAINED IMF FIRST
QUARTER TARGETS FOR MONEY SUPPLY AND BUDGET DEFICIT.
4. MEXICO CURRENT ACCOUNT DEFICIT IS SAID TO BE RUNNING
BELOW PREVIOUS YEAR LEVELS, AND THE FIRST QUARTER DEFICIT
IS LIKELY TO BE ABOUT $400 MILLION, THIS IMPROVEMENT IS
DUE TO OWDOWN IN DOMEST IC ECONOMIC ACT IVITY AND AN
INCREASE IN PET ROLEUM AND COFFEE EXPORTS, THE LATTER
BENEFITING FROM HIGHER WORLD PRICES.
5. EXCHANGE RATE HAS REMAINED BETWEEN 22.50 AND 23.00
PESOS SINCE LATTER PART OF JANUARY. THE MARGIN BETWEEN
BUYING AND SELLING RATES HAS NARROWED WHICH WOULD SEEM TO
INDICATE A MORE EFFICIENT MARKET. WHILE BANK OF MEXICO
CONTINUES TO MAINTAIN IT IS LARGELY OUT OF THE MARKET,
IT IS IN A POSITION TO INFLUENCE THE RATE BY CONT ROLLING
TO SOME DEGREE THE FOREIGN EXCHANGE ACTIVITIES OF PUBL IC
SECTOR ENTITIES. CAPITAL FL IGHT APPEARS TO BE NEGLIGIBLE,
OWING AS MUCH TO A LACK OF DOMESTIC LIQUIDITY AS TO or HER
FACT ORS; CAPITAL REFLOWS, WHILE PROBABLY GREATER, ARE N OT
SIGNIFICANT SIGNIF ICANT AS BEST WE CAN FIGURE. THEY SEEM TO BE TAKING
THE FORM OF REPATRIATION OF DOLLAR CURRENCY MORE THAN
INTER-BANK FL OWS. THESE NET REFLOWS PLUS RELAT IVEL Y SMALL
NET INFLOWS FROM PUBLIC SECT OR EXTERNAL BORROWING APPEAR
TO BE THE BASIS FOR THE STABLE EXCHANGE RATE AS BANK OF
MEXICO RESERVES ARE REPORTEDLY STABLE.
6. PRESIDENT SEEMS PERPLEXED BY COUNTRY'S PRESENT
ECONOMIC SITUATION. GOM REALIZES THE INADEQUACIES OF ITS
FORMER DEVELOPMENT MODEL, BUT IT HAS YET TO DEVISE A NEW
STRATEGY. LIKEWISE, II REAL THE NEED FOR FINANCIAL
STABILITY, BUT IT IS RELUCTANT TO RUN THE POLITICAL RISKS
INVOLVED IN TAKING THE STEPS USUALLY ASSOCIATED WITH
ACHIEVING THIS STABIL II Y. IN PARTICULAR, GOM IS PREOC-
CUPIED BY RISK OF LABOR DISSAT ISFACT ION WITH 10 PER-
CENT LID ON NE GOT IATED WAGE SETTLEMENTS. THIS IS RESULTING
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IN REPRESSED INFLATION AS THE GOVERNMENT IS RELUCTANT TO
APPROVE PRICE INCREASES FOR MANUFACTURED PRODUCTS SUBJECT
TO PRICE CONTROLS AND FOR PUBL IC SECT OR ENTITIES' PRICES.
7. NUMEROUS IDEAS ON A LONGER TERM DEVELOPMENT STRATEGY
EXIST. THESE EMPHASIZE THE NEED TO ABANDON MEXICO'S
PROTECTIONIST POLICIES AND CREATE THE BASIS FOR EXPORT-
OR IE NT ED GROWTH. HERE AGAIN GOM IS RELUCT ANT TO ACT
BECAUSE OF OPPOSITION FROM DOMESTIC INDUSTRY IN MONOPO-
LISTIC POSITIONS AND THE SHORT-TERM IMPACT SUCH POLICIES
MIGHT HAVE ON THE BALANCE OF PAYMENTS AND EMPLOYMENT.
8. AS USUAL IN MEXICO, THE COUNTRY'S ECONOMIC PROBLEMS
ARE BEING BLAMED ON EXTERNAL FACT ORS. IMF IS BECOMINGA
WHIPPING BOY, BY THE PRESIDENT PRIVATELY AND, IN THE LAST
FEW DAYS, BY PRIVATE ECONOMISTS VIA THE MEXICAN PRESS.
PRESIDENT, IN SPITE OF HIS EXPERIENCE AS FINANCE MINISTER,
IS RELUCTANT TO TAKE STRONG STABILIZATION MEASURES AND
APPEARS CONFUSED BY, OR UNDECIDED BECAUSE OF CONFL ICT ING
ADVICE FROM HIS CABINET. AS BEST WE CAN DETERMINE, THE
CENTRAL BANK AND TREASURY ARE URGING ST RONGER MEASURES,
PARTICULARLY AS REGARDS PUBLIC SECT OR SPENDING, WHEREAS
THE BUDGET AND PLANNING MINISTRY IS RECOMMENDING THAT ONLY
THROUGH INCREASED PUBLIC SECTOR INVESTMENT SPENDING CAN
BOITLENECKS TO INCREASED OUTPUT BE REMOVED AND INFLATIONARY
PRESSURES DAMPENED OVER THE MEDIUM TERM.
9. INFLATION IS A MAJOR POLITICAL AND ECONOMIC CONCERN OF
THE GOVERNMENT AT THE MOMENT. BANK OF MEXICO ISSUED ITS
FORD & LIBRARY 938870
CONF IDENT IAL
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THE
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unity
PRICE INDICES FOR MARCH WHICH SHOWED A SLOWDOWN IN INCREASES
IN MEXICO CITY'S CPI, THE MONTH TO MONTH INCREASE FOR
MARCH WAS 1.5 PERCENT COMPARED TO 2.5 PERCENT IN
FEBRUARY. THE NATIONAL CPI HAS BEEN INCREASING AT A
SL IGHTLY FASTER RATE THAN THAT FOR MEXICO CITY, PROBABLY
BECAUSE PRICE CONTROL ENFORCEMENT EFFORTS ARE MORE EFFEC-
TIVE IN THE CAPITAL THAN IN THE MAJOR PROVINCIAL CITIES.
10. GOM HAS MOVED SLOWLY TO IMPLEMENT ECONOMIC POLICIES.
SOME PUBLIC SECTOR PRICES ARE BEING RAISED, BUT ONLY
PIECEMEAL. INTEREST RATES ARE TO BE DETERMINED BY MARKET
CONDITIONS, BUT BANK OF MEXICO WILL PROBABLY MOVE ONLY
GRADUALLY TOWARD MARKET-DETERMINED INTEREST RATES. LEGAL
RESERVE REQUIREMENTS FOR BANKS HAVE BEEN MODIFIED, BUT GOM
OFFICIALS MAINTAIN THAT THIS WILL NOT, IN NEAR FUTURE,
RESULT IN INCREASED CREDIT AVAILABILITIES FOR PRIVATE
SECTOR. SOME IMPORT-LICENSING REQUIREMENTS HAVE BEEN
DROPPED, BUT THIS APPEARS TO BE A MEASURE TO REDUCE PAPER
WORK MORE THAN A TRADE-LIBERALIZATION MEASURE. EXPORT
REBATES HAVE BEEN RE-INTRODUCED, BUT THIS SEEMS TO INDICATE
FAILURE OF THEIR EXCHANGE RATE CHANGE TO MAKE MEXICO'S
MANUFACTURED EXPORTS COMPETITIVE AS THE REBATES WERE
DROPPED AT THE TIME OF THE DEVALUATION. THERE HAVE BEEN
CONFIDENTIAL
CONFIDENTIAL)
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STATEMENT
THE
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MEXICO 04844 02 OF 02 080148Z
NO PUBLIC STATEMENTS ON THE BUDGET SINCE IT WAS INTRODUCED
LAST DECEMBER, THOUGH VARIOUS GOM OFFICIALS HAVE SAID
PRIVATELY THAT THEIR CURRENT EXPENDITURE BUDGETS ARE BEING
CUT.
11. AFTER 22 YEARS OF RELATIVE ECONOMIC STABILITY, MEXICO
AND MORE SPECIFICALLY ITS PRESIDENT ARE ON THE HORNS OF A
DILEMMA. THE OBVIOUS ECONOMIC SOLUTIONS RUN POLITICAL
RISKS. THE CURRENT ECONOMIC PROBLEMS - INFLATION, STAGNATION
AND INCREASING UNEMPLOYMENT - HAVE POLITICAL RISKS.
THOMPSON
CONFIDENTIAL
CONFIDENTIAL
FORDO if LIBRARY
RESTRICTED
April 22, 1977
TO:
FROM:
Ted Truman
Chairman Burns EMT
SUBJECT: Visit by Mexican Officials
In connection with your meeting on Monday with Mr. Moctezuma,
Mr. Romero Kolbeck, and Mr. Alfredo Phillips, Mr. Maroni has prepared
the attached background material.
a. Mr. Maroni's Board Briefing, April 8, 1977.
b. Update on Mexico, April 13, 1977.
c. Recent Fiscal Policy and Wage Policy Trends in
Mexico, April 22, 1977.
d. Recent Economic and Financial Indicators.
We understand from the notes (extra copy attached) on
Mr. Solomon's trip to Mexico that at least one of the purposes of the
Mexican officials' visit with you is to discuss your views on bank
lending to developing countries in general and Mexico in particular.
They apparently believe that they have been experiencing some resistance to
their borrowings in the market because of your remarks.
We also understand that when these officials visit the IMF
they may for the first time suggest an adjustment in the Extended Fund
Facility program with the IMF. In particular, they may ask to raise the
ceiling on the budget deficit from 90 billion (and 6 per cent of GNP) to
105 billion pesos, about 6.5 per cent of estimated 1977 GNP. It is clear
from the Solomon notes that there is still a policy struggle in Mexico
on this and related issues. The notes also mention that after May 1
&
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President Lopez-Portillo is planning to give a major economic policy
address; this speech has been planned for three months.
With respect to the possible multilateral stand-by swap
arrangement, Mr. Solomon apparently emphasized that the following con-
ditions would have to be met. (a) Mexico must be abiding by the IMF
conditions at the time the arrangement is formalized. (b) Mexico must
be abiding by the IMF conditions at the time of any drawing. (c) The
drawing must be associated with an emergency, or a genuine financing,
need. (d) Participants can opt out if necessary. (e) The private market
must know of the conditions. (f) Drawings are to be for three months
with a maximum of three rollovers. (g) Mexico must commit itself to
using the IMF super tranche as a take out if such an arrangement exists.
It is a little unclear to me exactly how matters are proceed-
ing with respect to Mexican thinking on this subject. I was disturbed
by the report that Lopez-Portillo does not yet know about this proposal.
My concern is that the plans could become so far advanced that, by the
time Lopez-Portillo hears about them, political forces might lead to
their implementation without the needed conditionality.
According to Solomon's report, the Mexicans are prepared to
move slowly on this matter, probably talking to the Canadians and Japanese
during the meetings in Washington next week. On the other hand, I have
since heard that the Mexicans may be pushing to move ahead more rapidly.
cc: Governor Wallich
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[4-22-77]
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Chairman Burns
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HANDLE THE ATTACHED DOCUMENT IN ACCORDANCE WITH INTERNAL
INFORMATION SECURITY PROCEDURES FOR RESTRICTED INFORMATION
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Mexico's Current Economic Situation
and Prospects - Under-Secretary Solomon's
Trip to Mexico April 12-15, 1977
1. Summary: There is qualified optimism regarding economic
prospects and the GOM's ability to meet the percentage
targets in the Fund-GOM agreement. Inflation is a major
political as well as economic concern. The President is
going to address the nation on economic subjects shortly.
2. The Fund and the Budget
Much of Mr. Solomon's discussions focused on the Fund
targets and the Budget deficit. The President made a strong
pitch that the Fund should adopt a more flexible attitude
toward Mexico. He argued that Mexico could not afford to
tighten its belt to the same degree that the U.K. or Italy
might do because of a lack of social welfare programs. He
also stressed that too stringent stabilization measures could
mean political risks that could result in a "fascist" political
solution as in southern South America.
Later, Lic. Izquierdo said by "flexibility" the President
probably meant not only a small increase in the public sector
deficit to 100-105 billion pesos, but also a loosening of the
money supply targets if it was necessary to resort to money
creation to finance a part of this deficit. Lic. Solis, and
others, maintained that it should be possible to meet all the
Fund targets except the 90 billion peso target; that is, the
money supply target, the percentage targets such as the 6%
public sector deficit target, and the $3 billion limit on
the increase in the public sector external debt.
The 6% of GDP target for the public sector deficit
was said to be attainable by the President but Izquierdo
and Escobedo said it may be 7%. The attached table outlines
what might happen to the deficit. Lic. Izquierdo said that
Bill Dale had given the President a letter on December 1,
of last year stating that the percent targets were more
important than the specific monetary targets. Several officials
made the point that the economic situation had changed so
significantly in the three months following the negotiations
of the Fund Agreement (Oct.-Dec.), that the specific targets,
in particular the 90 billion peso deficit, were recognized
as unattainable, by the Fund as well as GOM officials.
DECLASSIFIED
CONF IDENTIAL
E.O. 12958 Sec. 3.6
#45, Treasury Hr. 3/7/96
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By let NARA, Date 5/3/96
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The absolute size of the prospective deficit is also
disputed. The figures mentioned ran from 100 to 110 billion
pesos. The size depends in part on the impact of revenue
measures to be announced after May 1. This is the local
Labor Day and the GOM does not believe it can boost public
sector prices before as labor would blame the government for
aggravating inflation. Among the measures under consideration
are higher prices for gasoline and some other oil products
but not diesel fuel as this would impact on public trans-
portation costs. The GOM hopes to raise about 20 billion
pesos additional revenue through its revenue measures.
Escobedo said that the measures already taken on prices for
sugar, telephones and fertilizer will add 10 billion pesos to
the original revenue estimate. Raising the price of gasoline
one peso per liter brings in 10 billion pesos additional
income annually.
Regarding financing of the deficit, there was general
agreement that about 50 billion pesos would be financed
from domestic sources, and about 60 billion pesos would
come from foreign borrowing. Most of the 50 billion would
come from the domestic banking system via the reserve
requirements. As noted above, there was some doubt as to
whether the increase in bank deposits would be adequate to
finance this volume of credit without resorting to money
creation. While the GOM will receive some funds from direct
domestic borrowing, these will not be significant. Escobedo
said he thought $2.6 billion in foreign borrowing would raise
59 billion pesos. He also mentioned that the GOM-owned
financial institutions might borrow 20 billion pesos externally,
in addition to the public sector deficit. He said that the
GOM might let private bankers handle some of this borrowing.
(Note: 20 billion pesos net foreign borrowing by the GOM-
owned financing intermediaries, in addition to their lending
to the public sector, would put the increase in the net new
GOM external debt over the $3 billion ceiling. This may be
why they would try to, switch some of this borrowing to the
private sector.)
Escobedo also thought the drawdowns of Fund credit were
outside the $3 billion ceiling.
The Bank of Mexico noted the Government still had a
slight surplus in its account; that is, the Bank could still
advance funds to the government based on the increase in
domestic liabilities of the Bank. This, it was noted, was
unusual this far into the year.
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Regarding expenditures, officials noted there were no
plans to reduce spending below budgeted levels. They
maintained that current spending would not increase in real
terms whereas investment spending would increase about 4%.
They maintain there will be no increase in federal employment.
Apparently the President held a series of meetings last
week on economic policy and the budget, in particular. Nobody
gave much information on what transpired, but Izquierdo noted
that the President recognized the need to reduce consumption
and increase savings. Apparently, the revenue measures were
decided at these meetings as well as a decision not to reduce
spending.
2. The Exchange System
Romero Kolbeck said that the Bank of Mexico was controlling
foreign exchange transactions by public sector entities in order
that these would not upset the market. This meant that certain
purchases or sales were postponed until they could be matched.
Regarding the exchange rate, Romero said it would probably
depreciate further and mentioned the figure 25:1 by year-end
as a very hypothetical possibility. Solis noted that the
Fund might be concerned at the lack of any significant move-
ment in the rate since January 30.
Romero said that the BIS experts had advised against
a major attempt to create a forward market until some degree
of stabilization is attained. Romero did state some very
limited forward transactions were taking place.
3. The Balance of Payments
Every official noted with pleasure the improvement in
the current account deficit. Izquierdo said that he would
be concerned over a deficit for the year below two billion
dollars as this would imply a very low level of economic
activity. Solis maintained manufactured exports were increasing.
Izquierdo said the reintroduction of CEDIS (rebates to
exporters of manufactures for indirect taxes) should be viewed
as a signal that the GOM wanted to direct manufacturers'
attention to export markets.
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Escobedo said that net oil exports in 1977 should be
$750 million, increasing to $1.1 billion in 1978 and $1.5
billion in 1979. (The 1976 net petroleum exports were about
$265 million).
4. Inflation and Wages
Inflation was recognized as Mexico's most urgent economic
problem, with political overtones. Izquierdo noted that no
important group in Mexico could live with inflation. He also
said that wage pressures constituted the major inflationary
pressure at the moment since aggregate demand is flat at best.
All officials noted that the monthly rate of inflation had
been declining, but that the year to year rate of inflation
(GDP price deflator) was unlikely to be less than 30%.
May 1 Labor Day was cited as very important. Izquierdo
said the slogan of the day was likely to be "Lower Prices"
rather than 'Higher Wages." He said the. 10% ceiling on wage
increases was being maintained and that he was hopeful it
could be held another three to four months. Izquierdo said
that the 90 basic consumption goods should be ready for
distribution by May 1, and emphasized that production and
distribution of these products would be important in
continuing labor-acquiescence toward the 10% ceiling.
Also, price increases for manufacturers' other goods would
be contingent on their producing these goods. (Note: It
would appear that the rate of inflation may spurt in June
and/or July following the prices increase ).
Solis noted that labor also opposed any depreciation
in the exchange rate.
5. Presidential Speech
The President is planning to give a major economic
address shortly, though no firm date is fixed. He will
be emphasizing the need for austerity and sacrifice, and
laying out the government's economic program in some detail,
but probably not mentioning specific numbers. Izquierdo
noted that this was the speech that has been in the making
for three months.
i
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6. General Economic Situation
Izquierdo noted that demand was flat and that
retailers were complaining. He presumed the economy
was not growing at the moment, and said he did not
anticipate a growth rate over 2% for the year. Regarding
private investment, he said the larger businesses were
going ahead with investment plans, but that small and
medium sized firms were holding back. He noted the lack
of credit and expressed some concern that this was hindering
any recovery in output. Mancera said no decision had yet
been made on interest rates on peso deposits. He also said
liabilities of the banking system in dollars had increased
as fast, or faster, than peso liabilities.
GERALD FORD LIBRARY
7. External Borrowing
Escobedo maintained that he did not anticipate any
problems in external borrowing this year. He said they
hoped to borrow $1.8-2.0 billion from private financial
markets and about $600 million from official sources. He
said the Pemex issue was well received and that Bankers
Trust and Orion were underwriting a $150-$200 million credit
for BANOBRAS. He also said the United Mexican States were
going to float a 50 million 5-year bond issue in the U.S.
shortly. Net borrowing to date was about $300 million, gross
about $700 million.
Izquierdo maintained the foreign bankers were happy
with what Moctezuma said at the Bankers Convention; that is,
no debt renegotiation, will repay on schedule and can do so
because of the oil reserves. Izquierdo maintained that
bankers worried only about repayment and not the general
economic situation.
8. PEMEX/EXIM
Pemex's reluctance to move ahead with a line-of-credit
from Exim was due to bureaucratic delays according to some
officials. Izquierdo said he didn't know why there was a
delay, but hinted at other than mere bureaucratic delays.
9. Chairman Burns Statement
Lic. Romero said that besides being critical of U.S.
bank lending to LDCs, Chairman Burns had apparently made
some reference to Mexico as being in serious problems. This
was hurting Mexico's ability to borrow and was the subject
that Romero had wanted to discuss with Burns last week.
CONFIDENTIAL
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Mr. Solomon indicated that Dr. Burns had made a more
comprehensive statement on the question of bank lending
on April 12.
10: The Witteveen Letter
Izquierdo said that the President was infuriated at the
reference in Witteveen's letter to a restoration of financial
stability as in the 50's and 60's. Izquierdo reported the
President as saying that this was impossible even for the
U.S.
CLASSIFIND BY anthony dification m Alemen
Purmet
11652
5(b)(3)
Exerpt
02 Imposible
to determine
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Attachment:
Mexico's GDP in 1976
(billions of pesos)
1215
+ 2% real growth
24.3
+ 30% price deflator
371.8
= 1977 GDP
1611.1
6% of 1977 GDP
96.7
7% of 1977 GDP
112.8
110 billion pesos equals 6% of 1833.3.
This is 50.8% greater than the 1976 GDP.
105 billion pesos is 6% of 1750, which is
44% above the 1976 GDP.
FORD & LIBRARY 939870
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April 14, 1977
MEMORANDUM OF CONVERSATION
Participants: Bank of Mexico
Lic. Gustavo Romero Kolbeck - Director General
Lic. Jorge Espinosa de los Reyes - Sub-Director
General
Lic. Leopoldo Solis - Sub-Director General
Lic. Francisco Suarez - Gerente
United States
Under Secretary Solomon
Llewellyn P. Pascoe, Financial Attache; Mexico City
Time and Place:
10 a.m., April 13, Bank of Mexico
Subject: Multilateral Swap Facility
Under-Secretary Solomon said he had discussed the possibility
of a multilateral swap facility with Messrs. Emminger and Leutwiler
and Chairman Burns, following Alfredo Phillips' call to him from
Germany. He noted these officials had made several points regarding
the facility. One was the size of the Mexican request. Another
was the timing; that is, it could be negotiated only after the Fund
Mission in May. There also should be a provision whereby a central
bank could decline to participate in any drawing. Another was
the possibility of some kind of a "take-out" via the "super-tranche"
should it be available. Mr. Solomon also noted that Chairman
Burns thought it necessary to let private banks know the conditionality
aspect of the swap and what these conditions were.
Lic. Romero did not object to these points, nor did he react
strongly to a figure of $1 to 1.25 billion. Under-Secretary Solomon
said this could include the elimination of the $150 million "window-
dressing" element of the ESF swap. Romero noted that the Europeans
mentioned that such a facility is usually 50% U.S. money and 50%
from others.
Under-Secretary Solomon asked why Mexico wanted such a facility
in that they shouldn't need it if they met the Fund targets. Lic.
Romero replied that it would serve a political purpose. Presently,
the IMF is associated with "U.S. imperialism." A multilateral swap
would spread the blame for having to meet IMF-imposed targets.
DECLASSIFIED
E.O. 12958 Sec. 3.6
CONF IDENTIAL
MR 95-2, 46; Treasury Hr 3/7/96
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Under-Secretary Solomon asked whether the President might
not object to the conditionality for political reasons. Lic.
Romero said that when talks reached a stage where serious
negotiations were possible, he would present the idea, with its
political aspects, to the President for approval. At the moment,
only Hacienda and the Bank of Mexico were involved. He did
not anticipate a problem.
Lic. Romero called the facility "window-dressing" on several
occasions which Mr. Solomon advised against. Romero said Hauge
of Manufacturers Hanover had also suggested they not call it
"window-dressing."
Lic. Romero then outlined his strategy. He said he wanted
to discuss the idea with Canadian and Japanese officials. He
said he intended to discuss the idea with the Japanese Finance
Ministry in late May when he would be in Tokyo. It was agreed
that Mr. Solomon would not raise the matter with the Japanese
prior to Romero's talks.
Under-Secretary Solomon warned Lic. Romero that a multilateral
swap might be counter-productive in that it could be viewed as a
sign that Meixco's position was more serious than it otherwise
appeared. He said the Mexicans should seriously consider whether
or not he should carry this idea any further. Romero said the
Mexicans would take this under, consideration; also, that he
would continue to take direct soundings with private bankers
without mentioning that he had had conversations with government
officials. He said he would get back to Under-Secretary Solomon
subsequently.
CLASSIFIED BY Macification
Insurpt
11032
5(t)131
FROM
Importemble
to determine
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April 14, 1977
MEMORANDUM OF CONVERSATION
Participants: Mexico -
Jose Lopez-Portillo, President of Mexico
Lic. Gustavo Romero Kolbeck-Director General
of Bank of Mexico
United States -
Anthony M. Solomon - Under-Secretary for
Monetary Affairs, Treasury
Herbert B. Thompson, Charge d'Affaires
Llewellyn P. Pascoe - Financial Attache
FORD & GERALD LIBRARY
Time and Place: 12 Noon, April 13, Palacio Nacional
Subject: Courtesy Call; The Fund Program
The President said he would like U.S. financial officials to
appreciate his views regarding the Fund targets. He said that
he thought Mexico could attain the Fund percentage targets, but
that it might be difficult to meet the 90 billion peso budget
deficit. He emphasized the need for greater flexibility on the
part of the Fund and perhaps some relaxation of the timing
requirements.
The President noted that he would be making a speech on the
economy within a few days that would call for sacrifice from
everybody. He maintained that Mexico was different from the U.K.
or Italy in that these countries had greater reserves than Mexico
and various social welfare programs to ease the impact of
stabilization measures. In the case of Mexico, belt-tightening
can go only so far because there is nothing to tighten a belt
against, or even a belt for Mexico's poor. He said that too strong
measures could risk social unrest and turn Mexico into a fascist
state like Brazil or Chile. In this connection he discussed the
price of corn and how difficult it is to raise the price of
tortillas.
Under-Secretary Solomon said the President sounded very
similar to the Prime Minister of England and expressed the same
concerns, yet England had taken effective measures and quickly
improved their position. He noted that while these measures were
difficult to take, they could improve the situation. A discussion
ensued in which Mr. Solomon pointed out the substantive economic
advantages of following the Fund recommendations particularly in
the long run even though there were short-term political DECLASSIFIED risks
E.O. 12958 Sec. 3.6
CONFIDENTIAL
295-2,*46; Treasury 3/7/96
By let NARA, Date 5/3/96
CONF IDENTIAL
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Mr. Solomon and the President agreed there was very little
room for maneuver in any direction without serious consequences
and the President remarked that he was walking a thin wire.
Mr. Solomon spoke warmly of the U.S. Ambassador-Designate to
Mexico based on a long personal friendship.
CLASSIFIED BY anthony Ressification m Solemon
Except from
concrol
DE
Order 11652
Schedul
Except (
classified on disposible
(t)(3) (t) (3)
Automaticully
to determine
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Up-date on Mexico
External Debt
We now estimate Mexico's total external debt at the end of
1976 at about $26 billion, about $1 billion more than in our report of
February 8, 1977, (see attached table). On the other hand, we have
lowered our estimate of interest payments on the external debt during
1976, from about $2 billion to about $1-3/4 billion. At this level,
interest payments represented 25 per cent of the gross earnings from
goods and services. This is a revision from the 28 per cent figure
cited in the earlier report.
The claims on Mexico reported by U.S. banks and their foreign
branches at the end of 1976 totalled $13 billion. This is an increase
of $900 million since the end of September. In view of this increase,
we now estimate that the total claims on Mexico of all G-10 banks re-
porting to the BIS were $17.9 billion at the end of December, $200
million more than previously estimated.
Current Economic and Financial Situation
The prospects for the current account of Mexico's balance of
payments in 1977 look somewhat brighter now than they did two months
ago. The previously known favorable factors (the economic recovery in
the United States and the sluggishness of the Mexican economy) are
being complemented by three new developments: (a) the rise in world
coffee prices, (b) a favorable cotton harvest, and (c) the severe winter
Including $1,261 million in claims of branches and agencies of
foreign banks operating in the U.S.
GERALD FORD LIBRARY
- 2 -
weather in the United States which made possible increased shipments
of Mexican fruits and vegetables as well as of crude oil and natural
gas. A new copper mine is scheduled to go into production later this
year, and should make a further significant contribution. Increased
production of crude oil may also raise oil export earnings to about
$800 million, up from about $600 million in 1976.
For these reasons, the current account deficit in 1977 may be
somewhat lower than the $2-3/4 billion figure estimated in our report
of February 8, 1977. This may make it possible for Mexico to get
through the year with less financing than the $3 billion which it is
permitted to borrow from external sources under its agreement with the
IMF. However, the authorities may choose to borrow more than is
actually needed and add the rest to the Bank of Mexico's international
reserves. During the first quarter, these reserves rose by about $190
million. At the same time, external borrowings so far this year are
reported to be smaller than had been anticipated.
The approach of Easter is traditionally the occasion for the
Mexicans, who remember the 1954 devaluation of the peso over the Easter
week-end, to transfer funds abroad in fear of another devaluation.
However, this year, there has been no evidence of any significant
outflow of funds. Available banking data suggest that some reflow of
Mexican capital may have taken place since the Lopez Portillo administra-
tion took office last December.
FORD & LIBRARY GERALD
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On the fiscal side, it does not appear that Mexico has yet
taken sufficient steps to cut down the prospective deficit of the
public sector to the level specified in the agreement with the IMF.
There are good reasons to believe that expenditures are lagging and
that this may help ensure compliance with the IMF agreement in the
short run. But, once rates of expenditures are normalized, as they
eventually will be, the deficit is likely to rise above permissible
levels.
Meanwhile, the upward movement of prices has slowed down
somewhat. Wholesale prices rose 2.3 per cent in January and 1.7 per
cent in February, after rising at an average rate of about 7 per cent
per month in the previous four months. Consumer prices rose 3.2 per
cent in January, 2.2 per cent in February, and 2.1 per cent in March,
after rising at an average rate of 4 per cent per month in the previous
four months.
One factor contributing to the slowdown in the upward movement
of prices is what appears to be a restrained attitude by organized
labor in collective bargaining negotiations so far this year. Recently
completed negotiations have involved wage increases reported to average 8
to 10 per cent. However, organized labor may seek a reward for this
restraint later on in the year: the Government has followed the practice,
in the last four years, of decreeing an across-the-board wage increase
in September to compensate for the effects of inflation, and it may
FORD is 07VN39 LIBRARY
- 4 -
well be under pressure to continue the practice this year. Its
decision in this respect will have an important impact on the prospects
for reducing the rate of inflation in the last half of the year and in
1978.
Prepared by Yves Maroni
April 13, 1977
FORD i LIBRARY 07VR39
Mexico's External Debt
(in millions of dollars)
End of
End of
1975
1976
Public Sector
14,449
19,600
Medium and Long Term
(11,612)
(15,923)
Short Term
( 2,837)
( 3,677)
/
/
Private Sector
5,551
6,400
/
/
Total
20,000
26,000
Of which, due to:
/
G-10 banks
13,465
U.S. banks 1/
17,900
( 9,895)
Other banks
( 3,570)
(13,031) ( 4,869) /
U.S. and International
Institutions
2,141
3,168
IBRD and IDB
( 1,689)
( 1,895)
IMF
-
( 478)
U.S. Treasury
-
( 150)
Federal Reserve
-
( 150)
Eximbank
( 452)
( 495)
Other Governments
290
n.a.
Suppliers
459
n.a.
Other Private Creditors
1,770
n.a.
/
Unallocated
1,875
n.a.
1/ Including agencies and branches of foreign banks in the United States
($866 million in 1975 and $1,261 million in 1976).
e/ Estimated.
FORD & LIBRARY
Recent Fiscal Policy and Wage Policy Trends in Mexico
There is a sharp divergence of opinion between the IMF staff and
the responsible Mexican officials about the probable magnitude of the deficit
of Mexico's public sector in 1977. The Mexican officials speak of a deficit
ranging from 100 to 110 billion pesos, while the lowest estimate mentioned
by the IMF staff is 130 billion pesos.
A part of the discrepancy appears to reflect a conceptual difference,
but there is also disagreement about the revenue and expenditure estimates.
The IMF staff believes that some of the Mexican revenue estimates are over-
stated and that some of the economies for which the Mexicans take credit
will not be fully realized. In particular, the IMF staff is unwilling to
take into account measures which the Mexican have mentioned, but which they
have not yet implemented. Increases in gasoline prices and, perhaps, in
electricity rates are said to be in the offing, but the Mexican authorities
are reported to be waiting until after the traditional Labor Day, on May 1,
before announcing them, so as not to generate social unrest.
Organized labor has agreed to accept wage increases of not more
than 10 percent this year on the understanding that prices would be held
down. Since December, however, the consumer price index has risen nearly
8 percent. To get labor's agreement on the 10 percent wage ceiling, the
Government has undertaken to secure the production and distribution of
90 basic consumption articles at controlled prices. Producers will be allowed
to increase prices on the remainder of their production line only if they
produce the basic products and sell them at the controlled prices.
FORD i LIBRARY GERALD
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The higher gasoline prices and electricity rates, if and when
they are implemented, will of course, be reflected in the consumer price
index. The Mexican authorities may be tempted to hold these increases
down so as to enhance the likelihood that labor will continue to adhere
to the 10 percent wage ceiling. It will be a delicate matter to reconcile
this objective with the need to reduce the public sector fiscal deficit.
In recent years, real wages appear to have increased significantly
in Mexico. Minimum wages, which greatly influence other wage settlements,
doubled over the period January 1973-January 1976, compared to a 64 percent
increase in the consumer price index in this period. This represents a
22 percent increase in minimum wages in real terms. No systematic information
exists regarding contractual wages, but. apart from being influenced by the
minimum wage rates, they have included, beginning in 1973, general increases
recommended by a Wage Commission headed by the Secretary of Labor. These
amounted to 18 percent in September 1973, 22 percent in September 1974,
and 16 percent in September 1975. or an increase of 67 percent in the three-
year period. The IMF staff reports that Government employee pay followed
the Commission recommendations and that, according to available evidence,
contractual wages in the private sector increased in all three years by
at least the rates applied to Government employee pay.
Since January 1976, there has been an across the board increase
of 23 percent in September 1976 and an increase in minimum wages of 10 percent
on January 1, 1977. From the fourth quarter of 1975 to the fourth quarter
FORD is LIBRARY 07V839
- 3 -
of 1976, contractual wages in the private sector are estimated to have
increased by about 36 percent, compared to an increase of 24 percent in
the consumer price index.
This record suggests that, while organized labor undoubtedly
will want to preserve these gains, there is some room to reduce real wages
without returning to the position of 1973. How long labor's patience will
last cannot be predicted, but it is significant that another Government
employee pay review will take place in September, and pressures may mount
before then to apply a pay increase across the board, as last year,
especially if the monthly increases in the consumer price index do not
diminish markedly soon.
Prepared by Yves Maroni
April 22, 1977
FORD is LIBRARY GERMLD
RESTRICTED-CONTROLLED
C.9b
FINANCIAL INDICATORS -- MEXICO
(dollar amounts in millions)
1975
1976
1977
Week ended
APR 1-
YEAR
QI
QII
QIII
QIV
JAN
FEB
MAR
20
MAR 23
MAR 30
APR 6
APR 13
Apr.
20
EXCHANGE RATE (CENTS PER PESO, END OF PERIOD)
8.00
8.00
8.00
5.03
4.98
4.55
4.41
4.40
4.42
4.40
4.40
4.39
4.40
4.42
SDR VALUE OF PESO
.06842
.06924
.06985
.04364
.04297
.03960
.03833
.03802
03809
.03807
.03802
.03797
.03794
.03809
SHORT TERM INTEREST RATE (E.O.P.)
12.94
13.11
13.11
14.36
14.36
14.36
14.36
14.36
14.36
14.36
14.36
14.36
14.36
14.36
LONG TERM INTEREST RATE (E.O.P.)
13.02
12.86
14.17
15.09
14.29
14.29
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
RESERVES (IFS, E.O.P.)
1,533
1,501
1,585
870
1,251
1,513
1,449
1,442
AVAILABLE IMF CREDIT TRANCHES (E.O.P.)
433
620
615
621
596
596
481
481*
INTERVENTION, PURCHASES (+) OR SALES (-)
OF DOLLARS
24.3
95.2
-102.4
10.1
2.5
-49.5
-42.4
-0.5
13.0
(OF OTHER CURRENCIES, EQUIVALENT)
SWAP ACTIVITY (SWAP LINE -- 360)
DRAWINGS
360
360
150
--
REPAYMENTS
-360
-360
-150
GERALD
LIBRARY
*Available under three-year Extended Fund
Facility program starting January 1, 1977.
RESTRICTED-CONTROLLED
April 21, 1977
Prepared by Financial Markets
Section
MEXICU: ECONOMIC INDICATORS
C.9a
April 21, 1977
1974
1975
1976
1975
1976
1976
1976
1976
1977
1976
1976
1976
1976
1977
1977
1977
IV
I
II
III
IV
I
SEPT
OCT
NUV
DEC
JAN
FEB
MAR
REAL GDP,1970=100
126.4
131.8
134.4
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A,
REAL GDP, PER CENT
CHANGE (1)
5.9
4.2
2.0
N.4.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A, N.A. N.A. N.A. N.A. N.A. N.A.
INDUSTRIAL PRODUCTION
1970=100
132.8
139.0
142.3
140.8
144.0
144.6
142.6
138.0
N.A.
138.9 141.1 138.1 134.8 N.A. N.A. N.A.
INDUSTRIAL PRODUCTION
PER CENT CHANGE (1)
7.3
4.7
N.A.
0.8
2.2
0.4
-1.4
N.A.
N.A,
-3.3 1.6 -2.1 N.A. N.A. N.A. N.A,
WHULESALE PRICES
PER CENT CHANGE (1) 22.4 10.5 22.3
2.3
5.6
3.2
5.6
21.0
N.A.
6.2 8.4 8.2 5.3 2.5 1.7 N.A,
CONSUMER PRICES
PER CENT CHANGE (1) 23.8 15.0 15.8
2.0 4.4 2.6 3.2 12.5 8.7
3.4 5.6 4.5 2.5 3.2 2.2 2.1
MONEY STOCK (M1) (SA)
PER CENT CHANGE (1)
20.9
22.3
22.9
5.8
3.9
4.7
5.8
13.1
N.A.
8.2 1.9 7.1 3.2 -0.4 N.A. N.A.
PUBLIC SECTOR DEF. (-)
AS PER CENT OF GDP
-7.8
-9.3
-10.2
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A. N.A. N.A. N.A. N.A. N.A. N.A.
CENTRAL GOVT. DEF.(-)
AS PER CENT OF GDP
-3,8
-4.3
-4.7
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A. N.A. N.A. N.A. N.A. N.A. N.A.
EXPORTS (2)
($ BILLION)
3.5
3.5
4.0
0.9 0.9 1.0 0.8 1.1 1.3
0.2
0.2
0.3.
0.4
0.5
N.A.
N.A.
IMPORTS ($ BILLION)
6.1
6.6
6,0
1.9
1.4
1.7
1.5
1.4
N.A.
0.4
0.4
0.4
0.6
0.3
N.A.
N.A
TRADE BALANCE (2)
($ BILLION)
-2.6
-3.1
-2.1
-1.0 -0.5 -0.6 -0.7 -0.3 N.A.
-0.1
-0.2
-0.1
-0.2
-0.1
N.A.
N.A.
BALANCE ON GOODS AND
SERVICES ($ BILLIUN) -2.6 -3.8 -3.0
-1.1 -0.7 -0.9 -1.0 -0.5 N.A.
N.A. N.A. N.A. N,A, N.A. N.A. N.A.
(1) PER CENT CHANGE FROM PREVIOUS PERIOD. QUARTERLY CHANGES
AT QUARTERLY RATES, MONTHLY CHANGES AT MONTHLY RATES.
P..
FORD
(2) MONTHLY DATA EXCLUDE EXPORTS OF BORDER ASSEMALY PLANTS AND OF SILVER
AND ARE NUT CONSISTENT WITH QUARTERLY OR ANNUAL DATA.
GERALD
LIBRARY
RESTRICTED
Board Briefing
GERALD FORD LIBRAST
Yves Maroni
April 8, 1977
This morning, I will report on Mexico's economic situation
and in particular what we know about Mexico's compliance with the
provisions of its agreement with the International Monetary Fund. Under
the agreement, Mexico is required to observe, at the end of each calen-
dar quarter, specific levels of performance regarding four monetary and
financial variables, and failure to meet the specific targets on these
dates would lead to an interruption in Mexico's eligibility to draw
on successive tranches under the Extended Fund Facility agreement. Our
best judgment is that for the year as a whole, the outlook remains dis-
couraging, but there is a good chance that the first quarter targets may
have been met largely because of short-term and technical factors.
The first performance target is that the overall deficit of
the public sector in the first quarter must not exceed 25 billion pesos.
On this score, it is reported that revenues are coming in at about the
anticipated rates while expenditures are lagging, and that the Government
has not had net recourse to the Central Bank for financing so far this
year. These reports appear to be corroborated by partial data shown to
us by a Mexican Ministry of Finance official who visited here last
Monday. We have no independent way to verify the information on revenues,
but we do have grounds to believe that expenditures are in fact lagging.
We know that a sweeping government reorganization took place at the be-
ginning of the year and that the new administration of President Lopez
DECLASSIFIED E.O. 12958 Sec. 3.6
Portillo has been going through a shake-down period. A lag in spending,
With PORTIONS EXEMPTED
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particularly for capital investment projects, would therefore not be
surprising. Moreover, for projects which are being implemented, the
alternative exists of delaying the payment of bills. In fact, the
Mexican official who visited us on Monday made it clear that the
balance of unpaid bills was increasing. Since unpaid bills will be
excluded from the calculation when judging performance, it is likely
that, technically speaking at least, the fiscal deficit target for
March 31 will be found to have been observed.
The second performance target is that the external borrowings
of the public sector in the January-March period must not exceed $1.2
billion. We lack data to verify compliance in this area, but two ob-
servations may be made. First, the current account of the Mexican
balance of payments is likely to have continued to improve in the
first quarter. This is suggested by the January trade and tourism data,
and by developments affecting subsequent months, including the continuing
sluggishness of the Mexican economy, the economic recovery in the United
States, and such special factors as the rise in world coffee prices, a
favorable cotton harvest, and the severe winter weather in the United
States which made possible increased shipments of Mexican fruits and
vegetables, as well as crude oil and natural gas. Secondly, the evidence
from banking data suggests that some reflow of capital to Mexico has
been taking place.
These two factors point toward a reduced need for external
credits. In fact, reports from the Financial Attache of the U.S.
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Embassy in Mexico City indicate that Mexican external borrowings so
far this year are smaller than had been anticipated. The press
FORD
and other sources have reported announcements of new borrowings of
GERALD
about $500 million in the first quarter. Our best judgment is that
the external borrowings target for March has most probably been ob-
served.
The third performance target is that the increase in the
Bank of Mexico's net international reserves must exceed the increase
in its currency issue. During the January-March 1977 period, gross
international reserves rose by
and net reserves by about
We do not yet have data on the currency issue at the end
of March. However, in the first two months of the year, the currency
issue declined by nearly 11 per cent, owing to seasonal factors, which
are to be disregarded for the purposes of this target. This decline
left a large unused margin for a possible expansion in March. The cur-
rency issue would have had to have increased by more than 18 per cent
from its February level to place Mexico in violation of this target
at the end of March. An increase at such a rate is quite unlikely to
have occurred.
The fourth performance target is that the increase in the
Bank of Mexico's net domestic assets must not exceed the increase in
its liabilities to banks and public sector entities. In fact, this
target is the complement of the third target dealing with the relation-
ship between the increase in net international reserves and the increase
in the currency issue. It would appear that, barring some accounting
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peculiarities of which we are not aware, compliance with the third
target would entail compliance with the fourth one as well.
The data needed to verify Mexican performance in the first
quarter against these targets will not be available until mid-May,
at the earliest, but the signs point toward Mexico being in compliance,
at least technically. For the rest of the year, the prospects are more
guarded, particularly because the Mexican authorities have apparently
not yet taken steps to reduce the fiscal deficit for the year as a whole
to the level of 90 billion pesos specified in the IMF agreement. Once
expenditure rates are normalized, as they eventually will be, the deficit
is likely to rise above the permissible levels.
The IMF staff believes that the Mexican revenue estimates are
overstated and that the expenditure estimates are understated. As a
result, they forecast a deficit of about 130 billion pesos for the entire
public sector for the year as a whole, about 25 billion pesos more than
the Mexican authorities presently estimate. Our Mexican visitor of last
Monday said that the authorities were about to increase gasoline prices
and electricity rates and he estimated that this would further reduce
the deficit by 7 to 8 billion pesos, the exact amount depending on the
date when these measures take effect. He added that other expenditure
cuts are under active consideration.
In the final analysis, much will depend on the outcome of the
economic policy debate now going on in Mexico. One group within the
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administration is advocating measures to stimulate production, rely-
ing on the eventual appearance of enlarged supplies to help fight
inflation. Another group is pushing for an attack on inflation through
further cuts in public spending to hold down aggregate demand. It is
not yet clear which side will win this debate.
FORD i GERALD LIBRARY
RESTRICTED
BOARD OF GOVERNORS OF FEDERAL RESERVE SYSTEM
RESTRICTED
April 26, 1977
TO:
Chairman Burns
FROM: Ted Truman
Attached for your information are
my notes on your meeting yesterday with the
Mexican officials.
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FORD is LIBRARY 07V830
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E.M. Truman
April 26, 1977
Notes on Meeting with Mexican Officials
Participants: Mr. Moctezuma (Secretary of Finance), Mr. Romero Kolbeck
(Director General of the Bank of Mexico), Mr. Solis (Bank of
Mexico), Mr. Tello (Secretary of Programming and Budget), Mr. Diaz
(Director General of Pemex), Chairman Burns, Governor Wallich,
Ted Truman.
began the discussions by noting that on the previous
visit he and.
had mentioned the need for an additional $1 billion
in net external borrowing in 1977 over the $3 billion ceiling in the
IMF agreement. This was needed for the development of Pemex.
interrupted to say that the group had met with
Mr. Witteveen on the problems that they were having following up and
executing the Extended Fund Facility agreement. He pointed to three
problems. (1) The 90 billion peso figure for the 1977 public sector
deficit agreed upon in September was no longer realistic. It was neces-
sary to start over and compute what deficit would be consistent with
a target of 6 per cent of GDP. (2) The limit on currency issue was too
tight; they needed more leeway especially to permit some seasonal
variation. (3) There was the special case of the need to borrow for
Pemex.
explained the program of Pemex. He said it was fixed
by two parameters: the needs of the country and the size of Mexico's
oil reserves. The reserves, based on recent geological information,
appear now to be very large. This was not realized when the discoveries
were first made in 1973. In 1975, Mr. Moctezuma had helped to begin a
DECLASSIFIED F.O. 12958 Sco. 3.6
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E.O. 12958 Swc. 1.6
Fed. Res. Restrictions
MR 95-1, #50 Fed. Res. Hr. 2/13/96
By KBH NARA, Date 4/19/96
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study of the matter. That study was completed in December and it
indicated that Mexican proven oil reserves were 11 billion barrels.
(Note:
has said elsewhere that potential reserves may be on
the order of 60 billion barrels. A new study, by a U.S. firm, is now
under way.)
Pemex has adopted a program to raise production to 2-1/4
million barrels per day (mbd) in 1982 with exports of 1.1 mbd. For
1977 they had expected production of 955 thousand barrels per day and
exports of 153 thousand barrels per day, but production was now running
at 1,050 thousand barrels a day and exports at 174 thousand barrels a
day. In December they had expected to be able to produce in 1977 an
average of 1000 cu. ft. of gas per barrel of oil; now the figure is
closer to 7000 CU. ft. per barrel. Moreover, they had made a dry gas
discovery near the Texas border.
Pemex was switching to a strategy of exploiting its gas reserves
along with its oil reserves. To do this an extensive 48 inch pipeline
has to be built which had not been planned in December. The cost would
be $1.5 billion. U.S. firms wanted to build it just to have right of
first refusal to the gas; banks were willing to finance the project.
Burns asked why the project could not be implemented.
and
replied that the $3 billion in net new
foreign borrowing had already been earmarked for other projects.
Burns asked why adjustments could not be made to previous plans.
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said that the public investment program was very tight
for 1977 involving a reduction in real terms. Other projects would have
to be cut back; this was work in progress.
Burns asked why these projects could not be stretched out.
said this would not solve Mexico's balance of payments
problems. To solve these problems they needed exports and to provide
exports production must increase.
Burns noted that this would also probably accelerate inflation.
responded that the addition from the Pemex project would
be in the form of real imports.
argued that Mexico was forced to take this approach
because of the nature of the geological formations. Pemex was now flaring
the gas which was a crime! He noted that Mexican oil and gas production
was only 40 hours from the United States compared with 40 days from
Middle East sources.
Wallich asked if the entire $1 billion was to cover added
foreign exchange costs.
answered that the direct import content was 30 per cent.
said that the average for the six-year project was 30-
32 per cent.
noted that it takes too long to get pipe from Mexico;
therefore, they would import it, which would raise the import content.
Burns noted again that this would appear to accelerate economic
activity.
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argued that economic activity had been low for two
years.
Burns noted that the inflation rate in Mexico was also too
high.
noted that it was necessary to balance the short run and
the long run.
Burns asked about the implications for the IMF program.
commented that there were ways to get around
the problem. The equipment could be acquired through lend lease or the
contractors might receive private financing. He noted that the price of
gasoline would be raised to reduce the fiscal deficit. But that the
rate of economic expansion would also increase.
argued that the cost of not embarking on this program
was reduced exports and production.
Burns noted again that the cost could be an acceleration of
inflation.
said that the short-run benefits could add a net of $5-6
billion to the balance of payments over six years.
Burns asked what the impact would be in 1977. He went on to
say that he was not an expert on Mexico, but he felt Mexico had gotten
into trouble by trying to move too fast. Maybe this would happen again.
noted that this time the investment was directly
related to exports, but it was true that there was a timing problem.
Wallich asked about the status of the stand-by conditions.
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CERALS FORD LIBRARA
said they were under the limits for the first
three months.
said that when the IMF mission comes to Mexico next
week it will be necessary to look at the entire program. The program
had been based on preliminary data in September; now complete date were
available.
Wallich noted that indeed the inflation rate was higher.
said yes the implicit IMF forecast was 18 per cent--year
over year.
noted that the inflation rate was declining,
reaching 1.5 per cent in March. (Note: This refers to Mexico City only.
The national CPI rose 2.0 per cent in March.) The 1977 current account
deficit would be $2 billion or less. The Treasury had not borrowed
directly from the central bank. The banking system was recuperating.
Reserves had increased $800 million since the end of December and the
Federal Reserve and the Treasury had been repaid. (Note: The reported
figures show a $230 million increase through March 20 on the IMF basis
and $257 million on the Mexican basis; they have also repaid $300 million
in borrowing from the Federal Reserve and Treasury.)
Wallich asked about their borrowing plans.
said that in 1977 they planned to borrow $3 billion
net and $8 billion gross, of which $4-1/2 billion would be short term and
$1-1/2 billion would be for five years or more. (This would leave $2
billion of medium-term borrowing. Note, however, that the earlier figure
on gross borrowing was $9 billion.) Net borrowing so far had been $400
million and about $900 million gross. The early period had been slow
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-6-
but March was more active. (There was a passing reference to the swap
proposal.) The target was to come as close as possible to $3 billion,
but it may not be needed.
Wallich noted that in that case there would be room for the
new Pemex program.
Burns asked if they could raise $3 billion.
said that no U.S. or European bank had reacted
adversely so far. He said that they had been travelling in Europe
talking with various bankers and central bankers. They had heard no
doubts so far. Up to the present they have borrowed more than they need
and had received advance offers of loans. Their policy was to have only
one quasi-government agency in the market at one time.
At this point the visit was terminated because the group had
an appointment with the Exim Bank.
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FORD FIBRARY