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Mexico, 4/76-10/77 (4)
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324801943
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Mexico, 4/76-10/77 (4)
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Arthur F. Burns Papers
Federal Reserve Board Subject Files
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Mexico
International Monetary Fund. (07/1944 - )
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1977
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The original documents are located in Box B80, folder "Mexico 4/76 - 10/77 (4)" of the Arthur F. Burns Papers at the Gerald R. Ford Presidential Library. Copyright Notice The copyright law of the United States (Title 17, United States Code) governs the making of photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United States of America his copyrights in all of his unpublished writings in National Archives collections. Works prepared by U.S. Government employees as part of their official duties are in the public domain. The copyrights to materials written by other individuals or organizations are presumed to remain with them. If you think any of the information displayed in the PDF is subject to a valid copyright claim, please contact the Gerald R. Ford Presidential Library. NATIONAL ARCHIVES AND RECORDS SERVICE WITHDRAWAL SHEET (PRESIDENTIAL LIBRARIES) FORM OF CORRESPONDENTS OR TITLE DATE RESTRICTION DOCUMENT 1. telegram Donald Syvrud to Undersecretary Yeo, Sam Cross, and 11/2/76 A F.L. Wilman Mexico City 38268, re Mexico's External Debt and U.S. Bank Exposure (2 pp. DECLASSIFIED let 5/96 2. telegram Donald Syvrud to Treasury Dept. Mexico City 38255 11/1/76 A CLASSIFIED re Mexican Foreign Exchange Developments in at 5/96 1976 (5 pp. ) 3. telegram Donald Syvrud to Undersecretary Yeo, Sam Cross, and 11/1/76 A F.L. Widman, Mexico City 38264, re Mexican Foreign Exchange Developments in 1976 (20 pp. DECLASSIFIED ut 5/96 4. memo case, Collins to Burns, 11/3/76 4a. memo J. Foster Collins, Treas. Dept. to Burns re 11/3/76 C(A) reports on Mexico (1 p.) saniti zed 18/17/97 4b. telegram American Embassy Mexico to Sec of State, 10/27/76 A Mexico 13678 re Lopez-Portillo meeting with U.S. businessmen (3 pp. ) DECLASSIFIED 7/25/07 dol 4c. telegram American Embassy Mexico to S.c. of State, 10/28/76 A Mexico 13748, re re-pegging of peso (2 pp. ) DECLASSIFIED 7/25/07 dal 4d. telegram American Embassy Mexico to Sec of State, 11/1/76 A Mexico 13923 re possible revision of IMF program for Mexico (2 pp. ) DECLASSIFIED 7/25/07 doe 4e. memo re Mexican Economic Situation (2 pp. ) sanitized 10/30/76 A 8/24/95 4f. telegram (7 pp. ) 103A 10/26/76 A 4g. telegram American Embassy Mexico to Sec. of State 11/2/76 A Mexico 13934 re Mexican economic & political developments. (4 pp. ) DECLASSIFIED 2/12/15 4h. telegram (4 pp. ) 10/27/76 A sanitized 4i. telegram (8 pp. ) 8/24/95 10/27/76 A KBH 4j. telegram excerpt from State Dept. telegram, #5585, re c. 10/28/76 A FILE LOCATION Mexico (1 p.) Declassified 2/24/95 ILBH Arthur Burns Papers SR Federal Reserve Board Subject File, Box B80 8/13/84 Mexico, Nov. 1-3, 1976 RESTRICTION CODES (A) Closed by Executive Order 12065 governing access to national security information. (B) Closed by statute or by the agency which originated the document. (C) Closed in accordance with restrictions contained in the donor's deed of gift. GENERAL SERVICES ADMINISTRATION GSA FORM 7122 (REV. 1-81) NATIONAL ARCHIVES AND RECORDS SERVICE WITHDRAWAL SHEET (PRESIDENTIAL LIBRARIES) FORM OF CORRESPONDENTS OR TITLE DATE RESTRICTION DOCUMENT 4k. memo William Morell, Jr. to Secretary Simon re Mexico 11/3/76 A (2 pp. DECLASSIFIED it 5/96 5. memo case, Truman to Burns, 11/3/76 5a. telegram American Embassy Mexico to Sec. of State, 11/1/76 A Mexico 13923, re possible revision of IMF program (2 pp. ) 5b. telegram American Embassy Mexico to Sec. of State, 2/12/15 11/1/76 C(A) Mexico 13924, re Ambassador Dent's visit to Mexico (2 pp. 5c. telegram American Embassy Mexico to Sec. of State, DECLASSIFIED 11/2/76 A Mexico 13934, re ecomomic and politicàl developments in Mexico (4 pp.) 6. memo case, Wallich to Burns, 11/3/76 6a. memo Edwin Truman to Burns re status of Mexico's 10/2/76 C(A) applications for drawings from the IMF (2 pp.) opened 4/22/96 KBH FILE LOCATION Arthur Burns Papers SR Federal Reserve Board Subject File, Box B80 8/14/84 Mexico, Nov. 1-3, 1976 RESTRICTION CODES (A) Closed by Executive Order 12065 governing access to national security information. (B) Closed by statute or by the agency which originated the document. (C) Closed in accordance with restrictions contained in the donor's deed of gift. GENERAL SERVICES ADMINISTRATION GSA FORM 7122 (REV. 1-81) SECRET 021736Z NOV 76 STAFF CITE MEXICO CITY 38268 TO: IMMEDIATE DIRECTOR. TEXT FOLLOWS OF MR. DONALD SYVRUD 2 NOVEMBER MESSAGE FOR TREASURY UNDERSECRETARY YEO, SAM CROSS AND F.L. WILMAN: "CONFIDENTIAL NODIS TO: UNDER SECRETARY YED, SAM CROSS, F.L. WIDMAN FROM: D. SYVRUD SUBJECT: MEXICOS EXTERNAL DEBT AND US BANK EXPOSURE 1. OUR BEST ESTIMATES OF MEXICOS END OCTOBER EXTERNAL DEBT, PUBLIC AND PRIVATE, IS $25.3 BILLION WITH A PROJECTED FURTHER INCREASE TO $25.9 BILLION BY THE END OF 1976. THE FOLLOWING TABLE GIVES A BREAKDOWN OF PUBLIC AND PRIVATE, SHORT AND NG TERM ESTIMATES AND OUR SOURCES. 2. BANK OF MEXICO OFFICIALS ESTIMATE THAT US PRIVATE BANKS HOLD AN AVERAGE OF 70 PERCENT OF THE TOTAL DEBT, WITH SHORT 17,8 TERM DEBT ALMOST ENTIRELY HELD BY US BANKS. ON OTHER HAND, FEDERAL RESERVE DATA FOR MARCH 1976 SHOWED US BANK EXPOSURE AT $10.5 BILLION, WHICH ABOUT HALF TOTAL ESTIMATED DEBT AT THAT TIME. ACTUAL US BANK EXPOSURE PROBABLY LIES SOMEWHERE BETWEEN THESE TWO EXTREMES, BUT CLOSER TO LOWER LEVEL. BOM OFFICIALS SAY THAT US BANKS CHANNEL CREDITS THROUGH ENTREPOTS WHICH ARE NOT INCLUDED IN FED DATA. DECLASSIFIED E.O. 12958 Sec. 3.6 MR95-2,#6; #6; Treasury Lts. 3/7/96 DERALO FORD LIBRARA By lit NARA, Date 5/3/96 PAGE 2 MEXICO CITY 38268 SECRET EXTERNAL DEBT MEXICO'S EXTERNAL DEBT (BILLIONS OF U.S. DOLLARS) DEC 1975 JUNE 1976 DEC 1976 PUBLIC SECTOR 14.8 17.0 19.3 SHORT TERM 2.7 3.2 3.3 LONG-TERM 12.1 13.8 16.0 PRIVATE SECTOR NA 6.6 6.6 SHORT TERM NA 2.7 2.7 LONG TERM NA 3.9 3.9 TOTAL EXTERNAL DEBT NA 23.6 25.9 SOURCES IMF SM 76/200, TABLES XXI AND XVIII FOR DECEMBER 1975 AND JUNE 1976 PUBLIC SECTOR DATA. BOM ESTIMATES FOR JUNE 1976 PRIVATE SECTOR DATA (SEE NOTES OF TABLE 5 OF PREVIOUS TELEGRAM) ALL DECEMBER 1976 DATA ARE BASED ON ASSUMPTIONS AND PROJECTIONS IN BALANCE OF PAYMENTS DATA IN TABLE 5 OF PREVIOUS CABLE. E2 IMPDET SECRE GERALO FORD LIBRARY BT SECRET 1 NOVEMBER 76 RECIEVE 012006z FROM: MEXICO CITY 38255 in 086343 TO: DIRECTOR PLEASE PASS THE TEXT OF MR. DONALD SYVRUD"S MESSAGE TO THE TREASURY DEPARTMENT. (Under Secretary YEO, SAM Cross, F.L. Widman) SUBJECT: MEXICAN FOREIGN EXCHANGE DEVELOPMENTS IN 1976. 1. ON THE BASIS OF DATA COMPILED OVER THE WEEKEND BY ALFREDO PHILLIPS AND HIS STAFF, I PREPARED THE ATTACHED MEMORANDUM (BEING SENT SEPARATELY) WHICH ATTEMPTS TO RECONCILE FOREIGN EXCHANGE RESERVE MOVEMENTS AND INTERVENTION DATA AND PROJECTS BORROWING REQUIREMENTS AND AVAILABILITIES FOR THE REMAINDER OF 1976, I DISCUSSED HIS MEMORANDUM AND THE TABLES APPENDED TO IT WITH FERNANDEZ-HURTADO OCTOBER 31, HE COMMENTED ON SEVERAL PARAGRAPHS BUT AGREED TO ITS ACCURACY, AND TO FORWARDING SECRET DECLASSIFIED E.O. 12958 Sec. 3.6 MR 95-2,#7; Treasury Hr. 3/7/96 By ut NARA, Date let 5/3/96 BERALD FORD LIBRARY CABLE SEC DISSEM BY PER TOTAL COPIES RUN BY REPRODUCTION BY OTHER ; SECRET ISSUING OFFICE IS PROHIE PERSON/UNIT NOTIFIED ADVANCE COPY ISSUED/SLOTTED BY AT z STAFF ACTION UNIT 1 4 RF. FILE. VR. O N F I 2 5 3 6 ACTION # T 346260 EIA954 PAGE 02 IN 086343 TOR:012006Z NOV 76 MEXI 38255 IT TO WASHINGTON, HE ASSUMES THAT IT WILL ALSO BE GIVEN TO THE FED. BOTH HE AND PHILLIPS HAVE COPIES OF THE MEMO. 2. IN SUM, THE MEMO CONCLUDES: MEXICO'S GROSS FOREIGN EXCHANGE RESERVE POSITION AS OF OCTOBER 29 WAS $778 MILLION. THE INTERVENTION DATA MEASURES THE CHANGE IN NET FOREIGN RESERVES WHICH DECLINED BY $3,400 MILLION THROUGH OCTOBER -5, GROSS RESERVES DECLINED $955 MILLION, AND FOREIGN EXCHANGE LIABILITIES INCREASED BY THE REMAINDER, OF WHICH $365 MILLION SWAP TO THE U.S. TREASURY, $700 MILLION LIABILITY 2 TO MEXICAN COMMERCIAN BANKS AND $1,380 MILLION LIABILITY TO MEXICAN PUBLIC ENTERPRISES. BANK OF MEXICO PROJECTIONS FOR NOVEMBER AND DECEMBER SH OW A NET INFLOW OF $205 MILLION, ASSUMING NO FURTHER SPECULATIVE OUTFLOW. HOWEVER, THIS PROJECTION INCLUDES $800 MILLION "SPECIAL FINANCING" FROM THE BANK OF AMERICA GROUP, EXCLUDING THIS ( CREDIT BOM PROJECTS A $600 MILLION DEFICIT FOR THE TWO MONTHS PLUS WHATEVER PRIVATE CAPITAL OUTFLOW MAY OCCUR. 3, FERNANDEZ-HURTADO ALSO AGREED THAT THE NEXT STEPS SHOULD BE (A) TO IMPROVE OUR REPORTING SYSTEM, AND (B). TO EXAMINE THE PUBLIC SECTOR FINANCIAL DATA AND DOMESTIC GERALD FORD VIPRARD SECRET CABLE SEC DISSEM BY PER TOTAL COPIES RUN BY REPRODUCTION BY OTHER TH SECRET ISSUING OFFICE IS PROHIBIT PERSON/UNIT NOTIFIED ADVANCE COPY ISSUED/SLOTTED BY AT z STAFF ACTION UNIT 1 4 RF. FILE. VR. 0 N F I 2 5 3 6 ACTION # T 346260 EIA954 PAGE 03 IN 086343 TOR:012006Z NOV 76 MEXI 38255 MONETARY AND CREDIT TRENDS WITH THE AIM OF ASSESSING THE OUTLOOK FOR THE NEXT TWO MONTHS. 4, IN OUR DISCUSSION OF THE MEMORANDUM, F-H MADE THE FOLLOWING ADDITIONAL POINTS: (A) NET PUBLIC SECTOR BORROWINGS FOR 1976 ARE ESTIMATED AT $4.500 MILLION. NET BORROWINGS THROUGH END SEPTEMBER ARE $3,847 MILLION; OCTOBER NET BORROWINGS WERE NEGLIGIBLE, THE FORECAST FOR NOVEMBER- CL - 3.0 DECEMBER IS $654 MILLION (TABLE 5). Flift -2,5 5.5 (B) ASSUMING A CURRENT ACCOUNT DEFICIT OF $3000 MILLION Palise + 4.5 (TABLE 4), GROSS RESERVE LOSS OF $1000 MILLION, AND NET Restle +10 5.5 PUBLIC SECTOR BORROWINGS OF $4,500 MILLION, SPECULATIVE CAPITAL FLIGHT WOULD AMOUNT TO $2,500 MILLION FOR 1976. (C) THE ASSUMPTION IN TABLE 5 THAT THE PUBLIC SECTOR WOULD ROLL OVER EXISTING DEBTS MAY BE OPTIMISTIC, HE THOUGHT SOME OF THE BANKS WOULD NOT WANT TO MAINTAIN THEIR EXPOSURE, PARTICULARLY THOSE PARTICIPATING IN THE $800 MILLION SPECIAL FINANCING, THE ASSUMPTION FOR ROLLOVER OF PRIVATE SECTOR CREDITS, HE THOUGHT, WAS REALISTIC, GERALD FORD LIBRAPY (D) PRIORITY MUST BE TO STEM THE OUTFLOW OF DOLLARS. SECRET CABLE SEC DISSEM BY PER TOTAL COPIES RUN BY REPRODUCTION BY OTHER TH SECRET ISSUING OFFICE IS PROHIBIT PERSON/UNIT NOTIFIED ADVANCE COPY ISSUED/SLOTTED BY AT Z STAFF ACTION UNIT 1 4 I RF. FILE. VR. 2 5 N 3 6 F ACTION # O T 346260 EIA954 PAGE 04 IN 086343 TOR:0120067 NO V 76 MEXI 38255 THE PERIOD NOVEMBER 15 TO END OF JANUARY IS SEASONABLY THE MOST FAVORABLE FOR THE BALANCE OF PAYMENTS, BUT THE POLITICAL CLIMATE IS NOT HELPFUL. (E) THREE FACTORS ARE IMPORTANT IN ASSESSING MARKET CONFIDENCE: THE LEVEL OF PUBLIC SECTOR SPENDING, THE TREND OF WAGE SETTLEMENTS, AND THE ATTITUDE OF THE NEW GOVERNMENT TO THE PRIVATE SECTOR. THE TREND OF WAGE SETTLEMENTS IS FIXED FOR NOW, THE LOPEZ-PORTILLO GOVERNMENT WILL HAVE TO HOLD THE LINE THERE TOO, AS IT IS EXPECTED TO DO ON PUBLIC SECTOR SPENDING. (F) HE ELABORATED ON EARLIER VIEWS ON THE EXCHANGE MARKET. HIS AIM IS TO ELIMINATE SPECULATION WITH MINIMUM INTERVENTION, GIVEN CONFIDENCE FACTOR, THIS WILL BE DIFFICULT TO DO PRIOR TO DECEMBER 1. FURTHER, DEPRECIATION OF THE RATE WILL CONTRIBUTE TO SPECULATIVE GERALD FORD LIBRARY Hero 2 FEVER, HE IS AIMING AT HOLDING THE RATE BETWEEN 20-25 PER U.S. DOLLAR WITH MINIMUM MARKET INTERVENTION AND A WIDENING BAND. HE PLANS TO WIDEN GRADUALLY THE BAND WITHIN WHICH THE BANKS CAN QUOTE, WHILE HOLDING THE SPREAD BETWEEN BUYING AND SELING RATES TO ONE PERCENT. ON OCTOBER 31, SECRET CABLE SEC DISSEM BY PER TOTAL COPIES RUN BY REPRODUCTION BY OTHER TM SECRET ISSUING OFFICE IS PROHIBIT PERSON/UNIT NOTIFIED ADVANCE COPY ISSUED/SLOTTED BY AT Z STAFF ACTION UNIT 1 4 : I RF. FILE. VR. 2 5 Z 3 6 F ACTION # O T 346260 EIA954 PAGE 05-05 IN 086343 TOR: 0120067 NOV 76 MEXI 38255 FOR EXAMPLE THE BOM RATES WERE $24.40 BUYING AND $25.65 SELLING PER DOLLAR, A BAND OF ABOUT 5 PERCENT. THIS BAND WILL BE WIDENED, WITHOUT ANY PUBLIC ANNOUNCEMENT, TO GIVE THE MARKET A SENSE OF THE DIRECTION THE BOM EXPECTS; THE BAND WILL BE WIDENED IN A DOWNWARD DIRECTION, THAT IS, BY GREATER REDUCTION IN THE BUYING RATE BELOW 24.40. That nevvers friend FORD & GERALD LIBRARY -- SECRET I NOVEMBER I976 RECEIVED 012338Z FROM: MEXICO CITY 38264 IN 086483 TO DIRECTOR FAEE 1 THE FOLLOWING IS ATTACHMENT TO 1 NOV MESSAGE FROM MR. DONALD SYVRUD TO TREASURY DEPARTMENT FOR ATTENTION OF UNDER SECRETARY YEO, MR. SAM CROSS AND MR. F.L. WIDMAN. SUBJECT: FOREIGN EXCHANGE DEVELOPMENTS IN 1976. INTRODUCTION 1, THIS PAPER TRACES THE BANK OF MEXICO'S (BOM) FOREIGN EXCHANGE RESERVE POSITION AND INTERVENTION DATA FOR 1976, RECONCILES CHANGES IN THE RESERVE POSITION WITH INTERVENTION DATA, AND PROJECTS THE BORROWING REQUIREMENTS AND FOREIGN EXCHANGE AVAILABILITIES FOR THE REMAINDER OF 1976. FOREIGN EXCHANGE RESERVES 2, THE BANK OF MEXICO'S GROSS FOREIGN EXCHANGE RESERVES AS OF OCTOBER 29, 1976, TOTALLED 778 MILLION, A BECLINE OF 797 MILLION SINCE DECEMBER 30, 1975. THE COMPOSITION OF GROSS RESERVES value? ON THE BASIS OF PRELIMINARY DATA ARE: GOLD, 264; IMF, 0; SDRS, 50; SECRET DECLASSIFIED E.O. 12958 Sec. 3.6 MR 95-2; #8; Treasury Ltr. 3/7/96 FORD is GERALD LIBRARY By ut NARA, Date 5/30/96 SECRET Page 2 EX, 444; US TREASURY BILLS, 19; ACCEPTANCES, 1: NET BILATERAL PAYMENTS POSITION, 19; SEE TABLE 1. (IF THE GOLD HOLDINGS ON OCTOBER 28 WERE VALUED AT A CONSTANT PRICE OF $42.22 PER DUNCE, THE SAME VALUE AS OF DECEMBER 30, 1975, THE CHANGE IN GROSS FOREIGN EXCHANGE RESERVES WOULD AMOUNT TO $955 MILLION). THE BANK OF MEXICO'S NET FOREIGN EXCHANGE RESERVE POSITION, TAKING THE U.S. TREASURY SWAP INTO ACCOUNT, WAS $436 MILLION ON OCTOBER 29. THIS TREASURY SWAP WILL BE PAID ON NO VE MB ER 5, TO BE COVERED BY AN EQUAL DOLLAR AMOUNT DRAWN FROM THE IMF. (SDR 134 MILLION OF THE FIRST CREDIT TRANCHE AND SDR 185 MILLION OF THE COMPENSATORY FINANCING FACILITY ON NOVEMBER i AND 31. 3, INCLUDING THE SWAP AS A LIABILITY (SWAPS BEING PESO OBLI- GATIONS ARE NOT A LEGAL FOREIGN EXCHANGE LIABILITY OF THE BANK OF MEXICO), THE DECLINE IN THE NET FOREIGN EXCHANGE POSITION OF THE BANK THROUGH OCTOBER 29 AMOUNTED TO $1320 MILLION, AN AVERAGE OF $132 MILLION PER MONTH, 4, THESE GROSS AND NET FOREIGN EXCHANGE POSITIONS ARE CONSIS- TENT WITH THOSE PROVIDED WEEKLY. NET FOREIGN EXCHANGE MARKET INTERVENTION BERALD FORD LIBRARA SECRET SECRET R. Page 3 GERALD UNON LIBRARY 5, DURING THE FIRST TEN MONTHS OF 1976 - TO OCTOBER 29, THE BANK OF MEXICO'S FOREIGN EXCHANGE OPERATIONS RESULTED IN NET SALES OF $3400 MILLION. MONTHLY INTERVENTION DATA, SHOWING THE NET PURCHASES AS SALES TO THE PRIVATE SECTOR AND TO PUBLIC SEC- TOR ENTERPRISES, ARE INCLUDED IN TABLE 2. 6, THE ACCUMULATED INTERVENTION DATA ARE CONSISTENT WITH THOSE PROVIDED ON A DAILY BASIS. RECONCILIATION OF RESERVE AND INTERVENTION DATA 7, THE KEY TO RECONCILING THE DIFFERENCES BETWEEN CHANGES IN RESERVE DATA AND INTERVENTION DATA IS AN UNDERSTANDING THAT THE MEXICAN ECONOMY OPERATES VIRTUALLY ON A TWO CURRENCY BASIS-DOLLARS AND PESOS, THERE IS COMPLETE CONVERTIBILITY BETWEEN THE TWO CURREN- CIES AT ALL STAGES. INDIVIDUALS AND FIRMS, FOREIGN OR DOMESTIC, MAY HOLD PESO OR DOLLAR DENOMINATED ACCOUNTS IN COMMERCIAL BANKS. COMMERCIAL BANKS IN TURN MAY HOLD PESO OR DOLLAR DENOMINATED ACCOUNTS AT THE BANK OF MEXICO. THE ONLY LIMITATION ON COMMERCIAL BANKS IS THAT THEY ARE REQUIRED TO BALANCE THEIR FOREIGN EXCHANGE POSITIONS EACH DAY. PUBLIC ENTERPRISES ALSO HOLD DOLLAR DENOMINA- TED AS WELL AS PESO DENOMINATED ACCOUNTS AT THE BANK OF MEXICO. 8, MOST OF THE DIFFERENCES BETWEEN RESERVE AND INTERVENTION SECRET SECRET Page 4 LIBRARY GERALD R. FORD DATA ARE ATTRIBUTABLE TO FREE CONVERTIBILITY AND THE RIGHT TO HOLD DOLLAR DENOMINATED ACCOUNTS IN THE BANK OF MEXICO. MANY OF THE TRANSACTIONS OF THE-BANKS OR THE PUBLIC ENTERPRISES ARE MERELY "TRANSFERS" FROM THEIR PESO ACCOUNT TO THEIR DOLLAR ACCOUNT (OR VICEVERSA) IN THE BANK OF MEXICO. SUCH A TRANSFER WOULD INVOLVE A BANK OF MEXICO SALE OF DOLLAR FOR PESO (OR VICEVERSA) AND WOULD THUS BE INCLUDED IN INTERVENTION DATA. THE TRANSACTION WOULD ALSO INCREASE (OR REDUCE) THE BANK OF MEXICO'S DOMESTIC DOLLAR LIABILI- TIES (TO THE BANK OR ENTERPRISE) BUT IT WOULD NOT AFFECT ITS GROSS FOREIGN EXCHANGE HOLDING. 9. IF THE COMMERCIAL BANK (OR PE) SIMULTANEOUSLY REQUESTED A TRANSFER FROM ITS PESO ACCOUNT TO ITS DOLLAR ACCOUNT AND REQUESTED PAYMENT OF THE DOLLARS TO A U.S. BANK, THIS TRANSACTION, "FOREIGN EXCHANGE DRAFTS AND PAYMENT ORDERS" INVOLVES BOTH INTERVENTION (A BANK OF MEXICO'S SALE OF DOLLARS FOR PESOS) AND A RESERVE LOSS (A REDUCTION IN THE BANK OF MEXICO'S DOLLAR LIABILITY TO THE BANK AND A SIMILAR REDUCTION IN THE FOREIGN EXCHANGE ASSETS). 10, # IF THE COMMERCIAL BANK (OR PE) REQUESTS A TRANSFER FROM ITS DOLLAR ACCOUNT IN THE BANK OF MEXICO TO A FOREIGN BANK, THERE IS NO PESO-DOLLAR TRANSACTION AND THUS NO INTERVENTION, BUT THE BANK OF MEXI- SECRET SECRET Page 5 CO AGAIN DRAWS DOWN ITS FOREIGN EXCHANGE RESERVES TO MAKE THE PAY- MENT ABROAD - AGAIN REDUCING ITS DOLLAR LIABILITY TO THE MEXICAN BANK, THE BANK OF MEXICO REFERS TO THIS TRANSACTION AS "TRANSAC- TIONS IN U.S. DOLLARS ONLY". 11. COMPARISON OF CHANGES IN NET FOREIGN EXCHANGE RESERVE PO- SITION THROUGH OCTOBER 29 ($1320 MILLION PER PARA, 3) WITH NET INTERVENTION DATA ($3400 MILLION PER PARA. 5) RESULTS IN A DIFFE- RENCE OF $2,080 MILLION. PRECISE DATA TO RECONCILE THIS DIFFERENCE FOR THE ENTIRE YEAR ARE NOT READILY AVAILABLE, BUT WITH A MAJOR EFFORT COULD BE PULLED TOGETHER FROM DAILY WORKSHEETS. IN RECOG- NITION OF THE NEED TO BEGIN RECONCILING RESERVE AND INTERVENTION DATA THE BANK OF MEXICO INITIATED ON SEPTEMBER 16 A DAILY SUMMARY WHICH FACILITATED THIS RECONCILIATION. THESE DATA FOR SEPTEMBER 16 TO OCTOBER 19 ARE INCLUDED IN TABLE 3. 12, FAIRLY ACCURATE DATA ON NET CHANGES IN FOREIGN EXCHANGE RESERVES OF THE BANK OF MEXICO ARE AVAILABLE DAILY THROUGH CAL- CULATION OF THE THREE TRANSACTIONS DESCRIBED IN PARAGRAPHS 8-10 ABOVE. GERALD FORD LIBRARY SECRET SECRET Page is R. FORD BOTH THE COMMERCIAL BANKS AND THE PUBLIC ENTERPRISES ENGAGE IN ALL THREE OF THE TRANSACTIONS DESCRIBED ABOVE, 13, ANOTHER APPROACH TO EXPLAINING THE DIFFERENCE BETWEEN INTERVENTION AND RESERVE DATA IS TO EXAMINE THE OPERATIONS OF THE COMMERCIAL BANKS AND PUBLIC ENTERPRISES SEPARATELY. THE COMMERCIAL BANKS ARE REQUIRED TO DEPOSIT IN THE BANK OF MEXICO AN A VERAGE OF 75 PER CENT OF THEIR DOLLAR LIABILITIES, THE BANK OF MEXICO RECORDS THESE DOLLAR DENOMINATED DEPOSITS AS FOREIGN E CHANGE LIABILITIES TO THE COMMERCIAL BANKS, THROUGH OCTOBER 28, THESE LIABILITIES INCREASED BY $700 MILLION (FROM 7,5 MILLION ON DECEMBER 30, 1975 TO 708 MILLI ON ON OCTOBER 28), ASSUMI NG THIS AMOUNT AS A BANK OF MEXICO FOREIGN EXCHANGE LIABILITY, NET FOREIGN EXCHANGE RESERVES DECLINED $2,039 MILLION (FROM 51567 MILLION ON DECEMBER 30, TO A NEGATIVE $29.5 MILLION ON OCTOBER 29, INCLUDING A $177 MILLION ADJUSTMENT FOR THE CHANGE IN THE GOLD VALUATION SYSTEM). 14, TAKING ALL KNOWN ITEMS INTO ACCOUNT, WE CAN EXPLAIN $2.020 MIL- SECRET S.ECRET Page 7 LION OF THE $3,400 MILLION NET INTERVENTION LOSS, MOST OF THE REMAINING $1,380 MILLION IS ATTRIBUTABLE TO THE BANK OF MEXICOIS TRANSACTIONS WITH THE PUBLIC ENTERPRISES, WHEN A PUBLIC ENTERPRISE BORROWS DOLLARS FOR THE SPECIAL TRUST. FUND. THE PROCEEDS ARE DEPOSITED IN A DOLLAR ACCOUNT IN A FOREIGN BANK TO THE ACCOUNT OF THE BANK OF MEXICO (AS A TRUSTEE), TO THE EXTENT THAT THE GOVERN- MENT OF MEXICO AUTHORIZES DELIVERY OF THOSE DOLLARS To PUBLIC EN- TITIES, FOR PAYMENT OF IMPORTS OR DEBT SERVICES, THE TRANSACTION IS A "us DOLLAR ONLY" TRANSACTION, WITH NO INTERVENTION INVOLVED. TO THE EXTENT THAT THE GOVERNMENT OF MEXICO AUTHORIZES DELIVERY OF THE DOLLAR PROCEEDS FOR EXPENDITURES IN MEXICO, THE DOLLARS ARE CONVERTED INTO PESOS AND ARE INCLUDED IN THE INTERVENTION DATA AS A PURCHASE OF DOLLARS. FOR PESOS, TO THE EXTENT- THAT THE DOLLARS REMAIN ON ACCOUNT AT THE BANK OF MEXICO, THEY REMAIN AS A LIABILITY. ALL THESE TRANSACTIONS FROM BEGINNING TO END, ARE SIMULTANEOUSLY REGISTERED IN MEMORANDA ACCOUNTS, 15, DATA ON BANK OF MEXICO TRANSACTION WITH PUBL IC ENTERPRISES ARE NOT READILY AVAILABLE. A MAJOR EFFORT WOULD BE REQUIRED TO SUMMARIZE THE INCREASE IN BANK OF MEXICO USE OF TRUST FUND DOLLAR RESOURCES, SECRET BERALD FORD LIBRARY SECRET Page 8 GERALD R. FORD LIBRANA 16, IN SUM, NET FOREIGN RESERVES HAVE DECLINED BY $3,400 MILLION DURING THE YEAR TO OCTOBER 29, GROSS RESERVES HAVE DECLINED BY $955 MILLION, AND FOREIGN EXCHANGE LIABILITIES HAVE INCREASED BY THE DIFFERENCES, OF WHICH 365 MILLION SWAP TO THE U.S. TREA- SURY, $700 MILLION LIABILITY TO THE COMMERCIAL BANKS AND $1,380 MILLION LIABILITY TO THE PUBLIC ENTERPRISES, PROJECTIONS FOR NOVEMBER AND DECEMBER 17, THE CRITICAL UNKNOWN IN PROJECTING THE BANK OF MEXICO'S FO - REIGN EXCHANGE REQUIREMENTS AND AVAILABILITIES FOR THE REMAINDER OF 1976 IS THE LEVEL OF SPECULATIVE CAPITAL OUTFLOW RESULTING. FROM A LACK OF CONFIDENCE. ON THE ASSUMPTION OF NO SPECULATIVE CAPITAL OUTFLOW AND, BASED ON THE BEST AVAILABLE DATA ON THE TREND OF THE CURRENT ACCOUNT AND REASONABLE ASSUMPTIONS REGARDING CAPITAL ACCOUNT MOVEMENTS, THE BANK OF MEXICO PROJECTS A $204 MILLION NET IN FLOW FOR THE FINAL TWO MONTHS OF 1976, THE PROJEC- TIONS AND THE ASSUMPTIONS ON WHICH THE PROJECTIONS ARE MADE ARE SHOWN IN TABLE 5, 18, THE BANK OF MEXICO IS PROJECTING A CURRENT ACCOUNT DEF IC IT FOR THE LAST TWO MONTHS OF $ 45 0 MILLION. THIS IS BASED ON A FORE- CAST DEFICIT FOR 1976 6 OF $2,9978ILLION, $2,997 OF WHICH $2.103 MILLION SECRET SECRET Page 9 IS A PRELIMINARY ACTUAL THROUGH AUGUST. FOR THE FINAL FOUR MONTHS THE BANK OF MEXICO EXPECTS A SMALLER ($225 MILLION) MONTHLY DEFI- CIT THAN DURING THE EARLIER EIGHT MONTHS (263 MILLION), BUT STILL BIGGER THAN THE FIRST QUARTER ($212 MILLION), 19, PUBLIC SECTOR CAPITAL ACCOUNT TRANSACTIONS ARE PROJECTED BY THE FINANCE MINISTRY To RESULT IN A NEW INFLOW OF $654 MILLION, WITH AMORTIZATIONS OF $800 MILLION AND BORROWING OF $1 1454 MILLION, THIS LATTER INCLUDES AN $800 MILLION CREDIT ARRANGED BY THE BANK OF AMERICA FDV LATE NOVEMBER OR EARLY DECEMBER, 20, PRIVATE SECTOR CAPITAL ACCOUNT TRANSACTIONS BOTH LONG AND SHORT TERM, ARE AS SUMED TO BE IN BALANCE FOR THE REST OF THE YEAR WITH AMORTIZATIONS OF $577 MILLION OFFSET BY BORROWING OF A SIMI- LAR AMOUNT, GIVEN THE EXCEPTIONALLY TIGHT MONETARY SITUATION. TO BE DESCRIBED LATER, THIS ASSUMPTION SEEMS REALISTIC, 21, FINALLY, THE U.S, TREASURY SWAP IS DUE FOR REPAYMENT ON NO - VEMBER 5, TO BE COVERED BY DRAWINGS FROM THE IMF OF A SIMILAR AMOUNT ON NOVEMBER 2 AND 4, THE KEY UNKNOWN IS THE AMOUNT OF SPECULATIVE CAPITAL FLIGHT BASED ON THE CONFIDENCE FACTOR. LIST OF TABLES GERALD FORD LIBRARY SECRET S.ECRET Page 10 1, FOREIGN EXCHANGE RESERVES DEC, 1975 - OCT, 28, 1976, BY MONTH (MILLIONS OF US DOLLARS) 2, NET FOREIGN EXCHANGE INTERVENTION FROM END OF DEC. 1975 TO OCT, 29, 1976, BY MONTH, WITH BREAK- DOWN OF NET PUBLIC SECTOR AND PRIVATE SECTOR OPERATIONS, (MILLIONS OF US DOLLARS) 3, RECONCILIATION OF FOREIGN EXCHANGE RESERVE CHANGES AND NET INTERVENTION DATA SEPT, 17 TO OCT, 29, 1976 (TO BE POUCHED) (MILLIONS OF US DOLLARS) 4, BALANCE OF PAYMENTS 1976, BY QUARTER ACTUAL TO FIRST SEMESTER 1976 AND PROJECTIONS FOR. SECOND SEMESTER 1976, (MILLIONS OF US DOLLARS) 5, PROJECTED FOREIGN EXCHANGE REQUIREMENTS AND AVAILABILITIES, NOVEMBER AND DECEMBER 1976, CMILLIONS OF US DOLLARS) 6, FOREIGN EXCHANGE RESERVE SEPT, 17 - OCT, 28, 1976 (TO BE POUCHED) SECRET BERALD R. FORD LICENSET SECRET Page 11 LIGRARY GERALD FORD FX Res TABLE NO. 1 DEC.75 JAN.76 FEB. MAR. APR.(##) GOLD 154.6(#) 152.0(#) 152.0(#) 152.0(#) 396.1 IMF 118.0 118.0 118.0 118.0 118.0 SDR 100.9 100.8 100.8 99.7 99.3 FOREIGN EXCHANGE 1,111.8 1,041.7 1,196.9 1,114.3 853.8 NET BILATERAL 46.6 18.2 25.0 30.6 41.3 AGREEMENT U.S. TREASURY BILLS 13.2 6.5 9.1 7.8- 5.6 ACCEPTANCES 30.1 13.9 24.5 20.0 23.0 ----- ----- ----- ----- ----- GROSS FOREIGN EXCHANGE RESERVES 1,575.2 1,451.1 1,626.3 1,542.4 1,537.1 MAY JUN JUL AUG SEPT OCT Gold 396.1 396.1 364.5 337.0 361.8 264 IMF 118,0 118.0 118.0 118.0 113.1 ---- SECRET SECRET Page 12 SDR 98.8 98.3 98.4 98.7 49.1 50 FX 896.1 1,039.5 754.5 750.3 530.5 444 18.5 29.9 38.6 46.3 11.6 19 10.4 10.0 5.7 13.4 11.6 19 61,2 75.7 15.2 .... ---- ---- GROSS FOREIGN EXCHANGE RESERVES 1,599.1 1,767.5 1,394.9 1,363.7 1,077.7 778 CHANGE IN GROSS RESERVES 797 (#) GOLD IS VALUED AT 42.22 / oz (##) GOLD IS VALUED AT 90 PERCENT OF THE AVERAGE U.S. DOLLAR MARKET PRICE FOR THE PRECEDING THREE MONTHS OR OF THE MOST RECENT DATE, WHICHEVER IS LESS. (###) FIGURES AS OF END OF MONTH SOURCE: BANK OF MEXICO, CLASSIFIED REPORTS. TABLE NO. 2 FORD & GERALD LIBRARY NET FOREIGN EXCHANGE PURCHASES AND SALES (INTERVENTION) BY MONTH, JANUARY - OCTOBER, 1976, WITH PUBLIC AND PRIVATE SECTOR OPERATIONS. SECRET S.ECRET Page 13 MONTH PRIVATE PUBLIC TOTAL JANUARY MINUS 188 PLUS 5 MINUS 183 FEBRUARY MINUS 259 PLUS 258 MINUS 1 MARCH MINUS 371 PLUS 232 MINUS 139 APRIL MINUS 514 PLUS 191 MINUS 323 MAY MINUS 29 MINUS 176 MINUS 205 JUNE MINUS 173 MINUS 316 MINUS 489 JULY MINUS 255 MINUS 133 MINUS 388 AUGUST MINUS 541 PLUS 55 MINUS 486 SEPTEMBER MINUS 256 MINUS 41 MINUS 297 OCTOBER## MINUS 637 MINUS 249 MINUS 886 MINUS 3,223 MINUS 174 MINUS 3,397 ##INCLUDES AN ESTIMATE FOR OCTOBER 29, TABLE 4 QUARTERLY FORECAST OF THE MEXICAN BALANCE OF PAYMENTS 1/ MILLIONS OF DOLLARS GERALD FORD VIBRARY SECRET SECRET Page 14 GERALD FORD BP JANUARY APRIL JULY SEPTEMBER TOTAL MARCH# JUNE# AUGUST DECEMBER 1, BALANCE ON GOODS & SERVICES -635.1 -874.0 -594.4 -893.6 -2 997.1 A. EXPORT OF GOODS & SERVICES 1 704,8 1 827.0 1 170.6 2 062.0 6 764.4 1. MERCHANDISE 781.0 879.5 465.5 1 134.5 3 260.5 2. SILVER 35.6 38.7 27.0 62.0 163.3 3. TOURISM 237.6 202.8 152.4 200.0 792.8 4. INTERNATIONAL TRAVEL 23,8 25.1 18.0 33.1 100.0 5. FRONTIER TRANSACTIONS 391.2 405.1 310.0 381.6 1 487.2 6. IN-BOND ASSEMBLY PLANTS 125,2 154.4 102.7 142.3 524.6 7. OTHER 110,4 121.4 95.0 108.5 435.3 B. IMPORTS OF GOODS & SERVICES 2 339.9 2 701.0 1 765,0 2 955.6 9 761.5 SECRET SECRET Page 15 BP-2 fuby by Syt-De Total I. 1. MERCHANDISE 1 433.4 1 656.8 1 100.0 1 810.0 6 000.2 A) PUBLIC SECTOR 560.8 525.4 350.0 572.0 2 008.2 B) PRIVATE SECTOR 872,6 1 131.4 750.0 1 238.0 3 992.0 2. TOURISM 70.6 118.2 90.0 101.3 380.1 3. INTERNATIONAL TRAVEL 23.7 47.1 24.0 83.0 127.8 4. FRONTIER TRANSACTIONS 257.3 264.9 181.0 226.3 929.5 5. DIVIDENDS & INTEREST 198.9 204.5 120.0 240.0 763.4 FORD & GERALD LIBRARY : SECRET SECRET Page 16 july by sept-Dec 6. INTEREST ON OFFICIAL DEBTS 239.0 280.3 150.0 355.0 1 024.3 7. OTHER 117,0 129.2 100.0 190.0 536.2 II. LONG-TERM 1 038,5 800.9 600.0 1 308.6 3 748.0 III. CHANGE IN THE BANK OF MEXICO'S RESERVES 2/ 403.4 -73.1 5,6 415.0 750.9 #PRELIMINARY 1/ ASSUMES A 4.5 PERCENT GROWTH RATE. 2/ INCREASE IN INTERNATIONAL ASSETS AND/OR CAPITAL OUTFLOWS. TABLE .4 (CONT. ) FOREIGN DEBT SERVICE OF THE PUBLIC SECTOR LIBRARY GERALD R. FORD (MILLIONS OF DOLLARS) SECRET SECRET Page 17 7 Debt Service GERALD R. FORD LIBRANY 1976 1977 SEPT-DEC JAN-JUN JUL-DEC TOTAL 2 035.0 3 662.2 3 794.2 A. LONG TERM 755.0 1 530.0 1 722.0 INTEREST 355,0 830.0 770.0 . AMORTIZATION 400,0 700.0 952.0 B. SHORT TERM 1 280.0 2 132.2 2072.2 INTEREST 80,0 180.0 120.0 AMORTIZATION 1 200.0 1 952.2 1 952.2 TABLE 5 NOVEMBER-DECEMBER 1976 I. OUTFLOWS U.S. DLS, MILLION A. CURRENT ACCOUNT DEFICIT 450 B. PUBLIC DEBT PAYMENTS 800 B.1 LONG TERM 200 To he rulled crier- - (F.I) S ECRET S.ECRET Page 18 3,2 SHORT TERM 600 C. PRIVATE DEBT (TOTAL) 577 Estimated 1/6 of ofort D D. U.S. TREASURY SWAP 365 " 127 a every 1) E. SUB-TOTAL 2,192 II. INFLOWS F. PUBLIC SECTOR DEBT 1,454 F,1 LONG TERM 854 F,2 SHORT TERM 600 doub Hul vullovers G. PRIVATE SECTOR DEBT 577 good voll overs N. H. I.M.F. 365 1. SUB-TOTAL 2,396 J. TOTAL (II - I) PLUS 204 FORDO : GERALD K. ERRORS AND OMISSIONS N.A. NOTES AND ASSUMPTIONS FOR TABLE 5 I, OUTFLOWS, A, CURRENT ACCOUNT DEFICIT. - ON BASIS OF AN ESTIMATED CURRENT ACCOUNT DEFICIT OF U.S. $2,997.1 FOR 1976, AND 893.4 FOR THE 4 MONTH PERIOD, SEPTEMBER-DECEMBER 1976, FOR 2 MONTH PERIOD NOVEMBER- DECEMBER A DEFICIT IS ESTIMATED AT US $450 MILLION. THE DEFICIT IS BASED ON BANK OF MEXICO'S FIGURES AND DEFINITIONS, WHICH DIFFER SECRET SECRET Page 19 FROM THE IMF ESTIMATES DUE TO NETTING OF REMITTANCES OF PROFITS AND DIVIDENDS AND INVESTMENTS OF THESE. THERE IS ALSO A DIFFERENCE OF APPROXIMATELY 300 MILLION IN THE ESTIMATES. B, SUM OF 8.1 AND B.2. B,1. ON BASIS OF BALANCE OF PAYMENTS ESTIMATES FOR 1976, U.S. $200 MILLION REPRESENTS PROJECTED AMORTIZATIONS OF PUBLIC SECTOR EXTERNAL DEBT, B,2. ESTIMATES BASED ON BALANCE OF PAYMENTS FIGURES. C, IT IS ASSUMED THAT: I) OUT OF TOTAL PRIVATE SECTOR EXTERNAL SHORT-TERM DEBT ESTIMATED AT US $2,703 MILLION AS OF JUNE 30, 1976, 1/6 FALLS DUE ON THE 2 MONTH PERIOD AMOUNTING TO US $450 MILLION. ID AVERAGE MATURITY OF PRIVATE SECTOR LONG-TERM DEBT IS 5 YEARS; OUT OF A TOTAL OF US $3,867 MILLION OUTSTANDING AS OF JUNE 30, 1976, IT IS ESTIMATED THAT US $770 FALLS DUE IN 1976, AND OUT OF THAT, US $127 MILLION IS DUE IN NOV-DEC 1976. FORD & GERALD LIBRARY : SECRET SECRET Page 20-20 THEREFORE, 450 PLUS 127 EQUALS 577 MILLION. Total we Luvities Nov-Dre 76 D, PAYMENT OF U.S. TREASURY SWAP. F, RESULT OF F.1 AND F.2 F.1 HALF OF A TOTAL NET INFLOW OF US$1,308.6 INCLUDED 654 200 IN BALANCE OF PAYMENTS ESTIMATES FOR 4 MONTH PERIOD SEPTEMBER- 854 DECEMBER 1976, PLUS US $200 TO BE AMORTIZED (SEE B.1). F,2 IT IS ASSUMED THAT ALL SHORT-TERM PUBLIC SECTOR DEBT IS ROLLED OVER. G. IT IS ASSUMED THAT ALL. PRIVATE SECTOR DEBT (SHORT AND LONG TERM) IS ROLLED OVER (SEE C ABOVE). H, I.M.F. DRAWINGS ON FIRST CREDIT TRANCHE AND COMPENSATORY FINANCING FACILITY. E-2, IMPOET. No Fed swap in estimates. GERALD R FORD SECRET Department to: Chairman Burns of the Treasury Federal Reserve Board Office of Special Assistant to Secretary room. 2046 date. 11/3/76 for National Security Per your request to Sten Shrieber, I am forwarding the reports from Mexico on which he based his briefing yesterday. I have added an assessment 1.5(c) and a summary of a long Embassy 1.6(d)(1) telegram which we did for Secretary Simon. I believe by this time you should also have Canf. seen some special reporting from Don Syvrud of Lisle Widman's office which was sent. to Mr. Wallich yesterday. Photocopy from Gerald R. Ford Library DECLASSIFIED E.O. 12958 Sec. 3.6 With PORTIONS EXEMPTED E.O. 12958 Sec. 1.5 (c)1.6(d)(i) (c) CERALD FORD L.toster Cochin MR 95-2,#9 C/A Hr. 6/1/97 J. Foster Collins By KBH NARA, Date 10/17/97 room 4328 ext. 2631 - 2632 DECLASSIFIED BY TREASH 4b OF DEPARTMENT THE THE TREASURY MESSAGE RECEIVED AT 1789 MAIN TREASURY TELECOMMUNICATION CENTER FOR INFORMATION AND SERVICE - 8114 FOR RETRIEVAL AND COPIES 2061 CO NF IDENTIAL TRA007 PAGE 01 MEXICO 13678 271834Z 14 Fle ACTION EB-07 MEXICO INFO OCT-01 ARA-06 ISO-00 AID-05 CIAE-00 COME-00 FRB-03 INR-07 NSAE-00 USIA-06 TRSE-00 XMB-02 OPIC-03 SP-02 CIEP-01 LAB-04 SIL-01 OMB-01 NSC-05 SS-15 STR-04 CEA-01 /074 W 104377 R 271630Z OCT 76 FM AMEMBASSY MEXICO TO SECSTATE WASHDC 8243 G ONFIDENTIALMEXICO 13678 dal 7/25/07 RM.2045-C BRANCH MT BLDG. TELECOMMUNICATIONS OCT 28 12 37 AM '76 TELECOMM TREASURY INICATIONS E. 0. 11652: GDS TAGS: EFIN, EINV, MX SUBJECT: JLP MEETS WITH TOP U.S. BUSINESSMEN; SUBSEQUENTLY DISCUSSES MEETING WITH AMGASSADOR 1. SUMMARY: ON FRIDAY, OCTOBER 22, A DOZEN MAJOR U.S. BUSINESSMEN/INVESTORS MET PRIVATELY WITH LOPEZ PORTILLO FOR A FRANK DISCUSSION OF FOREIGN (U.S.) INVESTMENT IN MEXICO OF THE NEXT SIX YEARS. BOTH SIDES FOUND THE MEETING PRODUCTIVE, AS JLP MADE HIS SATISFACTION EXPLICIT TO THE AMBASSADOR IN THEIR TETE-A-TETE THE NEXT DAY. END SUMMARY. 2. MIGUEL ALEMAN FIRST STIMULATED THE MEETING SEVERAL MONTHS AGO. ON THE AMERICAN SIDE, DILLON REED AND COMPANY AND KENDELL (PEPSICO) ORGANIZED THE RESPONSE. THE RESULT WAS A PRIVATE MEETING OF TOP U.S. BUSINESSMEN/INVESTORS (DUPONT, GM, PEPSICO, SEARS, PFIZER AND OTHERS) WITH LOPEZ PORTILLO ON OCTOBER 22. PETER FLANIGANCA SENIOR PARTNER IN DILLON REED) PROVIDED TALKING PAPERS TO THE U.S. PARTICIPANTS ON THE BASIS OF A TIGHTLY DRAWN AGENDA, WHICH THE BUSINESSMEN CLAIMED WAS "CLEARED WITH SECRETARY KISSINGER". 3. THE AMERICANS, HAVING MET PREVIOUSLY IN THE U.S., WERE PREPARED FOR A FRANK DISCUSSION. UNLIKE A CONFIDENTIAL LIBRARY GERALD ? FORD OF DEPARTMENT THE THE TREASURY MESSAGE RECEIVED AT 1789 MAIN TREASURY TELECOMMUNICATION CENTER FOR INFORMATION AND SERVICE 8114 FOR RETRIEVAL AND COPIES 2061 PAGE 02 MEXICO 13678 271834Z PR IOR MEETING OF U.S. BUSINESSMEN WITH PRESIDENT ECHEVERRIA ON JANUARY 18, 1975, AT WHICH THE PRESIDENT AND SIAFF SERMONIZED HIS LISTERNERS, FRIDAY'S MEETING WAS NOTABLE FOR ITS FRANK INTERCHANGE IN WHICH THE AMERICAN PARTICIPANTS PRESENTED THEIR POSITIONS BASED ON FLANIGAN'S AGENDA. THE AMERICANS WERE PARTICULARLY IMPRESSED BY THE QUALITY OF THE DISCUSSION AND BY JLP'S ASSERTION HE HOPED THIS WOULD BE THE FIRST OF MANY MEETINGS. 4. LOPEZ PORTILLO STRESSED TO THE AMERICANS THAT HIS REGIME WOULD BE INDEPENDENT AND NOT CONSTRAINED BY THE POLICIES OF THE LAST SEXENIO. TO ACHIEVE SUCH FREEDOM FROM THE PAST, HE WOULD REQUIRE THE COLLABORATION OF THE BUSINESS COMMUNITY--BOTH FOREIGN AND DOMESTIC. WHILE HE GREATLY DESIRED FOREIGN BUSINESS PARTICIPATION AND INVESTMENT IN MEXICO, IT MUST BE SELECTIVE AND STIMULATE MEXICO'S REAL GROWTH. IN ADDITION, JLP ESPOUSED THE RECURRENT THEME THAT MEXICO MUST EXPAND ITS MARKETS AND SOURCES OF FINANCE. FOREIGN BUSINESS HE SAID, MUST BE GUARANTEED EQUITABLE TREATMENT AND A FAIR PROFIT-- POINTING OUT THAT THIS IS AN ARGUABLE SUM. THOUGH GOVERNMENT POLICIES REFLECTING CURRENT NEEDS SHOULD NOT VIOLATE PRIOR UNDERSTANDING WITH VESTED INTERESTS, STILL, JLP SAID, FOREIGN BUSINESSMEN MUST REALIZE THAT POLITICAL SOVEREIGNTY IN MEXICO WAS A CONCEPT OF THE HIGHEST IMPORTANCE. 5. THE U.S. BUSINESSMEN EXPRESSED THEIR CONCERN AT A NUMBER OF RECENT DEVELOPMENTS AND CURRENT TRENDS. JLP RESPONDED THAT HE KNOWS THE PROBLEMS AND THINKS HE KNOWS SOME OF THE ANSWERS, AS RUNNING MEXICO WAS, IN MANY WAYS, LIKE RUNNING A BUSINESS. PARTICULARLY IMPORTANT WAS TO OBSERVE THE RULES OF THE GAME AND NOT TO CHANGE THEM IN THE MIDDLE OF PLAY. SOME PROBLEMS HE SAID HE COULD SOLVE IMMEDIATEYL; OTHERS WOULD TAKE CONSIDERABLY LONGER. THOUGH HE WAS NOT KNOWLEDGEABLE AS TO THEIR DETAILS, JLP STATED HE WOULD REVIEW, FOR EXAMPLE, THE PATENTS AND TRADEMARKS LAW FOR POSSIBLE CONFLICTS WITH MEXICO'S INTERNATIONAL TREATY OBLIGATIONS AND OTHER IRREGULARITIES; THE FOREIGN INVESTMENT LAW FOR POSSIBLE INQUITIES, THOUGH IT WAS ALSO NECESSARY TO CONFIDENTIAL FORD & GERALD LIBRARY OF THE THE TREASURY MESSAGE RECEIVED AT 1789 MAIN TREASURY TELECOMMUNICATION CENTER FOR INFORMATION AND SERVICE - 8114 FOR RETRIEVAL AND COPIES 2061 CONFIDENTIAL PAGE 03 MEXCO 13678 271834Z AVOID "MAJORITY ABUSE". IN RESPONSE TO THE AMERICANS' CONCERN ABOUT THE POSSIBLE USE OF PRICE CONTROLS, JLP SAID THAT WHILE UNWELCOME TO THE BUSINESS COMMUNITY, AN ECONOMIC CRISIS MIGHT REQUIRE SUCH RECOURSE. 6. FANK LORETTA (DUPONT MEXICO) REPORTED DUPONT CHAIRMAN SHAPIRO'S COMMENT THAT "THE ENTIRE GROUP WAS HIGHLY IMPRESSED" BY JLP'S FRANKNESS, LOGIC AND STRAIGHTFORWARDNESS, AND GAVE HIM HIGH MARKS FOR THE MANNER IN WHICH HE RESPONDED TO THEIR QUESTIONS AND EXPLAINED HIS OWN POSITIONS. 7. WHEN THE AMBASSADOR CALLED ON LOPEZ PORTILLO SATURDAY MORNING, JLP HIMSELF RAISED THE SUBJECT, ENTHUSING ABOUT THE MEETING AS HAD THE AMERICAN BUSINESSMEN THE PREVIOUS DAY. HE THOUGHT THE INTERCHANGE PRODUCTIVE AND WANTED MORE SUCH FRANK MEETINGS. HE REPEATED SEVERAL OF THE THEMES OF THE MEETING: THE FAVORABLE ROLE OF FOREIGN INVESTMENT IN MEXICO (PARTICULARLY U.S. INVESTMENT), BUT WITH THE CAVEAT THAT IT MUST BE SELECTIVE AND CONTRIBUTE DIRECTLY TO MEXICO'S DEVELOPMENT PLANS, CREATING NOT ONLY JOBS BUT FOREIGN EXHCANGE THROUGH EXPORT)AS ON THE DAY BEFORE, HL SPOKE OF THE RULES OF THE GAME, BUT POINTED OUT BOTH SIDLS MUST PLAY BY THE RULES. ADDITIONAL TO THOSE POINTS DISCUSSED IN THE BUSINESSMEN'S MEETING AND REPORTED ABOVE, THE AMBASSADOR RAISED THE CRUCIAL IMPORTANCE TO ANY INVEST- MENI ASPIRATIONS OF THE GOVERNMENT OF THE NEED TO REBUILD CONFIDENCE AMONG ALL POTENTIAL INVESTORS IN THE GOM'S ABILITY TO MANAGE ITS FINANCIAL AND ECONOMIC PROGRAMS, AND TO ASSUME FAIR AND WELCOMING TREATMENT TO AMERICAN AND OTHER FOREIGN INVESTORS. THE AMBASSADOR SPECIFICALLY ALLUDED TO THE PATENTS AND TRADEMARKS LAW WHICH IS OF IMMEDIATE CONCERN TO AMERICAN INVESTORS AND OTHER BUSINESSMEN, AND RELIEF FROM WHICH WOULD BE A HIGHLY VISIBLE SIGN OF WELCOME TO U.S. INVESTMENT. JOVA CONFIDENTIAL FORD & 9ERALD LIBRARY OF THE TREASURY THE MESSAGE RECEIVED AT MAIN TREASURY TELECOMMUNICATION CENTER 1789 FOR RETRIEVAL AND^COPIES 2061 FOR INFORMATION AND SERVICE - 8114 NNNN VZCZCCRQ113 RTTCZYUW RUESMOA3748 3020015-CCCC--RUEATRS. ZNY CCCCC ZZH MEXICO R 2800032 OCT 76 FM AMEMBASSY MEXICO TO RUEHC/SECSTATE WASHDC 8276 INFO RUEATRS/TREASURY WASHDC BT CONFIDENTIAL € N F D E N T I A L MEXICO 13748 dol 7/25/07 E. O. 11652: GDS TAGS: EFIN, MX HM.2893-C BRANCH MT BLDG. TELEGOMMUNICATIONS OCT 27 11 OH PM '76 TELECOMMUNICATIONS TRE ASURY SUBJECT: RE-PEGGING OF PESO 1. SUMMARY: GOM DECISION TO FLOAT PESO DOWNWARD APPEARS TO US A VERY RISKY GAMBLE AIMED AT SLOWING CAPITAL OUTLFOW OR AT LEAST MAKING IT MORE EXPENSIVE PRIOR TO A BANKING DECLINE IN PUBLIC CONFIDENCEEEE OF GOVERNMENT. OUTFLOWS HAVE CONTINUED TODAY, THOUGH MAGNITUDE DOES NOT SEEM TO BE LARGE. END SUMMARY. 2. ANNOUNCEMENT OF DECISION TO REFLOAT, OR, MORE ACCURATELY, RE-PEG PESO AT 26.24 AND 26.50 APPEARS TO HAVE BEEN A MORE OR LESS DESPERATE DECISION TO STEM CAPITAL OUTFLOWS PRIOR TO A LONG HOLIDAY WEEKEND (NOV. 2 IS A BANK HOLIDAY). CONVERSATIONS OF FINATT WITH SENIOR BANK OF MEXICO OFFICIALS ON OCTOBER 27, DID NOT GIVE ANY INDICATION THAT DECISION TO REPEG WAS IMMINENT. ALTERNATIVE TO REPEG WAS PROBABLY EXHCANGE CONTROLS. 3. WHILE BANK OF MEXICO COMMUNIQUE, REPORTED SEPARATELY, RE-EMPHASIZES THAT PESO IF FLOATTTING, COMMERCIAL BANKS ARE RECEEIVING PATES AT WHICH THE BANK OF MEEXICO WILL DEAL AND THESE ARE FOLLOWED BY BANKS. RATES FOR TODAY ARE BUYING AT 26.24 AND SELLING ATTT 26.50. ONE MAJOR DIFFERENCE FROM PREVIOUS RATE IS NARROWING OF SPREAD. PESO IS NOT FLOATING IN ANY SENSE, ALTHOUGH BANK OF MEXICO IS TRYING TO GIVE THE IMPRESSION IT IS. 4. WE VELIEVEE THAT BANK OF MEXICO SEES RE-PEEEGGING AS TEMPORARY AND HOPES TO BRING DOWN THE RATE NEXT WEEK. BERALD FORD LIBRARY WHILE HARD TO PROVE, WE DO NOOOOTT BELIEVE PESO OVER- VALUED AT 19.7, BUT RATHER WAS SLIGHTLY UNDER-VALUED. FURTHER 25 PERCENT DEVALUTION IS NOT JUSTIFIED ON ECONOMIC GROUNDS AT THIS TIMEE. THUS, MEASURE APPEARS TO BE A SORT OF DESPERATION ATTEMPT TO SLOW CAPITAL OUTLFOW. OF DEPARTMENT THE TREASURY THE MESSAGE RECEIVED AT 1789 MAIN TREASURY TELECOMMUNICATION CENTER FOR INFORMATION AND SERVICE - 8114 FOR RETRIEVAL AND COPIES 2061 5. WE UNDERSTAND THAT BANKS ARE NET SELLEERRS OF DOLLARS TODAY, BUT NOT IN AMOUNTS EXCEEDING RECENT DAYS. WE HAD BELIVED, AS DID BANK OF MEXICO, THAT FURTHER DEPRECIATION OF RATE WOULD ONLY AGGRAVATE CAPITAL OUTFLOW. WHETHER THIS IS TRUE REMAINS TO BE SEEN, BUT RATE CHANGE HAD NOT BROUGHT ABOUT CAPITAL OUTFLOWS. 6. OUR INITIAL SOUNDINGS INDICATE INCREASED CONFUSION AND BITTERNESS AS WELL AS FURTHER LOSS OF CONFIDENCE IN THE GOVERNMENT. 7. TWO CHIEF EXECUTIVES OF MAJOR U.S.-OWNED COMPANIES HERE SOUGHTT US OUT TO EXPRESS THEIR CONCERN AND SEEK OUR OPINIONS. BOTH WERE SERIOUSLY CONSIDERING LIQUIDATING INVENTORIES, CONVERTING PROCEEEDS INTO DOLLARS, AND REDUCING THEIR OPERATIONS TO A MINIMUM IN ORDER TO AVOID ANOTHER MAJOR LOSS TO THEIR COMPANIES. WHILE WE DO NOT KNOW HOW WIDESPREAD THSE VIEWS ARE, WE DOUBT IF THEY ARE UNIQUE TO THESE TWO. THE EARLIER VIEWS OF THHESE TWO MEN WERE REFLECTED IN PARAGRAPH FOUR OF MEXICO 13372. THEIR VIEWS TODAY WERE A RAHTER SHARP AND DISTURBING REVERSAL. 8. CONFIDENCE PROBLEM REMAINS AND NEW EXCHANGE RATE WILL ONLY WORSEN MATTERS. IF NOT REDUCED WITHIN A WEEK, IT IS LIKELY TOO BRING ABOUT A FURTHER REDUCTION IN ECONOMIC ACTIVITY. JOVA BT # 37 48 FORD & LIBRARY GERALD 4d NNNN VZCZCCRQ628 RTTCZYUW RUESMOA3923 3070025-CCCC--RUEATRS. ZNY CCCCC 7ZH R 0123332 NOV 76 RM. FM AMEMBASSY MEXICO TO RUEHC/SECSTATE WASHDC 8357 INFO RUEATRS/TREASURY WASHDC Plexic "CONFIDENTL BT C N F I D E N I L MEXICO 13923 Э-С MT BLDG. BRANCH TELEGOMUNICATIONS Nov 1 10 06 PM '76 TELECOMMUNICATIONS TREASURY dal 7/25/07 EO 11652: GDS TAGS: EFIN MX SUBJECT: POSSIBLE REVISION OF IMF PROGRAM 1. SUMMARY: IN OCT. 28 CONVERSATION, BANK OF MEXICO OFFICIAL TOLD FINATT THAT SPECIFIC TARGETS IN IMF PROGRAM IN 1977 MAY HAVE TO BE RE-NEGOTIATED. END SUMMARY. 2. IN COURSE OF CONVERSATION WITH BANK OF MEXICO OFFICIAL ON OCT. 28, FINATT ASKED WHETHER IMPACT OF RECENT DEVELOPMENTS ON THE ECONOMIC OUTCOME FOR CURRENT YEAR MIGHT NOT MAKE ATTAINMENT OF THE SPECIFIC TARGETS IN THE EFF 1977 PROGRAM MORE DIFFICULT. PARTICULAR REFERENCE WAS MADE TO THE 90 BILLION PESO BUDGET DEFICIT TARGET. OFFICIAL INDICATED THAT HE THOUGHT THIS TARGET MIGHT HAVE TO BE RENEGOTIATED, BUT THAT THE IMPORTANT TARGETS IN THE PROGRAM WERE THE REIATIONSHIPS TO GDP RATHER THAN THE SPECIFIC TARGETS SUCH AS THAT FOR 1977 PUBLIC DEFICIT. FORD is LIBRARY GERALD 3. BASIS FOR QUESTION I OUR BELIEF THAT THE IMPAC OF DEVELOPMENTS IN THE FINAL FOUR MONTHS OF THIS YEAR MAY LEAD TO A HIGHER PUBLIC SECTOR DEFICIT THAN FORESEEN IN THE FUND PAPERS ON MEXICO. THE DEVALUATION IS LIKELY TO HAVE A SIGNIFICANT IMPACT ON CORPORATE TAX REVENUES. A NUMBER OF BUSINESMEN HAVE TOLD US THEY ARE LOWERING THEIR PERIODIC TAX PAYMENTS ON THE BASIS OF HIGHER COSTS RESULTING FROM THE EXCHANGE RATE CHANGE. CORPORATE INCOME TAX RECEIPTS ACCOUNT FOR ABOUT 20 PERCENT OF FEDERAL GOVERNMENT REVENUES. RE PUBLIC SECTOR COMPANIES, THE INCREASED COSTS FOR WAGES AND FOREIGN DEBT SERVICE HAVE NOT YET BEEN OFFSET BY INCREASED PRICES. IN THIS REGARD, WE KEEP HEARING THAT PRICE INCREASES IN THEPUBLIC SECTOR ARE IMMINENT, ONLY TO HAVE THEM POSTPONED, MOST RECENTLY BECAUSE OF THE SECOND DEVELATUION AND THE FEAR OF THE REACTION TO SUCH PRICE INCREASES AT A TIME WHEN THE GOM IS MAKING AN EFFORT TO CONVINCE THE PRIVATE SECTOR NOT TO INCREASE PRICES AND THE LABOR UNIONS NOT TO DEMAND ANOTHER WAGE INCREASE. 4. SHOULD THE 1977 PUBLIC SECTOR DEFICIT BE IN THE RANGE OF 120-130 BILLION PESOS, IT WILL BE MORE DIFFICULT THAN EARLIER ANTICIPATED TO BRING THE 1977 DEFICIT TO 90 MILLION PESOS WHICH WOULD BE THE EQUIVALENT OF 72 BILLION 1976 PESOS, ASSUMING A 20 PERCENT PRICE DEFLATOR FOR 1977. 5. WHILE BANK OF MEXICO OFFICIALS STATEMENTS WAS INFORMAL, AND MAY NOT REFLECT THE GOM POSITION, WE ARE CONCERNED FOR SEVERAL REASONS. ONE IS THATIT INDICATES A MORE RAPID DETERIORATION IN THE CURRENT ECONMIC SITUATION THAN OTHERWISE EXPECTED. ANOTHER IS THAT WE HAD PRESUMED THAT THE SPECIFIC TARGETS MENTIONED IN THE FUND PROGRAM WERE OVERRIDING. JOVA BT #3923 GERALD FORD LIBRARY SECRET soot MEXICAN ECONOMIC SITUATION file Mexico the following information concerning the economic situation in Mexico: Based on everything gleaned from Mexican and local American contacts, President Echeverria has lost the confidence not only of the business sector as such but also of virtually everyone who has savings in Mexico. It is not believed that Echeverria can restore any degrée of confidence and therefore stabilization cannot become effective as long as he remains in office. The best the Mexican Government can do under the circumstances is to slow down capital flight or at least make it more expensive. There are no immediate means of improving the psychological climate, to reverse the price spiral, to stop merchants and suppliers from hoarding, or to dispel the gloom spreading over Mexico. It is doubtful that the Government of Mexico has any planned position in case stabilization does not work. Currency exchange controls are talked about but always with the recognition of DESTROY WITHIN 90 DATE immense difficulty of enforcement, given the long border and two-way crossings by millions of people daily. As one police official puts it: "We cannot even control illegal border crossers; how are we going to control legal travellers who carry money? There is no doubt that exchange controls would result in immediate black market and large scale dumping of the peso. A true float of the peso, with the peso finding its own Ievel would be very difficult particularly with respect to keeping labor in line. In the final analysis, some form of stabilization must work, the only alternative being a rigid dictatorship which would impose its policies by force DECLASSIFIED . E.O. 12356, Sec. 3.4 With PORTIONS EXEMPTED E.O. 12356, Sec. 1.3 (a) (4) SECRET MR # C/A Hr 7/28/95 SECRET as in the Soviet Bloc. We do not foresee this for Mexico within the time frame of the next several years, but we do expect further deterioration and high inflation. Economic policy in Mexico, like any other policy, is deter- mined by the President. Officials may make suggestions, and President Echeverria likes long discussions with all possible options put on the table, but in the final analysis, he alone decides Lopez - Portillo's private secretary insists his boss is not exerting any influence at this time. Lopez-Portillo is quoted as saying that Echeverria's authority must not be diluted and that he, Lopez-Portillo, does not want a piece of an action which he cannot control. On the other hand, Echeverria and Lopez- Portillo have several private meetings each week, and it is difficult to imagine that there would be no give-and-take during these get-togethers. It cannot be estimated to what extent Echeverria may be influenced by what Lopez-Portillo says during these meetings. FORD & LIBRARY GERALD DESTROY WITHIN on DEVO FILMEXICO Copyie. Bittner INTELLIGENCE Intelligence Information Cable ROUTINE IN-078370 AGENCY PAGE 1 OF 7 PAGES name & STATE/INR JCS/MC (DIA) CIA/NMCC SWS NSA TREAS NSC/S SDO NIO CRS 1.3(a)(4) NLF MR Case No 95-3 D/OF OER DIRECTORATE OF Classified by Recorded Reporting Officer. Exempt from General Declassification Schedule of E.O. 11652 Exemption OPERATIONS Category 58 (1), 2 Impossible to Determine Date of Automatic Declassification. FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO Document No. # CONTROLS STATED AT BEGINNING AND END OF REPORT. THIS IS AN INFORMATION REPORT, NOT FINALLY EVALUATED INTELLIGENCE CITE DIST 26 OCTOBER 1976 1.3(a)(4) COUNTRY: MEXICO DOI: MID-OCTOBER 1976 SUBJECT: VIEWS OF 1.3(a)(4) THAT MEXICO'S ECONOMIC SITUATION WILL CONTINUE TO DETERIORATE ACQ DECLASSIFIED E.O. 12355, See 3.4 MR 95-3 #11 CIAltr 7/28/95 8/23/95 WRL PORTIONS EXEMPTED E.O. 12356, Sec. 1.3 (a) (4) SOURCE: FORDS is SERVIC LIBRARY Date 1.3(a)(4) KBH By NARA, SUMMARY: MEXICO'S ECONOMIC SITUATION WILL CONTINUE TO DETERIORATE. A MAJOR PROBLEM IS THE MEXICAN PUBLIC'S LACK OF CONFIDENCE IN THE PRESENT GOVERNMENT. 1.3(a)(4) SINCE THE FLOTATION 0 F THE PESO, AN AVERAGE OF US$100 MILLION HAS LEFT THE COUNTRY EACH WEEK. Approved for Release Date IUL 1995 IN, 078370 PAGE 2 OF 7 PAGES 1.3(a)(4) FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO (classification) CONTROLS STATED AT BEGINNING AND END OF REPORT. INFLATION IS RUNNING ABOUT 30 PERCENT AND ANOTHER DEVALUATION IS A POSSIBILITY WITHIN THE NEXT TWO TO THREE YEARS. MEXICO WOULD UNDERGO A SEVERE RECESSION IN 1977 AND 1.3(a)(4) PRESIDENT- ELECT JOSE LOPEZ-PORTILLO PROBABLY WOULD BE ABLE TO DO LITTLE TO STOP THE RECESSION/INFLATION SPIRAL. CRITICIZED PRESIDENT LUIS ECHEVERRIA'S HANDLING OF THE CURRENT SITUATION, TWO ADDITIONAL MAJOR ORIGIN DIO ... WOH A T PROBLEMS MEXICO WOULD BE FACING IN THE NEXT TWO YEARS: INSUFFICIENT DOMESTIC FOOD PRODUCTION AND SHORTAGE OF WATER IN MAJOR- CITIES, END SUMMARY. 1, 1.3(a)(4) A BLEAK PICTURE OF MEXICO'S CURRENT AND LONG-RANGE ECONOMIC SITUATION. A MAJOR PROBLEM IS THE MEXICAN PUBLIC'S LACK OF CONFIDENCE IN THE PRESENT LIBRARY GOVERNMENT. SINCE THE 31 AUGUST FLOTATION OF THE PESO, AN AVERAGE OF US$100 MILLION HAS LEFT THE COUNTRY WEEKLY. COMMENT: THIS RATE WOULD 1.3(a)(4) BE NEARLY DOUBLE THE CAPITAL LOSS ESTIMATED DURING THE FIRST EIGHT MONTHS OF 1976 BUT CORRESPONDS TO OTHER INFORMATION 9-75 JOU/ EDITIONS IN078370 PAGE 3 OF 7 PAGES 1.3(a)(4) FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO CONTROLS STATED AT BEGINNING AND END OF REPORT. (classification) ON THE TOPIC.) THIS AMOUNT WAS HIGHER DURING THE 1.3(a)(4) MID-SEPTEMBER BANK RUN WHICH WAS CAUSED BY RUMORS THAT THE GOVERNMENT INTENDED TO FREEZE BANK ACCOUNTS, BUT THE DAILY AVERAGE OF US$20 MILLION CAPITAL OUTFLOW STILL HOLDS TRUE. PEOPLE ARE CONTINUING TO TAKE THEIR MONEY OUT OF BANKS* AND ARE EITHER KEEPING IT AT HOME OR PUTTING IT INTO U.S. BANKS. SINCE THE FIRST OF THE YEAR, THE NET OUTFLOW OF U.S. DOLLARS HAS 1.3(a)(4) Photocopy from Gerald K. Ford Library BEEN OVER THE US$1.2 BILLION LOAN MEXICO WILL RECEIVE FROM THE INTERNATIONAL MONETARY FUND (IMF). COMMENT: THE US$1.2 BILLION IMF LOAN WAS REQUESTED BY PRESIDENT LUIS ECHEVERRIA AL VA RE Z TO SUPPORT THE FLOTATION OF THE PESO, 1.3(a)(4) 2, EXPECTATIONS THAT MEXICO CAN PULL OUT OF THE CURRENT ECONOMIC SITUATION ARE SLIM. INFLATION IS RUNNING ABOUT 30 PERCENT ANNUALLY. FORD VIRITY AFTER THE DEVALUATION, MEXICO GAINED THE ORETICALLY ALMOST 60 PERCENT OF THE WORTH OF THE PESO (IN TERMS OF INCREASED COMPETITIVENESS), AT THE END OF ONE YEAR, THE NET GAIN WILL 1.3(a)(4) IN 078370 PAGE 4 OF? PAGES 1.3(a)(4) FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO CONTROLS STATED AT BEGINNING AND END OF REPORT. (classification) BE ONLY 20 PERCENT; AT THE END OF TWO YEARS (AT 30 PERCENT INFLATION), IT WILL BE MINUS 10 PERCENT; AT THE END OF THE THIRD YEAR, IT WILL BE MINUS 40 PERCENT, ETC. THUS, AT A CERTAIN POINT, THERE WILL HAVE TO BE ANOTHER DEVALUATION, JUST TO KEEP EVEN, 3, ANOTHER DEVALUATION POSSIBLY COULD OCCUR IN THE NEXT FEW MONTHS, BUT WILL CERTAINLY HAPPEN IN THE NEXT THREE TO FOUR YEARS IF STRONG ECONOMIC MEASURES ARE NOT UNDERTAKEN BY PRESIDENT- ELECT JOSE LOPEZ - PORTILLO. ORIGIN D'O ... nman WOH T WHILE ANOTHER DEVALUATION MIGHT 1.3(a)(4) BE THE BEST THING FOR THE COUNTRY IN THE SHORT RUN, IT WILL NOT BE UNDERTAKEN FOR A VARIETY OF REASONS. FOR ONE, IT WOULD BE POLITICALLY UNWISE FOR LOPEZ-PORTILLO TO START HIS TERM WITH SUCH A CONTROVERSIAL MEASURE AS HE WOULD FORD LOSE THE PEOPLE'S ALREADY SEVERELY SHAKEN CONFIDENCE AND LIBRARY CAPITAL FLIGHT WOULD INCREASE BEYOND WHAT IT IS NOW. 4, COMMENTING ON THE REMARKS 1.3(a)(4) THAT MEXICO WOULD HAVE TO LIVE THROUGH TWO YEARS OF AUSTERITY, MEXICO COULD NOT MANAGE SUCH A PROGRAM AS IT IS ALREADY FACING A SEVERE RECESSION IN 1977. 1.3(a)(4) IN. 078371 PAGE 5 OF 7 PAGES 1.3(a)(4) FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO CONTROLS STATED AT BEGINNING AND END OF REPORT. (classitication) MAJOR INDUSTRIES OF THE PRIVATE SECTOR IN MEXICO ARE LAYING OFF PERSONNEL IN LARGE NUMBERS. THE MOTOR INDUSTRY IS PARTICULARLY HARD HIT. THIS SITUATION HAS COME ABOUT BECAUSE OF THE VICIOUS CIRCLE CREATED BY THE DEVALUATION, ALL VEHICLES WILL HAVE TO BE INCREASED IN PRICE BECAUSE OF THE NEW PARITY WITH THE DOLLAR. THUS, FEWER PEOPLE WILL BE ABLE TO PURCHASE THESE VEHICLES. FEWER SALES MEAN FEWER PROFITS. ALSO, THE COMPANIES WILL HAVE TO SAVE MORE MONEY BECAUSE THE PESO IS Photocopy nom Ocraid n. FOIG Liorary WORTH LESS WHILE LABOR COSTS HAVE INCREASED. COMPANY SAVINGS AND LESS PROFITS AND FEWER SALES ME AN FEWER JOBS. FEWER JOBS MEAN MORE PEOPLE OUT OF WORK WITHOUT MONEY. THIS, IN TURN, MEANS THAT A LARGER SEGMENT OF SOCIETY WILL NOT BE ABLE TO AFFORD TO BUY OTHER ITEMS WHICH MEANS FEWER ALES OF OTHER MERCHANDISE. THE GOVERNMENT WILL HAVE TO PUMP MORE MONEY INTO THE ECONOMY FOR MORE JOBS AND SALES. MORE MONEY MEANS MORE INFLATION, HIGHER INFLATION MEANS THE PESO IS WORTH LESS. LOPEZ-PORTILLO WILL BE ABLE 1.3(a)(4) TO DO LITTLE TO ST OP THIS RECESSION/INFLATION SPIRAL AND HIS POLICIES TO COUNTERACT THIS PROBLEM WILL PROBABLY NOT 2000 PRODUCE THE DESIRED OR NEEDED RESULTS. LIBRARY 1.3(a)(4) IN 078370 PAGE 6 OF 7 PAGES 1.3(a)(4) FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO CONTROLS STATED AT BEGINNING AND END OF REPORT. (classitication) 5, THE PRESENT 1.3(a)(4) GOVERNMENT IS HANDLING THE SITUATION POORLY. THE MAIN CAUSE OF THE PROBLEM IS PRESIDENT ECHEVERRIA WHO REFUSES TO TAKE THE ADVICE OF HIS ECONOMIC ADVISERS AND WHO CHANGES HIS MIND ON ECONOMIC POLICIES FOR THE COUNTRY FROM DAY TO DAY. NOT FREEZING BANK ACCOUNTS OR ADOPTING POLICIES TO RESTRICT CAPITAL FLIGHT AT 1.3(a)(4) THE TIME OF THE PESO DEVALUATION WERE TWO MAJOR BLUNDERS Photocopy from Geraid R. Ford Library COMMITTED BY ECHEVERRIA. 6, ONE OF ECHEVERRIA'S ECONOMIC ADVISERS SAID THAT IN TWO YEARS MEXICO WILL BE FACED WITH TWO ADDITIONAL PROBLEMS OF MONUMENTAL PROPORTIONS. FIRST, MEXICO WILL NOT RAISE SUFFICIENT FOOD FOR ITS GROWING POPULATION. IT WILL THUS HAVE TO IMPORT FOOD PRODUCTS WHICH WILL INCREASE CERACO LIDRARY 1.3(a)(4) IN 078370 PAGE 7 OF 7 PAGES 1.3(a)(4) FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO CONTROLS STATED AT BEGINNING AND END OF REPORT. (classification) IMPORTS AND WORSEN THE BALANCE OF PAYMENTS PROBLEM. SECOND, MEXICO CITY AND OTHER METROPOLITAN AREAS WILL FACE A WATER CRISIS BECAUSE RURAL SECTOR POVERTY WILL DRIVE THE PEOPLE TO URBAN CENTERS, PRIMARILY MEXICO CITY, THEREBY COMPOUNDING AN ALREADY DEFICIENT WATER SUPPLY SITUATION. SUCH CONDITIONS WILL INCREASE THE ILLEGAL IMMIGRATION OF MEXICANS INTO THE UNITED STATES. 1.3(a)(4) 7, Photocopy from Geraid R. Ford Library <0 GERALD 1.3(a)(4) OF THE THE TREASURY MESSAGE 4g RECEIVED AT 1789 MAIN TREASURY TELECOMMUNICATION CENTER FOR INFORMATION AND SERVICE - 8114 FOR RETRIEVAL AND COPIES 2061 CONFIDENTIAL TRB 085 PAGE 01 MEXICO 13934 020134Z File MEXICO 64 ACTION ARA-10 INFO OCT-01 ISO-00 CIAE-00 DODE-00 PM-04 H-02 INR-07 L-03 NSAE-00 NSC-05 PA-01 PRS-01 SP-02 SS-15 USIA-06 AID-05 COME-00 EB-07 FRB-03 TRSE-00 XMB-02 OPIC-03 CIEP-01 LAB-04 SI-01 OMB-01 IO-13 EUR-12 / 109 W 054755 R 02001 0Z NOV 76 FM AMEMBASSY MEXICO TO SECSTATE WASHDC 8364 G ONFIDENTIAL MEXICO 13934 GERALD FORD LIBRARY EO 11652: GDS TAGS: PINT MX EGEN EFIN PFOR PINS SUBJECT: MONTHLY POLITICAL HIGHLIGHTS: OCTOBER POUCHED: CARACAS, GUATEMELA, MANAGUA, SAN JOSE, SAN SALVADOR, MADRID, USUN, ALL CONSULATES IN MEXICO REF MEXICO 12831 1. SUMMARY: EVENTS IN OCT, PART ICULARLY ECONOMIC, INDICATED THAT LONG ANTICIPATED DIMINUTION OF POWER OF OUTGOING ADM INSTRATION IS OCCURING, BUT WITH PRES-ELECT LOPEZ PORTILLO CONSTRAINED POLI- TICALLY AND CON ST IT UT IONALLY FROM ACT ACTIVE IVE ROLE, RESULT IS POWER VACUUM IN WHICH GOM IS UNABLE PROVIDE LEADERSHIP WHICH ECONOMIC SITUATION REQUIRES. GOM'S CREDIBILITY IS AT ALL TIME LOW, PUBLIC TEND ING TO BEL IEVE OPPOSITE OF GOM PUBLIC PRONOUNCEMENTS. THIS LACK OF CONF IDENCE LED TO FURTHER CAPITIAL FLIGHTS AND SECOND DEVALUATION IN TWO MONTHS, TO MORE RUMORS, AND TO MORE OPEN CRITICISM OF PRESIDENT. WITH ONE MONTH TO GO BEFORE INAUGUR- ATION, MEXICANS ALL HAVE FINGERS CROSSED, HOPING MEXICO WILL MAKE IT. END SUMMARY. 2. ECONMIC SITUATION MEXICAN ECONOMY IN OCT REMAINED CHARACTERIZED BY CONFUSION OVER GOVT POLICIES AND LACK OF CONFIDENCE IN GOM'S ABILITY TO COPE CONFIDENTIAL DECLASSIFIED AUTHORITY state Dept sys Rw 5/4/06 BY dal NARA, DATE 2/12/15 HE MESSAGE THE TREASURY RECEIVED AT 1789 MAIN TREASURY TELECOMMUNICATION CENTER FOR INFORMATION AND SERVICE - 8114 FOR RETRIEVAL AND OOPIES (20G1) CONF IDENT IAL PAGE 02 MEXICO 13934 0201342 WITH CRISIS. TWO SPECIFIC DEVELOPMENTS OF NOTE WHERE REDUCTIONS IN EXPORT TAXES AND SECOND DEVAL UAT ION. FORMER WAS APPARENTLY DECIDED BY PRESIDENT IN RESPONSE TO PRIVATE SECTOR PRESSURES. TWO DAYS LATER BANK OF MEXICO ANNOUNCED RESUMPTION OF FLOAT, RAISING PE SO BUYING RATE NEXT DAY FROM 19.9 TO 26.5 PESOS PER DOLLAR. NOV. 1 RATE IS 25.58. DECISION TO RESUME FLOAT, WHICH TECHNICALLY TECHN ICALLY NEVER ENDED, WAS APPARENTLY TAKEN TO STEM CONTINUING FLIGHTS OF CAPITAL. IT APPEARS THAT MEASURE REDUCED CAPITAL OUT- FLOWS, BUT BY HOW MUCH IS UNCERTAIN. ONE HOPEFUL DEVELOPMENT WAS MEASURE REACTION OF LABOR, WHICH FOR MOMENT IS REFRAINING FROM MAKING NEW WAGE DEMANDS. BUT NEW RATE SENT SHIVERS DOWN SPINES OF BUSINESSMEN WITH LARGE FOREIGN DEBT S. GOM ECONOMIC OFFICIALS ARE AWARE OF CONF IDENCE PROBLEM, AND LAMENT THAT, FOR "POLITICAL REASONS", (READ ECHEVERRIA'S SENSIT IVITY), PRE S-ELECT JLP CANNOT COMMENT PUBL ICLY ON PRESENT SITUAT ION. THIS MAKES NOV. LOOK LIKE ANOTHER BLEAK MONTH. 3. THERE IS NO CURRENT DATA ON ECONOMIC SITUATON, BUT WE SUSPECT THAT CAPITAL FLIGHT SINCE SEPT. 1, HAS RESULTED IN ZERO GROWTH RATE OF MONEY SUPPLY. IN LIGHT OF PRICES INCREASES SINCE THIS TIME, IT SEEMS TO US LIKELY THAT VOLUME OF TRANSACT IONS WILL DECLINE. THIS WOULD LEAD TO LOWER REAL GROWTH RATE FOR 1976 THAT 4 PERCENT BEING FORECAST BY IMF. 4 ECHEVERRIA, JLP AND INTERREGNUM TRUE TO HIS PROMISE YEAR AGO, TO "WORK FOR MEXICO" UP TO HIS LAST MOMENT IN OFFICE, PRES ECHEVERRIA HAS BEEN CRISSCROSSING COUNTRY AS THOUGH HE WERE CAMPAIGNING, MEETING ALL NIGHT WITH CAMPESINO GROUP IN SONORA, IN AU GURATING PUBLIC WORKS IN HIDALGO, BLASTING PRIVATE SECTOR IN NUEVO LEON (SEE MEXICO 13366), INSPECTING MILITARY FACILITIES AND PRAISING ARMED FORCES IN QUERETARO, AND, IN OAXACA, ACCUSING "CERTAIN SECTORS" OF TRYING TO CREATE PROBLEMS FOR JLP. 5. WHILE PRESS HAS HEADLINED THESE PRESIDENTIAL PRONOUNCEMENTS AND ACTIVITIES, THERE IS ALSO BEGINNING TO BE MORE OPEN CRITICISM F ECHEVERRIA. FORMER PRES ALEMAN, ASKED BY REPORTERS TO CHARACTER - IZE LEA ADMINSTRATION, SAID HISTORY WOULD HAVE TO BE JUDGE, COMMENT WIDELY INTERPRETED TO MEAN THAT SINCE ALEMAN HAD NOTHING NICE TO SAY, HE SAID NOTHING AT ALL. UNAM RECTOR SOBER AON CRITI- CIZED "BUREAUCRATIC EXPLOSION" FOR CONTRIBUTING TO GOVT DEFICIT, ECONOMIC COMMENTARY INCREASINGLY BLAMED MALA- ADMINSTRATION AS CHIEF CAUSE OF DEVALATION, PRIVATE SECTOR SPOKES- MAN OPENLY SAID GOM 'S LACK OF CREDIBILITY WAS REASON FOR CONTINUING CONF IDE NT IAL GERALD FORD LIBRARY THE TREASURY MESSAGE THE RECEIVED AT 1789 MAIN TREASURY TELECOMMUNICATION CENTER FOR INFORMATION AND SERVICE - 8114 FOR RETRIEVAL AND COPIES 2001 CONF IDE NT IAL PAGE 03 MEXICO 13934 0201342 CAPITAL FLIGHT, AND MONTERREY BUSINESS COMMUNITY REACTED TO EC HEVERRIA 'S BLAST WITH DEVASTATINLY HOST ILE POLITICAL ADS. 6. WHILE ECHEVERRIA HAS BEEN PLAYING WITH SYMBOLS OF POWER, JLP HAS BEEN IN VIRTUAL SECLUSTION IN IHIS COYOACAN HQS, CONST IT U- CONST TIONALLY AND POL IT ICALLY CONSTRAINED FROM EXERCISE OF POWER. DURING OCT HE APPEARED IN PUBLIC TWICE, BOTH TIMES WITH ECHEVERIA. CONSEQUENCE IS INTERREGNUM, AT TIME WHEN MEXICO CAN ILL AFFORD IT. 7. RUMORS CONT INUE RUMORS CONTINUED TO FLOURISH DURING OCT AND GOM CONTINUED TO TRY TO REFUTE THEM IN LOW KEY MANNER, PROBABLY REAL IZING THAT DIRECT REFUTATION WOULD ONLY LEND THEM CREDENCE (FOLLOWING GOM DENIAL THAT OCT 12 BLACKOUT AFFECT ING FEDERAL DISTRICT AND FIVE STATES HAD BEEN CAUSED BY SABOTAGE, MEXICANS WERE SAYING "I TOLD YOU IT WAS SABOTAGE -- THEY DENIED II.") ALTHOUGH JLP'S CAN- CELLATION OF HIS PANAMA AND COLOMBIA TRIP PROBABLY WAS, AS HE SAID, DUE TO HIS WISH TO WORK ON HIS ECONOMIC PROGRAM, MANY SUGGESTED PRIVATELY THAT HE WAS AFRAID TO LEAVE COUNTRY FOR FEAR PRESIDENT WOULD SOME HOW TAKE ADVANTAGE OF HIS ABSENCE. RUM ORS ABOUT ARMY'S INTENTIONS SUDDENLY APPEARED, LEADING PRESIDENT PUBLICLY TO PRAISE ARMY'S LOYALTY AND SEMI-OFFICIAL EL NACIONAL TO DO LIKEWISE IN BOTH EDITORIALS AND CART 000NS (MEXICO 13749). VERSIONS OF THIS RUMOR VARIED, ONE SUGGESTING ARMY OFF ICERS HAD THREATENED BOTH ECHEVERRIA AND JLP WITH MILITARY INTERVENTION UNLESS CERTAIN UNSPECIFIEDCHANGES WERE MADE, ANOTHER VERSION (SOMEWHAT CLOSER TO TRUTH, WE SUSPECT) HAVING IT THAT MIDDLE GRADE OFF ICERS HAD EXPRESSED THEIR UNHAPPINESS IN GENERAL TERMS TO MEX SE CDEF CUENCA DIAZ. WITH RUMORS AND ECONOMIC SITUATION EACH ENCOURAGING OTHER, MOST MEXICANS HAVE FINGERS CROSSED, ANXIOUSLY AWAITING DEC. 1 INAUGURATIO OF JLP. 8. FOREIGN AFFAIRS, MORE DISAPPOINTMENTS DIPLOMATS, POL OBERSERVERS, AND EVEN SOME FOREIGN SECRETARIAT OF ICIALS WERE TAKEN BY SURPRISE BY OCT 18 ANNOUNCEMENT OF OF PRES ECHEVERRIA'S AVAILABILITYFOR UN SECY GENERALSHIP. ALTHOUGH ECHEVERRI'A DESIRE FOR POSIT IONWAS NO SECRET, IT HAD BEEN ASSUMED HE WOUD NOT DECLARE CANDIDACY DOOMED TO FAILURE. WHY ECHEVERRIA AND GOM APPARENTLY BELIEVE BEL IEVE HE HAS CHANCE IS NOT CLEAR. OUTSIE POSSIBIL EX XISTS OF PR C VETO OF ANY NON- THIRD WORLD CANDIDATE (ALTHOUGH (ALT REPORTS INDICATE THIS IS NOT SO). IT IS ALSO POSSIBLE THAT ECHEVERRIA EXPECTS, IN LOSING, TO BE OFFERED ANOTHER SENIOR UN POSIT ION. OR ECHEVERRI'A DECLARATION MAY HAVE RESULTED FROM PERSONAL FRUSTRATION AT NOT HAVING BEEN CONF IDENT IAL GERALD FORD LIBRARY DEPA TREASURY THE MESSAGE RECEIVED AT 1789 MAIN TREASURY TELECOMMUNICATION CENTER FOR INFORMATION AND SERVICE - - 8114 FOR RETRIEVAL AND COPIES (20G1) CONFIDENT IAL PAGE 04 MEXICO 13934 0201342 AWARDED NOBEL PRIZE (ANNOUNCED OCT 15) AND PERHAPS UNWITTINGLY ENCURAGED BY MEXICAN UN MISSION LACKING COURAGE TO GIVE HIM HONE ST APPRAISAL OF HIS CHANCES. 9. FINAL FORE IGN AFFAIRS DISAPPOINTMENT ALMOST CERTAINLY AWAITS ECHEVERRIA. PRESIDENT HAS MADE IT CLEAR ( THREE TIMES IN PAST WEEK ALONE) THAT WE WOULD LIKE TO END HIS REGIME WITH RESTORAT ION OF DIP RELATIONS WITH SPAIN AND SENT HIS TOP FOREIGN TRADE MAN TO RENEW TRADE RELAT IONS, INTERRUPTED LAST YEAR WHEN ECHEVERRIA MOVED TO GET SPAIN OUTSTED FROM UN FOR EXECUTIVE BASQUE TERRORISTS. YET ALL REPORTS INDICATE SPAIN, ST ILL HIGHLY RESENTFUL OF ECHEVERRIA'S ACTIONS, WILL WITHHOLD FORMAL DIP RELAT IONS UNTIL JP TAKES OFFICE ON DEC. 1. JOVA CONF IDENT IAL FORD i LIBRARY GERALD BP. ROUTINE COMITAL THE INTELLIGENCE TABLET IDENCE of AGENCY Intelligence Information Cable IN 081931 1.3(a)(4) 95-3 STATE/INR JCS/MC (DIA) CIA/NMCC sws NSA TREAS NSC/S SDO NIO CRS PAGE 1 OF 4 PAGES DIRECTORATE OF Category 58 (2 Impossible to Determine Date of Automatic Declassification. Classified by Recorded Reporting Officer. Exempt from General Declassification Schedule of E.O. 11652 Exemption OPERATIONS # Document 12 FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO CONTROLS STATED AT BEGINNING AND END OF REPORT. AL THIS IS AN INFORMATION REPORT, NOT FINALLY EVALUATED INTELLIGENCE CITE DIST 27 OCTOBER 1976 NCF 1.3(a)(4) COUNTRY : MEXICO DOI : LATE OCTOBER 1976 SUBJECT : DISCREPANCIES BETWEEN VIEWS OF OUTGOING AND INCOMING ADMINISTRATIONS IN MEXICO GERALD FORD ) Photocopy from Gerald R. Ford Library : # DECI DECLAREMENT E.O. 12356, See 3.4 HONS EXEMPTED Sec. 1.3 (a) (=) (9) (4) CIA CAltr 7/28/95 MR-95312 ACQ SO CE : By 16H Date 8/23/95 1.3(a)(4) 1, ALTHOUGH INCOMING PRESIDENT JOSE LOPEZ PORTILLO WAS HANDPICKED BY PRESIDENT LUIS ECHEVERRIA ALVAREZ AND THERE HAVE BEEN MANY SIGNS OF COOPERATION AND IDENTIFICATION BETWEEN THE TWO, IN RECENT WEEKS DIFFERENCES OF Approved Date for Release JUL 1995 1.3(a)(4) 9-75 3007 EDITIONS IN 081931 1.3(a)(4) PAGE 2 OF 4 PAGES FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO CONTROLS STATED AT BEGINNING AND END OF REPORT. (classification) OPINION, PARTICULARLY WITH RESPECT TO THE HANDLING OF ECONOMIC PROBLEMS, APPEAR TO HAVE DEVELOPED BETWEEN THE TWO MEN. 2, ASSOCIATES OF LOPEZ-PORTILLO HAVE INDICATED THAT, WHILE ECHEVERRIA REMAINS IN OFFICE, THE PRESIDENT- ELECT WILL REFRAIN FROM MAKING ANY COMMENTS WHICH COULD BE INTERPRETED AS CRITICAL OF THE PRESENT ADMINISTRATION. AT THE SAME TIME, HOWEVER, THEY ARE NOT HIDING THEIR VIEWS THAT THE ECONOMY OF THE COUNTRY HAS BEEN MISMANAGED BY ECHEVERRIA AND THAT THE Photocopy from Gerald R. Ford Library CURRENT INFLATIONARY WAVE AND DRAMATIC WEAKENING OF THE PE SO AFTER THE 31 AUGUST FLOTATION HAVE BEEN CAUSED PRIMARILY BY THE LOSS OF CONFIDENCE IN THE ECHEVERRIA ADMINISTRATION AND THE LATTER'S UNNECESSARY CATERING TO LABOR. 3, THOSE CLOSE TO LOPEZ-PORT ILLO FEEL THAT PRESIDENT ECHEVERRIA HAS MISMANAGED BOTH THE FLOTATION OF THE PESO AND THE SUBSEQUENT HANDLING OF THE ECONOMY. THE RESULT IS THAT NONE OF THE BENEFITS WHICH COULD HAVE BEEN EXPECTED FROM FLOTATION WERE REALIZED AND THAT THE UNCERTAINTIES REGARDING THE ECONOMY ARE AS GREAT, IF NOT GREATER, TWO MONTHS AFTER FORD THE ORIGINAL FLOTATION AS THEY WERE PREVIOUSLY. CERALS SIGNIFICANT DIFFERENCES EXIST BETWEEN THE OUTGOING THE 1.3(a)(4) RM 3G OBSOLETE PREVIOUS 1-75 EDITIONS IN 081931 PAGE 3 OF 4 PAGES 1.3(a)(4) FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO CONTROLS STATED AT BEGINNING AND END OF REPORT. (classification) AND INCOMING PRINCIPALS WITH RESPECT TO ATTITUDE TOWARD THE PRIVATE SECTOR, EMPHASIS ON FOREIGN POLICY, FOREIGN TRADE AND INFORMATION POLICY. GENERALLY SPEAKING, THE LOPEZ-PORTILLO CAMP WISHES TO CREATE CONDITIONS TO RESTORE INVESTOR CONFIDENCE WHILE AT THE SAME TIME REDUCING GOVERNMENT EXPENDITURES BY APPLYING ESSENTIALLY COMMERCIAL CRITERIA TO FOREIGN POLICY AND FOREIGN TRADE. WITH RESPECT TO INFORMATION POLICY, IT IS INTENDED TO CENTRALIZE INFORMATION GUIDANCE AND TO UTILIZE Photocopy from Gerald R. Ford Library IT PRIMARILY FOR THE PROMOTION OF THE ECONOMIC OBJECTIVES OF THE GOVERNMENT. 5, LOPEZ-PORTILLO IS DETERMINED To WITHHOLD BOTH POLICY STATEMENTS AND THE ANNOUNCEMENT OF APPOINTMENTS IN THE NEW ADMINISTRATION UNTIL 30 NOVEMBER IN ORDER TO AVOID DEROGATORY REFLECTIONS ON ECHEVERRIA. HE FEELS THAT THE PROPOSED APPOINTMENT OF CERTAIN INDIVIDUALS OR THE FAILURE TO APPOINT OTHERS WOULD BE ANALYZED AS REFLECTING DIFFERENCES IN POINTS OF VIEW. WHILE SUCH DIFFERENCES EXIST AND WILL BECOME OBVIOUS, HE DOES NOT WANT THEM PUBLICIZED AND DISCUSSED WHILE ECHEVERRIA IS STILL PRESIDENT. GERAIL FORD LIBRARY 6, 1.3(a)(4) 7 FORM 9-75 3007 OBSOLETE PREVIOUS EDITIONS IN 081931 PAGE 4 OF 4 PAGES 1.3(a)(4) FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO CONTROLS STATED AT BEGINNING AND END OF REPORT. (classi/ication) 1.3(a)(4) Photocopy from Gerald R. Ford Library CERT DESCRIBE PREVIOUS CDITIONS 11 1.3(a)(4) 0 ROUTINE Intelligence Information Cable IN 081947 STATE/INR ICS/MC (DIA) CIA/NMCC SWS NSA TREAS NSC/S SDO NIO CRS PAGE 1 OF E PAGES CIEP STR BIC OER Class diad by Registed Officer. Exempt from General Declassification Schedule of E.O. 11652 Exemption OF Calacory 33 (1),12) impossible 10 Determine Dais of Ausomatic Declassification. FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO CONTROLS STATED AT BEGINNING AND END OF REPORT. 15 AN INFORMATION REPORT, NOT FINALLY EVALUATED INTELLIGENCE NLF MR Case No 95-3 CITE Document No # 13 DIST 27 OCTOBER 1976 1.3(a)(4) SCUNTRY : MEXICO DCI :- LATE OCTOBER 1976 SUBJECT 1. POLICY GUIDELINES FOR THE INCOMING ADMINISTRATION OF PRESIDENT-ELECT JOSE LOPEZ-PORTICLO Photocopy from Gerald R. Ford Library ACG j 1.3(a)(4) SQUACE : GERALD SUMMARY: PRESIDENT-ELECT JOSE LOPEZ-PORTILLO HAS OUTLINED HIS VIEWS ON A NUMBER OF With PORTIONS 12356, EXEMPTED Sec. 3.4 FORD DECLASSIFIED E.O. E.O. 12356, Sec. 1:3 (a) POLICIES WHICH HE EXPECTS TO IMPLEMENT ON TAKING OFFICE. HE MR 95-3, # 7/28/95 By 163H NARA, Date 8/23/95 RECOGNIZES THE UNSATISFACTORY STATE OF THE MEXICAN ECONOMY AND REGARDS THE UPCOMING PERIOD AS A CRITICAL ONE DURING Approved for Release Date JUL 1995 1.3(a)(4) 0007 DESCRIBE PREVIOUS EDITIONS 12 IN 031947 1.3(a)(4) PAGE 20F.8 PAGES FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO CONTROLS STATED AT BEGINNING AND END OF REPORT SPICH HE WILL HAVE TO REESTABLISH PRIVATE-SECTOR CONFIDENCE IN THE GOVERNMENT. HE ALSO BELIEVES THAT THERE CAN BE NO BC ONOMIC RECOVERY WITHOUT RESTORING LABOR DISCIPLINE AND ADUCTIVITY AND WILL TAKE A HARD-LINE STAND ON LABOR POLICIES TO ACHIEVE THIS, IN LIKE FASHION, THE PROBLEMS OF UNEMPLOYMENT AND UNDEREMPLOYMENT WILL BE TACKLED. FOREIGN POLICY WILL SE RECRIENTED TOWARD THE UNITED STATES AND LATIN AMERICA. TIES NITH THE THIRD WORLD WILL BE MAINTAINED, BUT THE STRESS WILL Photocopy from Gerald R. Ford Library 93 ON MEXICAN SELF-INTEREST. LOPEE-PORTILLO INTENDS TO STRENGTHEN MEXICAN OFFICIAL REPRESENTATION IN THE U.S., BUT 93 WILL NOT ALTER OR SURRENDER THE POSITION OF INDEPENDENCE ICH MEXICO HAS DEVELOPED TOWARD ALL COUNTRIES, INCLUDING THE U.S. THE FORMATION OF A SECRETARIAT OF INFORMATION IS BEING CONSIDERED, IN THIS CONNECTION, A SMALL COMMITTEE IS ANALYSING THE WAYS AND MEANS TO TONE DOWN THE PROVOCATIVE FORD FEADLINE POLICY OF MOST MEXICAN NEWSPAPERS. IT HAS BEEN SUPHASIZED HOWEVER, THAT NO INTERPERENCE WITH THE FREEDOM GERALD LIBRARY OF THE PRESS IS INTENDED. END SUMMARY. 1, WHILE PRESIDENT-ELECT JOSE L OPEZ - PORTILLO WILL REFRAIN FROM MAKING ANY COMMENTS ABOUT HIS POLICIES 1 .3(a)(4) OBSOLVTE PREVIOUS EDITIONS 3 IN 081947 1.3(a)(4) PAGE 3 OF 8 PAGES FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO CONTROLS STATED AT BEGINNING AND END OF REPORT. 1.3(a)(4) ENDING MIS INAUGURATION ON 1 DECEMBER 1976, LOPEZ- PORTILLO HAS OUTLINED HIS VIEWS ON A NUMBER OF POLICY ISSUES WITH THE EXPECTATION THAT HE WILL MOVE TOWARD THEIR IMPLEMENTATION IMMEDIATELY UPON TAKING OFFICE. 2. LOREE-PORTILLO RECOGNIZES BOTH THE UNSATISFACTORY STATE OF THE MEXICAN ECONOMY AND THE VIRTUAL IMPOSSIBILITY 07 ANY DRASTIC IMPROVEMENTS WITHIN THE SHORT TERM, BY WHICH VE HEANS A PERIOD OF SIX MONTHS TO TWO YEARS FOLLOWING HIS Photocopy from Gerald R. Ford Library IMAUGURATION. ALTHOUGH OPTIMISTIC ABOUT MEXICO'S LONGER TERM ECONOMIC POTENTIAL, HE REGARDS THE UPCOMING PERIOD AS A CRITICAL ONE DURING WHICH HE HAS 70 REESTABLISH PRIVATE-SECTOR CONFIDENCE IN THE GOVERNMENT, BUT HE MUST DO 50 WITHOUT TOTALLY MITAGONIZING ORGANIZED LABOR, 3, LOPEZ-PORTILLO FEELS THAT PRESIDENT LUIS ECHEVERRIA ALVAREE HAS UNNECESSARILY CURRIED FAVOR WITH MEXICAN LABOR WITH THE RESULT THAT SALARY GAINS BY. CASOR HAVE EXCEEDED PRODUCTIVITY. HE VIEWS THIS AS A MAJOR CAUSE 07 THE LOCAL INFLATION. LOPEE-1 RTILLO HOPES TO REACH AGREEMENT WITH LABOR THAT HENCEFORTH ANNUAL WAGE INCREASES FORD IOULD SE IN THE 5 - - 7 PERCENT RANGE, BUT HE IS FULLY AWARE GERALL LIBRARY 1.3(a)(4) PREVIOUS STATORS 14 IN 081947 PAGE 4 OF 8 PAGES 1.3(a)(4) FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO CONTROLS STATED AT BEGINNING AND END OF REPORT. THAT THERE WILL SE STRONG OPPOSITION TO THIS. HE INTENDS TO 140 THE LINE, HOWEVER, EVEN AT THE RISK OF STRIKES AND RIOTS, AND WITH FORCE, IF NECESSARY, BECAUSE OF HIS CONVICTION THAT JAN 96 NO ECONOMIC RECOVERY WITHOUT RESTGRING LABOR DISCIPLINE AND PRODUCTIVITY. 5, UNEMPLOYMENT AND UNDEREMPLOYMENT ARE REGARDED AS 34310 PROBLEMS, WHICH ARE AND WILL CONTINUE TO BE AGGRAVATED Photocopy from Gerald K. Ford Library IV MIGH BIRTHRATES AND LACK OF ADEQUATE INVESTMENT. A STUDY REQUE HAS ADVISED LOPEZ-PORTILLO THAT ONLY ABOUT TEN PERCENT 7 THE NEW WORK FORCE PER ANNUM CAN BE ACCOMMODATED WITH NEW 5333 33 IN INDUSTRY, THE SITUATION :S UNACCEPTABLE AND ITS LONG- INPLICATIONS ARE CATASTROPHIC. NOT ONLY MUST MORE INDUSTRIAL JOBS SE CREATED, BUT THERE MUST BE AN INTENSI- REGATION OF THE AGRICULTURAL SECTOR TO. PROVIDE EMPLOYMENT THE RURAL AREAS. THE ALTERNATIVES WOULD SE INTOLERABLE PRESSURES ON THE CITIES AND INCREASED ILLEGAL MIGRATION TO DE UNITED STATES, 5. MEXICAN FOREIGN POLICY WILL BE RECRIENTED TOWARD THE FORD CERRILO GERALD WHITED STATES AND TOWARD LATIN AMERICA. LOPEE-PORTILLO HAS VATO THEY HIS THRGE MOST IMPORTANT AMBASSADORIAL APPOINTMENTS 1.3(a)(4) 13007 CORPORTE DESVIOUS IN 031947 PAGE 5 OF 8 PAGES 1.3(a)(4) FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO CONTROLS STATED AT BEGINNING AND END OF REPORT. information VIAL 38 TO THE UNITED STATES, TO GUATEMALA AND TO CUBA. THE FORMER TWO, BECAUSE THEY ARE NEIGHBORS : CUBA, TO MAKE SURE 17 KEEPS ITS HANDS OFF MEXICO, 3. WHILE NOT FORMALLY ALTERING OR RENOUNCING MEXICO'S WERLY-FOUND STATUS WITH THIRD WORLD COUNTRIES, LOPEZ-PORTILLO HILL EMPHASIZE RELATIONS WITH THOSE COUNTRIES WHICH ARE IN A 1.3(a)(4) POSITION TO MAKE A CONTRIBUTION TO MEXICAN RECOVERY. HE INTENDS TO MAINTAIN CORDIAL RELATIONS WITH ALL, BUT Photocopy from Gerald R. Ford Library CITED THE COUNTRIES OF TANEANIA, NIGERIA, ANGOLA AND VIETNAM AS EXAMPLES WHERE THE MAINTENANCE OF MEXICAN REPRESENTATION REPRESENTS UNRECESSARY EXPENSE WITH NO CONCEIVABLE BENEFITS 70 MEXICO, 1.3(a)(4) THE STRESS WILL BE ON MEXICAN SELF INTEREST. 7, THE IDEOLOGICAL FACTOR WILL BE REMOVED FROM FOREIGN TOADS, AN EXAMPLE OF THE TYPE C.F ACTIVITY WHICH HE WANTS TO SEE DISCONTINUED, 11 RECENT CONTRACT WITH MCP0000, SIGNED BY FRANSICO A L E J 0 LOPEZ, SECRETARY FOR NATIONAL PATRIMONY, FOR THE PURCHASE OF FERTILIZERS AT A GERAL EURD LIBRARY TOTAL PRICE NEARLY FOUR TIMES HIGHER THAN THE PRICE WOULD HAVE BEEN FOR SIMILAR FERTILIZER BOUGHT FROM THE UNITED STATES, 1.3(a)(4) 1 OBSERVE PREVIOUS EDITIONS IN 081947 1.3(a)(4) PAGE b OF 8 PAGES FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO CONTROLS STATED AT BEGINNING AND END OF REPORT. Patient IL.LO is NO T INTERESTED IN DIVERSIFICATION OF FOREIGN TRACE FOR THE SAKE OF DIVERSIFICATION AND FEELS THAT THE U.S. 13 SOTH THE BEST AND MOST LOGICAL TRADING PARTNER FOR MEXICO. 3. UCREB PORTILLO INTENDS TO STRENGTHEN THE MEXICAN MEDICIAL REPRESENTATION IN THE UNITED STATES, BOTH TO HELP 64100 GET A BETTER UNDERSTANDING OF THE AMERICAN REALITIES = TO PRMOTE MEXICAN EXPORTS IN THE UNITED STATES. JOSE A LLASTEGUI UNDERSECRETARY FOR FOREIGN RELATIONS, Photocopy from Gerald K. Ford Library 10 MENTIONED AS THE TYPE OF AMBASS ADOR HE IS SEEKING TO THE FORD i GERALD LIBRNNK 1.3(a)(4) IN 061947 1.3(a)(4) PAGE 7 OF. 8 PAGES FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO CONTROLS STATED AT BEGINNING AND END OF REPORT. If 9. IN EMPHASIZING CLOSE COOPERATION WITH THE UNITED STATES, LAPEE-PORTILLO HAS MADE IT CLEAR THAT THERE CAN BE NO TURNING 07 THE CLOCK AND THAT HE IS NOT INCLINED TO ALTER OR THE POSITION OF INDEPENDENCE WHICH MEXICO HAS DEVELOPED TOWARD ALL COUNTRIES, INCLUDING THE UNITED STATES. EXAMPLE, LOPEE-PORTILLO WILL NOT ALTER THE REQUIREMENTS MEXICAN MAJORITY CONTROL OF INDUSTRIAL ACTIVITIES IN SKICO. FOREIGN INVESTMENT, WHILE ENCOURAGED, WILL NOT BE Photocopy from Gerald R. Ford Library ENVICED SY ALTERING THE CURRENT LEGISLATIVE FRAMEWORK. PORTILLO EXPECTS THAT THE FOREIGN INVESTOR WILL ПРОФИНОВАТЕ TO MEXICAN GROUND RULES BUT, 4T THE SAME TIME, 00K MILL ADHERE TO THE SAME RULES, THUS PROVIDING STURANCE OF SECURITY AND CONTINUITY. 10, THE INCOMING ADMINISTRATION IS KEENLY AWARE OF THE = OF CONFIDENCE AND EVEN CYNICISM WITH WHICH ALL SECTORS MEXICAN PUBLIC OPINION VIEW THE GOVERNMENT AND ITS INVOICEMENTS. THIS LACK OF CONFIDENCE IS VIEWED AS INTERFER- 1TH THE NORMAL FUNCTIONING OF THE ECONOMY. THE EXISTING FOND IS ATTRIBUTED TO THE INADEQUATE INFORMATION POLICY GERALD EVERSIA ADMINISTRATION AND TO MUTUALLY EXCLUSIVE LIBRARY 1.3(a)(4) IN 061947 .3(a)(4) PAGE 8 OF 6 PAGES FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO CONTROLS STATED AT BEGINNING AND END OF REPORT. STATEMENTS ON SPECIFIC POLICY AND IMPLEMENTATION EMANATING FROM THE DIFFERENT SECTORS OF THE GOVERNMENT THE ESTABLISHMENT ! :- A SECRETARIAT OF INFORMATION is BEING CONSIDERED, ALONG NITH TH WAYS AND MEANS TO TONE DOWN THE PROVOCATIVE HEADLINE POLICY X MOST MEXICAN NEWSPAPERS. IN THIS CONNECTION, LOPEZ-PORTILLO RAS APPOINTED A SMALL COMMITTEE TO ANALYZE FOUR IMPORTANT 11 ENSPAPERS, INCLUDING TWO U.S. PAPERS, THE LONDON "TIMES" AND THE PARIS "LE MONDE," WITH THE OBJECTIVE OF DRAWING UP CERTAIN GUIDELINES WHICH MIGHT BE SUGGESTED TO THE LEADING Photocopy from Gerald R. Ford Library EXTCAN PUBLICATIONS. IT IS EMPHASIZED, HOWEVER, THAT NO INTERFERENCE WITH THE FREEDOM OF THE PRESS IS INTENDED. 1.3(a)(4) LIBRARY GERALS ? FORD 1.3(a)(4) THE ASURY RECEIVED AT 1789 MAIN TREASURY TELECOMM NICATION CENTER FOR INFORMATION AND SERVICE - - 8114 FOR RETRIEVAL AND COPIES 2061 THE OCTOBER 16 REFERENDUM GAVE FIM A MANDATE TO CRACK DOWN ON BUREAUCRATIC BACKSLIDERS. THE PERFORMANCE OF MANY LOCAL OFFICIALS IS UNDER CLOSE SCRUTINY. EMBASSY COMMENT: IT WOULD NOT BE SURPRISING IF, WITH THE REFERENDUM OVER, MARCOS NOW MOVES TO EASE OUT UNCOOPERATIVE GOVERNMENT OFFICIALS AND PETIRE AGING CABINET MEMBERS. BY UTILIZING A GRADUAL APPROACH, HE MAY AVOID THE STRONG BACK- LASH OF RESENTMENT CAUSED BY THE SUDDEN AND BADLY-EXECUTED PURGE OF LATE 1975. (LIMITED OFFICIAL USE) MANILA 16622, 10/27.) 3. MEXICO: HINTS OF MILITARY DISCONTENT AN AMERICAN BUSINESSMAN ALLEGED TO EMBASSY MEXICO THAT MIDDLE GRADE MILITARY OFFICERS SENT A LETTER TO DEFENSE SECRETARY CUENCA DIAZ, EXPRESSING UNPAPPINESS OVER THE STATUS OF THE MILITARY WITHIN THE NATIONAL POWER STRUC- TUPE. PURPORTEDLY, THE LETTER: WAS DEFERENTIAL IN TONE BUT VOICED CONCERN OVER CORRUPTION AND OTHER SOCIAL AND ECONOMIC PROPLEMS; AND -DIPLOMATICALLY CONTENDED THAT THE MILITARY IS CAP- ABLE OF MAKING A LARGER CONTRIBUTION AND SHOULD HAVE A ROLE IN NATIONAL DECISION MAKING. EMBASSY COMMENT: THAT SOMETHING IS ASTIR IS EVIDENT. RUMORS OF THE LETTER, WHICH DOES REFLECT THE VIEWS OF MOST MID-LEVEL OFFICERS, HAVE EMERGED FROM OTHER SOURCES. AND PRESIDENT ECHEVERRIA, ON A TOUR OF MILITARY INSTALLATIONS, PUBLICLY CONDEMNED SMALL MINORITIES WHO LOOK TO THE ARMED FORCES FOR REPETITION OF COUPS WHICH HAD OCCURRED IN OTHER COUNTRIES (CONFIDENTIAL) MEXICO 13749, 10/28.) KISSINGER BT #5585 002 DECLASSIFIED E.O. 12356, Sec. 3.4. MR 9.51, ,# 14 State Hr. 2/15/95 By KBH NARA, Date 2/24/95 GERALO FORD LIBRARY DECLASSIFIED E.O. 12958 Sec. 3.6 SECRET DRAFT MR 95-2, #15; Treasury Hr. 3/7/96 By let NARA, Date 5/3/96 Date: November 3, 1976 MEMORANDUM FOR: SECRETARY SIMON From: William N. Morell, Jr. Special Assistant for National Security BERALD R. FORD LIBRANT Subject: National Intelligence Estimate (NIE) on Mexico Embassy Mexico has prepared a lengthy and useful cable input to the NIE that the Director, Central Intelligence, is having prepared at your request. The Treasury Attache was extensively involved in the preparation of the Embassy message, the highlights of which are summarized below. Deteriorating economic conditions in Mexico have already caused considerable social and political turbulence. Nevertheless, because of the Mexican political and social structure, the Embassy sees little threat to political stability as long as there is relative unity among key interest groups in the ruling party (PRI). Organized labor, which in recent years has been moving increasingly outside of the traditional government party structure, is the most likely source of trouble. The Mexican industrial sector is monopolistically organized and produces a high priced product that, with few exceptions, cannot compete in the world market. Corruption and import licensing also impact to diminish the possibilities for the expansion of Mexican manufactures, even if inflation can be controlled. Removal of US import restrictions, therefore, would be of limited help to Mexican manufacturers. It is, nevertheless, anticipated that Mexico will continue to call for "special treatment" because of her status as an LDC and because of belief in a "special relationship" with the US. The Embassy believes that the IMF has understated the severity of the economic disequalibrium in Mexico and overestimated Mexico's growth potential. Wharton forecasts a 1979 Mexican current account deficit of $4.3 billion. Other studies point to a $500 million deficit. (Additional analysis is obviously required.) Given Mexico's balance-of-payments problems, a fairly rigid import control system will have to be maintained. Capital reflows are not likely to be sufficient to cover requirements for the public sector, and financing for private sector investment is uncertain. President- elect Lopez-Portillo intends to restrain the rate of growth in the Initiator Reviewer Reviewer Reviewer Reviewer Ex. Sec. CLASSIFIED Surname AWLong Embassy Mexico 13837 FROM Initials / Date OWS/Nov3 / 10 Form 0S-3129 SECRET repossible to determine Department of Treasury (culess SECRET - 2 - public sector but not to reduce public sector spending. Thus, the burden of adjustment will fall heavily on the private sector, and private sector confidence is the critical factor in stability and progress. The Embassy estimates, based upon PEMEX data, that Mexico has the capacity to expand its oil output by at least 100,000 barrels per day per year for at least the next 5 years. (CIA/OER maintains that an all out development effort would allow Mexico to produce 2.7 million barrels per day and export 1.5 million in 1980.) Lopez-Portillo will probably direct a rapid expansion of oil production to help alleviate Mexico's payment problems. The Embassy notes that the US could encourage increased Mexican oil development by providing favorable Ex-Im credits, but cautions that there is little probability that foreign companies will be allowed to develop Mexican petroleum resources. The Embassy also comments extensively on a variety of other subjects including rationalization of land reform, illegal emigration, internal political problems, cooperation in narcotics enforcement, and foreign policy. The Embassy notes that, while Lopez-Portillo's conduct of foreign policy will be characterized by a decrease in anti-US rhetoric and a softening of antagonistic public attitudes, his basic position will remain that of a Mexican nationalist and that any attempt by the US to "overembrace" him could be counter- productive. R. GERALD CHOP LIBRARY SECRET BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Office Correspondence Date November 3, 1976 Chairman Burns To Subject: Governor Baffi's testimony From Jan W. Karcz My in the Italian Senate The attached "Reuters" story is summarized in today's International Digest (item # 1). You may want to note the paragraph marked in red in the xeroxed copy. BERALD R. FORD LIBRABY 1811 BAFFI YS ITALY CAN STILL DRAW NLN DLRS FROM EEC: ROME, NOV 3 - ITALY CAN STILL DRAW 700 MLN DLRS IN SHORT-TERM FINANCIAL CREDITS FROM THE EEC, PART OF WHICH COULD BE USED TO COVER REPAYMENT OF 486 MLN DLRS TO BRITAIN, BANK OF ITALY GOVERNOR PAOLO BAFFI SAID 2 THE SHORT-TERM CREDITS WOULD SUBSEQUENTLY BE CONVERTED INTO A MEDIUM TERM CREDIT LINE EDBA FFI TOLD THE SENATE FINANCE COMMISSION IN ILLUSTRATION OF BORROWING POSSIBILITIES STILL OPEN TO ITALY REUTER THIS YEAR ITELY WILL HAVE TO PAY 11 BILLION DLRS IN INTEREST ON FOREIGN LORNS, EXCLUDING SHORT TERM COMMERCIAL BORROWINGS, BAFFI SAID ITALY WILL ALSO HAVE TO REPAY 548 MLN DLRS KIN MATURING EUROCURRENCY LOANS AND 826 MLN DLRS IN REIMBURSEMENT TO THE I.M.F., BAFFI SAID TOTAL ITALIAN FOREIGN DEBT CURRENTLY STANDS AT 16 3 BILLION DLRS, HE SAID. REUTER LIBRARY GERALD FORD ALY CAN ALSQ CALL ON SMORT-TERM CREDIT OF 750 MLN DLRS FROM THE U.S. FEDERAL RESERVE, IN ANTICIPATION OF CONCLUSION OF A LOAN AGREE- MENT WITH THE I.M.F., BAFFI SAID. INFORMED SQUECES SAID A SIMILAR 750 MLN DLRS WAS MADE AVAILABLE TO ITALY BY THE FED EARLIER THIS YEAR, AHEAD OF CONCLUSION OF THE E.E.C. LOAN, OF WHICH 500 MLN WAS DRAWN AND LATER REPAID NNNN 1859 : BAFFI SAYS SLEME: OTHER LOAN POSSIBILITIES INCLUDE A FURTHER 500 MLN DLRS FROM THE BUNDESBANK, UNDER THE GOLD BACKED CREDIT AGREEMENT, AND AT LEAST 530 MLN DLRS AND POSSIBLY MORE FROM THE I.M.F.N GIVEN ITALY'S 5 EXCEPTIONAL CIRCUMSTANCES, BAFFI SAID BUT NEW RECOURSE TO THE EUROMARKETS APPEARS EXCLUDED UNDER PRESENT CONDITIONS; HE SAID RECOMMENDATIONS FROM THE I.M.E. RT RECENT TALKS IN PARIS 08 OBJECTIVES FOR RE-ESTABLISH- MENT OF THE ITALIAN ECONOMY APPEARED SUBSTANTIALLY IN LINE WITH THE GOVERNMENT'S OWN ECONOMIC AND FISCAL POLICIES, HE SAID 2. REUTER FORD GERALD LISRAST BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 70 GRACE 3HT 70 LEDEUVE НЕЗЕКЛЕ November 3, 1976 TE :01 MA To: Chairman Burns 03V1333A ИАМЯНАНЭ 3HT 30 301770 From: Ted Truman EMT Subject: Cables on Mexico Attached are four cables that we received today from Mexico: Mexico 13923: Possible Revision of IMF Program Mexico 13924: Ambassador Dent's Visit to Mexico, Nov. 19 Mexico 13934: Monthly Economic and Political Highlights: October Airgram A-28: Businessmen's Roundtable -- September 1976 CC: Governor Wallich FORD is LIBRARY GERALD Defense classification of this document is due to the inclusion of U.S. Government information officially classified under Exceutive Order 10501 which provides that "A document shall bear a classification as least as high as that of its highest classified component." CONFIDENTIAL MUTOYS 3V43738 JARGO33 THT DL BOARD OF GOVERNORS OF THE этел & тебизуой FEDERAL RESERVE SYSTEM 1976 NOV -4 AM 10: 37 entrus RECEIVED :of OFFICE OF THE CHAIRMAN SECUT beT :worT column no selded 9W Jadd asídeo Tooi 973 Valor Devisest margorY THE to golatval :ESSET octroll 00 ItalV :ASPET er .voll column bas visitioN :ACREI colume тобозой :erigildgth -- :SS-A aver dollisW CONTRACT :00 SEMENT STATE or Department of State STATES AMERICA UNITED MAKE TELEGRAM OF DECLASSIBIED CONFIDENTIAL 4422 AUTHORITY state dept sys rev 5/4/06 PAGE 01 MEXICO 13923 0200582 BY dal NARA, DATE 2/12/15 as ACTION EB-07 TNFO OCT-01 ARA-06 ISn-20 SP-02 USIA-06 AID-05 NSC-05 CIEP-01 SS-15 STR-04 OMB-01 CEA-01 CIAE-00 COME-00 FRR-03 INR-07 NSAE-00 XMB-02 OPIC-03 LAB-04 SIL-01 L-03 H-02 PA-01 PRS-01 /081 W 054576 R 9123332 NOV 76 FM AMEMBASSY MEXICO TU SECSTATE WASHDC 8357 INFO TREASURY WASHDC C 0 N F I D E N T T MEXICO 13923 Internalional Information Cent Please return to F O 11652: GDS TAGS: EFIN 1X SUBJECT: POSSIBLE REVISION OF IMF PROGRAM 1. SUMMARY: IN OCT. 28 CONVERSATION, BANK OF MEXICO OFFICIAL TOLD FINATT THAT SPECIFIC TARGETS IN IMF PROGRAM TN 1977 MAY HAVE TO BE RE-NEGOTIATED. END SUMMARY. 0. IN COURSE OF CONVERSATION WITH BANK OF MEXICO OFFICIAL ON OCT. 28, FINATT ASKED WHETHER IMPACT OF RECENT DEVELUPMENTS ON THE ECONOMIC OUTCOME FOR CURRENT YEAR MIGHT NOT MAKE ATTAINMENT OF THE SPECIFIC TARGETS IN THE EFF 1977 PROGRAM MORE DIFFICULT. PARTICULAR REFERENCE WAS MADE TO THE 90 BILLION PESO BUDGET DEFICIT TARGET. OFFICIAL INDICATED THAT HF THOUGHT THIS TARGET MIGHT HAVE TO BE RENEGOTIATED, BUT THAT THE IMPORTANT TARGETS IN THE PROGRAM WERE THE RELATIONSHIPS TO GDP RATHER THAN THE SPECIFIC TARGETS SUCH AS THAT FOR 1977 PUBLIC DEFICIT. 3. BASIS FOR QUESTION IS OUR BELIEF THAT THE IMPACT OF NEVELOPMENTS IN THE FINAL FOUR MONTHS OF THIS YEAR MAY LEAD TO A HIGHER PUBLIC SECTOR DEFICIT THAN FORESEEN IN THE FUND PAPERS ON MEXICO. THE DEVALUATION IS LIKELY FORD is GERALD LIBRARY CONFIDENTIAL 97 or DEPARTMENT STATE Department of State UNITED STATES OF AMERICANCE TELEGRAM CONFIDENTIAL PAGE 02 MEXICO 13923 0200582 TO HAVE A SIGNIFICANT IMPACT ON CORPORATE TAX REVENUES. A NUMBER OF BUSINESSMEN HAVE TOLD US THEY ARE LOWERING THEIR PERIODIC TAX PAYMENTS ON THE BASIS UF HIGHER COSTS RESULTING FROM THE EXCHANGE RATE CHANGE. CORPORATE INCOME TAX RECEIPTS ACCOUNT FOR ABOUT 20 PERCENT OF FEDERAL GOVERNMENT REVENUES. RF PUBLIC SECTOR COMPANIES, THF INCREASED COSTS FOR WAGES AND FOREIGN DEBT SERVICE HAVE NOT YET BEEN OFFSET BY INCREASED PRICES. IN THIS REGARD, WE KEEP HEARING THAT PRICE INCREASES IN THEPUBLIC SECTOR ARE IMMINENT, ONLY TO HAVE THEM POSTPONED, MOST RECENTLY BECAUSE OF THE SECOND DEVELATUION AND THE FEAR OF THE REACTION TO SUCH PRICE INCREASES AT A TIME WHEN THF GOM IS MAKING AN EFFORT TO CONVINCE THE PRIVATE SECTOR NOT TO INCREASE PRICES AND THE LABOR UNIONS NOT TO DEMAND ANOTHER WAGE INCREASE. 4. SHOULD THE 1977 PUBLIC SECTOR DEFICIT BE IN THE RANGE OF 120-13n BILLION PESOS, TT WILL BE MORE DIFFICULT THAN FARLIER ANTICIPATED TO BRING THE 1977 DEFICIT TO 90 MILLION PESOS WHICH WOULD BE THE EQUIVALENT OF 72 BILLION 1976 PESOS, ASSUMING A 20 PERCENT PRICE DEFLATOR FOR 1977. 5. WHILE BANK OF MEXICO OFFICIALS STATEMENTS WAS INFORMAL, AND MAY NOT REFLECT THE GOM POSITION, WE ARE CONCERNED FOR SEVERAL REASONS. ONE IS THATIT INDICATES A MURE RAPID DETERIORATION IN THE CURRENT ECONMIC SITUATION THAN OTHERWISE EXPECTED. ANOTHER IS THAT WE HAD PRESUMED THAT THE SPECIFIC TARGETS MENTIONED TN THE FUND PROGRAM WERE OVERRIGING. JOYA 2. FORD GERALD LIBRARY CONFIDENTIAL DEPARTMENT OF STATE Department of State AMERICA UNITED TELEGRAM STATES OF LIMITED OFFICIAL USE 4423 DECLASSIFIED PAGE 01 MEXICO 13024 0201012 AUTHORITY state dept sup nev. 5/4/06 73 BY dal NARA, DATE 2/12/15 ACTION STR-04 TNFO OCT-01 ARA-06 TO-13 180-00 STRE-00 AGRE-60 CTAR-04 CUME-09 EP-07 INR-07 LAB-04 NSAE-00 SP-02 TREE-00 CIEP-81 FRB-03 0M8-01 L-03 1052 W 054584 R 0123347 NOV 76 FM AMEMBASSY MEXICO TO SECSTATE WASHOC 8358 TNFO USMISSION MTN GENEVA LIMITED OFFICIAL USE MEXTCO 13924 International Information Center DEPT PASS STR FO 11652: NA TAGS: ETRD UVIP (DENT), MX MTN SUBJECT: AMBASSADOR DENT'S VISIT TO MEXICO 1. MARIO RODRIGUEZ, GARRIDO'S DEPUTY IN TREASURY FOR INTERNATIONAL AFFAIRS, TOLD EMB ECONOFF FRIDAY, OCT. 29, THAT MEXICAN TREASURY OFFICIALS MUCH INTERESTED IN AMB DENT HAVING LONG DISCUSSION CONE AND ONE -HALF HOURS OR MORE) WITH MARIO RAMON BETETA, SECRETARY OF TREASURY, DURING HIS VISIT NOV. 19. MEETING SUGGESTED FOR MORNING OF NOV. 19 ABOUT 10:00 OR 10:30. EMBASSY STRONGLY CONCURS IN SUGGESTION. 2. DISCUSSION TOPICS COULD INCLUDE CURRENT MEXICAN ECONOMIC SITUATION AND EFFECT ON MEXICAN-US TRADE, SPECIAL AND DIFFFRENTIAL TREATMENT FOR LDC'S VS RECIPROCITY, MEXICAN VIEWS ON GATT REFORM, TP NEGUTIATIONS AND POSSIBLY SPECIAL BTLATERAL TRADE PROBLEMS SUCH AS TENUTLA AND SHOES. 3. ALTHOUGH BETETA UNLIKELY TO RETAIN POSITION IN JLP ADMINSTRATTON RECAUSE HIS REPUTATION HAS BEEN TARNISHED BY MEXICAN DEVALUATION HF REMAINS RESPECTED GOM OFFICIAL GERALD FORD LIBRARY LIMITED OFFICIAL USE DEPARTMENT OF STATE Department of State UNITED OF the TELEGRAM STATES LIMITED OFFICIAL USE PAGE 02 MEXICO 13924 020101Z AND INFLUENTIAL ADVISOR OF JOP. HE SPEAKS FLUENT ENGLISH. ALSO WE NOTE TREASURY SEEMS INTERESTED IN MONOPOLYZING DENTIS TIME IN MEXICO PRUBARLY TO STRENGTHEN TTS HAND WITH SECRETARIAT OF INDUSTRY AND COMMERCE AS GOM AGENCY WITH RESPONSIBILITY ON TRADE MATTERS. SINCE TREASURY TAKES MUCH BROADER VIEW OF TRAUE QUESTIONS THAN SIC'S NAPROW INDUSTRY-ORIENTED APPROACH WE BELTEVE IT IS TN OUR INTEREST TO DISCRETELY HELP TREASURY. 1. ROORIGUEZ ALSO SUGGESTED THAT AFTER SPEECH IN LATE AFTERNOON AMR DENT MIGHT WANT TO HAVE FOLLOWUP DISCUSSION WITH SECOND LEVEL GOM OFFICIALS SALES AND GARRIDO OF TREASURY. JOVA GERALD R. FORD LIBRAMA LIMITED OFFICIAL USE OF STATE Department of State AMERICA UNITED TELEGRAM STATES OF DECLASSIFIED CONFIDENTIAL 4463 AUTHORITY state dept sysee 5/4/06 PAGE w1 MEXICO 13034 0201342 BY dal NARA, DATE 2/12/15 64 ACTION ARA-19 INFO OCT-01 TSO-00 CIAE-00 0005-00 PA-04 H-02 INR-07 L-03 NSAE-00 NSC-05 PA-P1 PRS-01 SP-02 SS-15 USTA-06 A10-05 COME-00 ER-97 FRA-03 TRSE-00 XMB-02 OPIC-03 CIEP-01 LA8-04 STL-01 OMB-01 In-13 EUR=12 /109 W 054755 R 020010Z NOV 75 FM ANEMBASSY MEXICO TO SECSTATE WASHDC 8364 return to is E international Information Center N D N I I A MEXICO 13934 EO 11652: GOS Economy TAGS: PINT MX EGEN EFIN PFOR PINS SUBJECT: MONTHLY POLITICAL HIGHLIGHTS: OCTOBER POUCHED: CARACAS, GUATEMELA, MANAGUA, SAN JOSE, SAN SALVADOR, MADRID, USUN, ALL CONSULATES IN MEXICO REF MEXICO 12831 1. SUMMARY: EVENTS IN OCT, PARTICULARLY ECONOMIC, INDICATED THAT LUNG ANTICIPATED DIMINUTION OF POWER OF OUTSOING ADMINSTRATION 75 OCCURING, BUT WTTH PRES-ELECT LOPEZ PORTILLO CONSTRAINED POLI- TICALLY AND CONSTITUTIONALLY FROM ACTIVE ROLE, RESULT TS POWER VACOUM IN WHICH GOM TS UNABLE PROVIDE LEADERSHIP WHICH ECONOMIC SITUATION REQUIRES. GUMIS CREDITILITY TS AT ALL TIME LOW, PUBLIC TENDING TO BELIEVE OPPOSITE OF 60M PUBLIC PRONDUNCEMENTS, THIS LACK UF CONFIDENCE LED TO FURTHER CAPITIAL FLIGHTS AND SECOND DEVALUATION IN TWO MONTHS, TO MORE RUMORS, AND 10 MORE OPEN CRITICISM OF PRESIDENT. WITH ONE MONTH TO GO BEFORE INAUGUR- ATTON, MEXICANS ALL HAVE FINGERS CROSSED, HOPING MEXICO WILL MAKE IT. END SUMMARY. 2. ECONMIC SITUATION MEXICAN ECONOMY IN OCT REMAINED CHARACTERIZED BY CONFUSION OVER GOVT POLICIES AND LACK OF CONFIDENCE IN GOM'S ABILITY TO COPE FORD GERALD LIBRARY CONFIDENTIAL DEPARTMENT OF STATE Department of State UNITED STATES OF AMERICA TELEGRAM CONFIDENTIAL PAGE 02 MEXICO 13934 020134Z WITH CRISIS. TWO SPECIFIC DEVELOPMENTS OF NOTE WHERE REDUCTIONS IN EXPORT TAXES AND SECOND DEVALUATION. FORMER WAS APPARENTLY DECIDED BY PRESIDENT IN RESPONSE TO PRIVATE SECTOR PRESSURES. TWO DAYS LATER BANK OF MEXICO ANNOUNCED RESUMPTION OF FLOAT, RAISING PESO BUYING RATE NEXT DAY FROM 19,9 TO 26.5 PESOS PER DOLLAR. NOV. 1 RATE IS 25.58. DECISION TO RESUME FLOAT, WHICH TECHNICALLY NEVER ENDED, WAS APPARENTLY TAKEN TO STEM CONTINUING FLIGHTS OF CAPITAL. IT APPEARS THAT MEASURE REDUCED CAPITAL OUT- FLOWS, BUT BY HOW MUCH IS UNCERTAIN. ONE HOPEFUL DEVELOPMENT WAS MEASURE REACTION OF LABOR, WHICH FOR MOMENT IS REFRAINING FROM MAKING NEW WAGE DEMANUS. BUT NEW RATE SENT SHIVERS DOWN SPINES OF BUSINESSMEN WITH LARGE FOREIGN DEBTS. GOM ECONOMIC OFFICTALS ARE AWARE OF CONFIDENCE PROBLEM, AND LAMENT THAT. FOR "FOLITICAL REASONS", (READ ECHEVERRIA'S SENSITIVITY), PRES-ELECT JLP CANNOT COMMENT PUBLICLY ON PRESENT SITUATION. THIS MAKES NOV. LOOK LIKE ANOTHER BLEAK MONTH. 3. THERE IS NO CURRENT DATA ON ECONOMIC SITUATON, BUT WE SUSPECT THAT CAPITAL FLIGHT SINCE SEPT. 1, HAS RESULTED IN ZERO GROWTH RATE OF MONEY SUPPLY. IN LIGHT OF PRICES INCREASES SINCE THIS TIME, IT SFEMS TO US LIKELY THAT VOLUME OF TRANSACTIONS WILL DECLINE. THIS WOULD LEAD TO LOWER REAL GROWTH RATE FOR 1976 THAT : PERCENT BEING PORECAST BY IMF. 4. ECHEVERRIA, JLP AND INTERREGNUM FORD TRUE TO HIS PROMISE YEAR AGO, TO "WORK FOR MEXICO" UP TO HIS LAST MOMENT IN OFFICE, PRES ECHEVERRIA HAS BEEN CRISSCROSSING COUNTRY AS THOUGH WE WERE CAMPAIGNING, MEETING ALL NIGHT WITH GERALD LIBRARY CAMPESING GROUP IN SONORA, INAUGURATING PUBLIC WORKS IN HIDALGO, BLASTING PRIVATE SECTOR TN NUEVO LEON (SEE MEXICO 13366), INSPECTING MILITARY FACILITIES AND PRAISING ARMED FORCES IN QUERETARD, AND, IN OAXACA, ACCUSING "CERTAIN SECTORS" OF TRYING TO CREATE PROBLEMS FOR JLP. 5. WHILE PRESS HAS HEADLINED THESE PRESIDENTIAL PRONOUNCEMENTS AND ACTIVITITES, THERE IS ALSO BEGINNING TO BE MORE OPEN CRITICISM OF ECHEVERRIA. FORMER PRES ALEMAN, ASKED BY REPORTERS TO CHARACTER- T2F LEA ADMINSTRATION, SAID HISTORY WOULD HAVE 10 BE JUDGE, COMMENT WIDELY INTERPRETED TO MEAN THAT SINCE ALEMAN HAD NOTHING NICE TO SAY, HE SAID NOTHING AT ALL. UNAM RECTOR SOBERAON CRITI- CIZED "BUREAUCRATIC EXPLOSION" FOR CONTRIBUTING TO GOVT DEFICIT, ECONOMIC COMMENTARY INCREASINGLY BLAMED MALA- ADMINSTRATION AS CHIFF CAUSE OF DEVALATION, PRIVATE SECTOR SPOKES- MAN OPENLY SAID GUM'S LACK OF CREDIBILITY WAS REASON FOR CONTINUING CONFIDENTIAL DIPARTMENT OF STATE Department of State AMERICA UNITED TELEGRAM STATES OF CONFIDENTIAL PAGE 03 MEXICO 13934 020134Z CAPITAL FLIGHT, AND MONTERREY BUSINESS COMMUNITY HEACTED TO FCHEVERRIA'S BLAST WITH DEVASTATINLY HOSTILE POLITICAL ADS. 6. WHILE ECHEVERRIA HAS BEEN PLAYING WITH SYMBOLS OF POWER, JLP HAS BEEN IN VIRTUAL SECUSTION IN IHIS LOYOACAN HWS, CONSTITU. TIONALLY AND POLITICALLY CONSTRAINEDFROM EXERCISE MF POWER DURING OCT HE APPEARED IN PUBLIC TWICE, BOTH TIMES WITH ECHEVERIA, CONSEQUENCE IS INTERREGNUM, AT TIME WHEN MEXICO CAN ILL AFFORD IT, 7. RUMORS CONTINUE RUMORS CONTINUED TO FLOURISH DURING OCT AND GOM CONTINUED TO TRY TO REFUTE THEM IN LOW KEY MANNER, PROBABLY REALIZING THAT DIRECT REFUTATION WOULD ONLY LEND THEM CREDENCE (FOLLOWING 60M DENIAL THAT OCT 12 BLACKOUT AFFECTING FEDERAL DISTRICT AND FIVE STATES HAD BEEN CAUSED BY SABOTAGE, MEXICANS WERE SAYING " y TOLD YOU IT WAS SABOTAGE -- THEY DENIED IT. ") ALTHOUGH JLP'S CAN CELLATION OF HIS PANAMA AND COLOMBIA TRIP PROBABLY WAS, AS HE SATD. DUE TO HTS WISH TO WORK ON HIS ECONOMIC PROGRAM, MANY SUGGESTED PRIVATELY THAT HE WAS AFRAID TO LEAVE COUNTRY FOR FEAR PRESIDENT WOULD SOMEHOW TAKE ADVANTAGE OF MIS ABSENCE. RUMORS ABOUT ARMY'S INTENTIONS SUDDENLY APPEARED, LEADING PRESIDENT PUBLICLY TO PRAISE ARMY'S LOYALTY AND SEMI-OFFICIAL FL NACIONAL TO on LIKEWISE IN ROTH EDITORIALS AND CARTOOONS (MEXICO 13749). VERSIONS OF THIS RUMOR VARIED, ONE SUGGESTING ARMY OFFICERS HAD THREATENED ROTH ECHEVERRIA AND JLP WITH MILITARY INTERVENTION UNLESS CERTAIN UNSPECIFIEOCHANGES WERE MADE, ANOTHER VERSION (SOMEWHAT CLOSER TO TRUTH, WE SUSPECT) HAVING TT THAT MIDDLE GRADE OFFICERS HAD EXPRESSED THEIR UNHAPPINESS IN GENERAL TERMS TO MEXSECUFF CHENCA DIAZ. WITH RUMORS AND ECONOMIC SITUATION EACH ENCOURAGING OTHER, MOST MEXICANS HAVE FINGERS CROSSED, ANYIOUSLY AWAITING DEC. 1 INAUGURATION OF JLP. 8. FOREIGN AFFAIRS, MORE DISAPPOINTMENTS DIPLOMATS, POL DRERSERVERS. AND EVEN SOME FOREIGN SECRETARIAT OFFICIALS WERE TAKEN BY SURPRISE BY OCT 18 ANNOUNCEMENT OF OF PRES ECHEVERRIA'S AVAILABILITYFOR UN SECY GENERALSHIP, ALTHOUGH ECHEVERRI'A DESTRE FOR POSITIONWAS NO SECRET, IT HAD BEEN ASSUMED HE WOULD NOT DECLARE CANDIDACY DOUMED TO FAILURE. WHY ECHEVERRTA AND GOM APPARENTLY BELIEVE HE HAS CHANCE IS NOT CLEAR. OUTSIE POSSIBILITY EXISTS OF PRC VETO OF ANY NON- THIRD WORLD CANDIDATE (ALTHOUGH REPORTS INDICATE THIS TS NOT SO). TT IS ALSO POSSIBLE THAT ECHEVERRIA EXPECTS, IN LOSING, TO BE OFFERED ANOTHER SENIOR UN POSITION. OR ECHEVERRI'A DECLARATION MAY HAVE RESULTED FROM PERSONAL FRUSTRATION AT NOT HAVING BEEN FORD GERALD LIBRARY CONFIDENTIAL OF STATE Department of State UNITED STATES OF AMERICA TELEGRAM CONFIDENTIAL PAGE 04 MEXICO 13934 020134Z AWARDED NOBEL PRIZE CANNOUNCED OCT 15) AND PERHAPS UNWITTINGLY ENCURAGED BY MEXICAN UN MISSION LACKING COURAGE TO GIVE HIM HONEST APPRAISAL OF HIS CHANCES. 9. FINAL FOREIGN AFFAIRS DISAPPOINTMENT ALMOST CERTAINLY AWAITS FCHEVERRIA. PRESIDENT HAS MADE IT CLEAR ( THREE TIMES IN PAST WEEK ALONE) THAT WE WOULD LIKE TO END HIS REGIME WITH RESTORATION OF DIP RELATIONS WITH SPAIN AND SENT HIS TOP FOREIGN TRADE MAN TO RENEW TRADE RELATIONS, INTERRUPTED LAST YEAR WHEN ECHEVERRIA MOVED TO GET SPAIN OUTSTED FROM UN FOR EXECUTIVE BASQUE TERRORISTS, VET ALL REPORTS INDICATE SPAIN, STILL HIGHLY RESENTFUL OF FCHEVERRIA'S ACTIONS, WILL WITHHOLD FORMAL DIP RELATIONS UNTIL ILP TAKES OFFICE ON DEC. 1. 10VA FORDS & GERALD LIBRARY CONFIDENTIAL DEPARTMENT OF STATE AIRGRAM- 0614 82 :01 AV STATE to 130 JLL 49 HANDLING CLASSIFICATION MESSAGE REFERENCE NO. LIMITED OFFICIAL USE A-28 TO: US DEPARTMENT OF STATE, WASHDC INFO: US DEPARTMENT OF COMMERCE, WASHDC AMEMBASSY, MEXICO CITY AMCONSUL, GUADALAJARA FROM: AMCONSUL, MONTERREY International Information Center Please return to DATE: Oct. 12, 1976 E.O. 11652: NA TAGS: EIND, MX FORD SUBJECT: BUSINESSMEN'S ROUNDTABLE - --SEPTEMBER, 1976 GERALD REF: LIBRARY DEPT. DISTRIBUTION ORIGIN EB ACTION SUMMARY AF ARA CU EA The latest in the series of monthly Businessmen's L Roundtables was held at the Consulate General EB EUR INR 10 on September 30, 1976. Nine local executives joined Consul General Lambert, Commercial L NEA PER PM Officers Carter and Glass, and Branch Public \ Affairs Officer Niemeyer for a wideranging REP SCI SS SY discussion of the business outlook in the after- math of the peso devaluation, the labor situa- 5/12 tion in each of the companies represented, business/government relations in Mexico, and AGR AID AIR ARMY other topics. After introductory remarks by the Consul General, each of the businessmen CIA COM DOD DOT made his presentation in turn. FRB HEW INT LAB 976 OCT 28 PM I 37 NAVY NSA NSC OPIC DEVALUATION STR TAR TRSY USIA Most of the companies represented were fairly well prepared for the devaluation. At the same time, the XMB executives expressed the belief that the second order effects of the devaluation would be serious and neg- ative. SUGGESTED DISTRIBUTION: A manufacturer of cutlery and springs confided that he had clearly foreseen a devaluation, but had been LIMITED, ASSIFICATION OFFICIAL USE DRAFTED BY: DRAFTING DATE PHONE NO. ECON/COMM: 10/5/76 CONTENTS AND CLASSIFICATION FFF APPROVED BY: CG: FXLambert CLEARANCES /mlg. Page 2 of 5 LIMITED OFFICIAL USE A-28 from MONTERREY October 12,1976 surprisedby the magnitude of the parity change. Holding large, precautionary dollar balances, his firm made a "fabulous" peso profit from the float but now faces a substantial GOM tax bite on its speculative earnings. A manufacturer of chemical and refinery equipment noted that he had moved from dollar to peso- denominated obligations as early as March and took out a large peso loan in May. A manufacturer of cylinder liners said he also had kept his dollar-denominated obligations small, except for a relatively small dollar loan. A crane manufacturer happily reported that his firm's financial commitments had a dollar exposure of no more than 20,000 dollars. LABOR RELATIONS Labor relations were the greatest concern of the roundtable par- ticipants. Slack orders and cancellations have forced the manufacturer of cylinder liners to lay-off fifteen percent of his workforce and further lay-offs are possible. His firm now faces demands for a full 23% wage hike, after having negotiated an 18.5% increase in May. He added, however, that the 18.5% figure included some readjustments in fringe benefits such as lunch hours and transportation allowances, His firm's real labor costs rose only about 10% in May. A motel manager noted that he was presently negotiating with his workforce and that he would pay the 23% hike proposed by the GOM only if the workers agreed to a lay-off of 35 percent of his employees. The alternative to a cut in staff, he said, was to close down the motel, which has been losing money for several years. The crane manufacturer had too big an order backlog to lay-off staff but was troubled by the 23% wage hike. His firm had already boosted wages by close to 23% in June and was now faced with the GOM's de facto decree to raise salaries another 23%. He felt he had no option save to pay the 23% or face a GOM labor relations board where "the cards are stacked" against his firm. A manufacturer of farm machinery observed he was currently in the throes of negotiating a wage increase. Despite GOM sanctionfor a 23% increase, his workers had already lowered their demands to 12% and he intended to pay no more than 10%, even at the cost of a strike. However, the manufacturer of chemical equipment stated that he had already granted his workforce the "recommended" 23% wage raise and was reviewing an increase for his white collar workers. LIMITED OFFICIAL USE FORD i LIBRARY 9ERALD Page 3 of 5 LIMITED OFFICIAL USE A-28 from MONTERRE October 12, 1976 BUSINESS TRENDS The Monterrey-based representative of a US railroad estimated that the post-devaluation volume of Mexican imports was down 70%, while export levels were unchanged. The drop in import volume was due largely to a flurry of cancellations of orders placed prior to devaluation. Some items, he opined, are of such vital importance to companies operations that their import levels cannot be reduced. Scrap for the steel industry and silica sand for glassmakers are in these categories. He believes that business recovery will take 4-6 months --as it did after the peso devaluation in 1954. Surprisingly, the motel manager stated that devaluation has pro- duced no tangible benefits. He could only conclude that word has not yet reached to American tourists, who comprise 90% of his normal clientele. He does not plan to raise lodging prices (despite GOM authorization for a 20% hike) since he seeks to maximize volume. Monterrey hotel managers, he said, have or- ganized in self-defense to boycott hotel suppliers who raise prices without justification. For example, when fish suppliers raised prices by one third, hotel kitchens stopped preparing fish dishes. Overall, business is not good and he estimates his hotel will be in the red by 3 million pesos in the current fiscal year. This will follow several years of losses, which his firm has accepted as the "price" for the opportunity of selling hotel franchises in Mexico. Since Mexicans usually seek foreign equity to go along with their hotel franchises, franchise sales have not gone well. His firm now sees better prospects in Central America. The manufacturer of cutlery and springs had to raise prices close to 40%. He cancelled a backlog of orders to be filled at former prices. As a result, cutlery sales fell by 35% in peso value in September, but he is optimistic for a full sales re- covery within 4-5 months. September sales of springs fell to 50% of normal, with some price resistance from spring consumers who are themselves subject to price controls. Management does not expect a quick recovery in demand for springs. The manager of the company producing chemical and refinery equipment presented a brighter picture, stating that many of his orders were written with escalation clauses and that the customized nature of his products eliminated the restrictiveness of price controls. LIMITED OFFICIAL USE BERALD FORD LIBRARY LIMITED OFFICIAL USE Page 4 of 5 A-28 from MONTERREY ing October 12, 1976 An engineer/consultant for the plastics and diecasting indus- tries was patently pessimistic. He knows of five pending plas- tics projects that have been shelved. One project may go forward, since the Mexican partner has funds in the US which he can now "safely" repatriate in the form of US machinery, using invoices pre-dated prior to devaluation. This ruse will conceal the fact that the original purpose of his deposits in the US was purely speculative. One proposed machine tool project is probably dead since it aimed at exporting 80% of its production. A 7.5% export tax, coupled with an estimated 40% wage hike over the next year, will make exports noncompetitive. According to the plastics consultant, in-bond assembly firms are being seriously affected by the government-mandated wage raise. One such firm, he said, has moved from the Mexican to the US side of the border and has found that higher productivity more than compensates for higher US wage rates. Lack of CTM union pressures in Texas, according to him, was another gain realized by the company's move to the US. The manager of the farm equipment firm computed that devaluation has decreased his firm's export competitiveness by 8%. He explained that local costs are up 25-30%, that GOM export subsidies Certificado de Devolución de Impuestos (CEDIs) with a 22% after-tax value are now gone, that a 6.8% export tax is now in effect, and that imported components, even with lower duties, are up 47-50%. The chemical equipment manufacturer joined in to note that his imported component costs are up 47% in terms of pesos, despite lower import duties. The manufacturer of cylinder liners noted simply that, unless CEDIs are restored, his firm just cannot quote for export sales. In addition to removal of the CEDIs, his firm's exports now face a 10.5% export tax, which, when combined with higher labor costs and increased costs for imported machinery and components, removes any incentives to export that might have arisen from the devaluation. GOVERNMENT RELATIONS The manufacturer of agricultural machinery is very pessimistic about his firm's future. Since agriculture in Mexico is such a politically sensitive area, his firm has been subject to rigorous price control measures, which he expects will continue at both wholesale and retail levels. In addition, he estimates that the GOM now controls 65% of the agricultural machinery sector, which means his firm is in direct competition with the GOM. He has LIMITED OFFICIAL USE GERALD R. FORD LIBRARA Page 5 of 5 A-28 from MONTERRE LIMITED OFFICIAL USE October 12, 1976 responded to "Mexicanization" presures by selling 25% of his shares to a Mexican financial institution and placing 20% in escrow. He rejected a recent Nacional Financiera, S.A.'s attempt to acquire 51% equity role in his firm. Several participants scored the GOM for being a "slow payer". The manufacturer of refinery equipment cited Petróleos Mexicanos (PEMEX) as slow to meet its obligations, but his firm has no choice but to bid on big, new PEMEX contracts. He conceded that PEMEX met its obligations quickly on international procurement since these transactions are funded out of dollar balances maintained in New York. He also noted that PEMEX was more prompt in paying for necessary repair parts than for the original items. The spring manufacturer concurred that REMEX normally paid domestic suppliers after a 150-180 day delay; he noted that his firm simply stopped selling to the Mexican railroads as collections took 2-3 years. The manufacturer of agricultural equipment added that his firm had traditionally avoided direct sales to the slow- paying GOM and could afford to do so since there was no lack of private demand. Executives of several firms commented on their relations with MEXINOX, a French-Mexican firm established for the eventual manufacture of stainless steel in Mexico. Until such time as production starts, MEXINOX will hold exclusive rights to import stainless steel into Mexico and the concomitant right to charge a commission on stainless steel imported for the use of other firms. The crane manufacturer noted that MEXINOX is close to a year behind schedule in starting-up production and that there were rumors that MEXINOX would lose its import monopoly. He confided that he had "persuaded" MEXINOX to import stainless steel for his firm's account by threatening to withhold supply of cranes his company is constructing for the MEXINOX plant. The manufacturer of refinery equipment volunteered that his firm had obtained limited success in obtaining GOM import licenses for stainless steel, despite MEXINOX's official monopoly. In addition, he had persuaded PEMEX to apply for stainless steel import licenses to avoid paying MEXINOX's high commissions. The manufacturer of refinery equipment, heavily dependent on PEMEX for sales in Mexico and unsure of its export competitiveness in the wake of devaluation, is concerned about a GOM slowdown in public sector spending. Although his firm has not had any of its contracts with PEMEX cancelled, a prominent seller of tubing to PEMEX has already had at least one of its major contracts cancelled. FIF LAMBERT FORD & LIBRARY 938670 LIMITED OFFICIAL UCB 30ARD OF GOVERNORS OF THE ERAL RESERVE SYSTEM Date 11-3-76 To Chairman Burns From Henry C. Wallich Ted Truman said you wanted to see this right away. FORD :- LIBRARY GERALD 5-chine 5:30 MEY October 2, 1976 bido Cor TO: Chairman Burns FROM: Edwin M. Truman EMT SUBJECT: Status of Mexico's Applications for Drawings from the IMF I. The IMF has issued two papers presenting the background material on Mexico's applications to make IMF drawings. These papers will be discussed by the IMF Executive Board on October 27. The drawings are: SDR 134 million on the first credit tranche; SDR 185 million under the Compensatory Financing Facility; and a drawing that would eventually total SDR 518 million under the Extended Fund Facility. (Mexico this week drew its SDR 98 million reserve -- gold -- tranche.) II. The most important of these proposals is that for a drawing under the Extended Fund Facility (EFF), the actual drawings would be phased over a three-year period starting on January 1, 1977. These drawings will involve an agreed program with the IMF. The program that has already been agreed with the IMF management will have to be "ratified" by the new Mexican Government after it has taken office on December 1. III. The objectives of the three-year EFF program are as follows. A. Raise the investment-to-GDP ratio by at least one per cent per year over the next three years. (The ratio averaged a bit over 21 per cent in 1972-75.) B. Reduce the public-sector deficit to 2.5 per cent of GDP by 1979. (The IMF figures show a 9.3 per cent figure for 1975 and an estimated 8.2 per cent for 1976.) C. Follow an incomes policy directed at achieving a convergence between Mexican and U.S. nominal wage increases adjusted for productivity. D. Reduce external public-sector borrowing to at least one per cent of GDP by 1979. (The figure for 1975 was 5.2 per cent.) FORD : GERALD LIBRARY - 2 - E. Follow an exchange rate policy consistent with balance-of-payments equilibrium without resorting to import restrictions and export subsidies, which have already been reduced somewhat. IV. 1977 drawings under the EFF program would be SDR 200 million. The one-year targets associated with this three-year plan are as follows. A. Achieve an increase in the Bank of Mexico's net international reserves that is no less than the increase in domestic currency issue. This target will be applied quarterly. B. Public sector external borrowing in 1977 will be limited to no more than $3,000 million compared with more than $5,000 million in 1976. This target will be applied quarterly. An effort will also be made to lengthen the maturity of the external public debt. C. The public sector deficit in 1977 will be limited to Mex $90 billion compared with an estimated Mex $88 billion for 1976. This target will be applied quarterly. The reduction in the size of the public sector deficit as a per cent of GDP will be achieved primarily through an increase in taxes and other public sector revenues. The increase in public sector employment is supposed to be less than 2 per cent. D. Monetary policy will be conducted in a manner consistent with the reserve and budgetary targets. E. Mexico is also pledged not to increase non-tariff barriers or impose other payments restrictions for balance- of-payments purposes. cc: Governor Wallich FORD is GERALD LIBRARY