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Mexico, 4/76-10/77 (8)
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Mexico, 4/76-10/77 (8)
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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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The original documents are located in Box B80, folder "Mexico 4/76 - 10/77 (8)" 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States of America his copyrights in all of his unpublished writings in National Archives collections.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.
Some items in this folder were not digitized because it contains copyrighted
materials. Please contact the Gerald R. Ford Presidential Library for access to
these materials.
NATIONAL ARCHIVES AND RECORDS SERVICE
WITHDRAWAL SHEET (PRESIDENTIAL LIBRARIES)
FORM OF
CORRESPONDENTS OR TITLE
DATE
RESTRICTION
DOCUMENT
1. memo case, Solomon to Blumenthal, 2/8/77
la. memo
Under Secretary Designate Solomon to Sec. Blu-
2/8/77
A
menthal re meeting with Mexican financial
officials (5 pp. ) DECLASSIFIED let 5/94
lb. briefing
Current Economic Situation in Mexico (5\pp. )
2/8/77
A
paper
DECLASSIFIED uts/96
lc. briefing
U.S. Mexican swap arrangements (2 pp.
c. 2/77
A
DECLASSIFIED
paper
at
5/16
ld. biography
Gustavo Romero Kolbeck, Director General
n.d.
A
Bank of Mexico (p. 1 only)
le. biography
Julio Rodolfo Moctezuma Cid, Secretary of Finance
n.d.
A
Exempled
and Public Credit, Mexico (p. 1 only)
Declars,
lf. biography
Miguel de la Madried Hurtado, Under Secretary of
n.d.
A
7/28/95
Finance, Mexico (p. 1 only)
2. memo case, Truman & Maroni to Burns, 2/8/77
2a. memo
Truman memo re topics likely to be raised by
2/8/77
C(A)
Mexican financial officials (3 pp. ) opened 4/22/96 K3H
2b. memo
Yves Maroni to Mr. Reynolds re new Mexican
2/8/77
C(ALB
financial officials (5 pp. ) sanitzed 4/22/96/03H
3. memo case, Governor Coldwell to Burns, 2/8/77
$323 3a. paper
Impressions of February 1977 Mexican Situation
2/77
C(A)
(5 pp. ) opened 4/22/96 163H
4. memo of
Visit of Mexican officials to Burns, 2/10/77 (9 pp. )
2/14/77
C(A)B
conversation
sanitzed 4/22/96 103H
5. memo
Ted Truman to Burns re meeting with Mexican financial
2/22/77
C(A) B C(A)
officials, Feb. 10, 1977 (2 pp. ) sanitized 4/22/96 KSH
FILE LOCATION
Arthur Burns Papers
SR
Federal Reserve Board Subject File, Box B80
8/14/84
Mexico, Feb. 8-28, 1975
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)
CONFIDENTIAL
Date: FEB 8 1977
MEMORANDUM FOR: SECRETARY BLUMENTHAL
From: Under Secretary Designate Solomon (i)
Subject: Briefing for Meeting with Mexican Finance Secretary
Moctezuma Cid and Central Bank Director-General Romero
Kolbeck
Date and Time: Wednesday, February 9, 1977, 4:00 pm
Place: Your Office
Persons Expected to Attend:
Mexico:
Julio Rodolfo Moctezuma Cid, Finance
Secretary
Gustavo Romero Kolbeck, Director-General,
Bank of Mexico
Miguel de la Madrid, Deputy Finance
Secretary
Alfredo Phillips, Deputy Director for
International Affairs, Bank of Mexico
Gustavo Petriccioli, Chairman of the
National Commission on Securities
Treasury:
Secretary Blumenthal
Under Secretary Designate Solomon
Deputy Assistant Secretary Erb
DECLASSIFIED
MR95-2, #23; Ivasury Ltr. 3/7/96
State:
Richard Cooper, Under Secretary
E.O. 12958 Sec. 3.6
By NARA, Date 5/3/96
Designate
Recommended to attend as recording officer:
FORD is GERALD LIBRARY
L. Britt Swofford, International Economist,
Office of Developing Nations (Mexico)
let
Finance Secretary Moctezuma and Director-General Romero
request to meet with you to discuss the current economic situ-
ation in Mexico and to prepare for the February 14-15 visit
CONFIDENTIAL
Initiator
Reviewer
Reviewer
Reviewer
Reviewer
Ex. Sec.
Surname
SWOFFORD
ERB
Initials / Date
/
/
/
/
/
/
Form OS-3129
Department of Treasury
IDENTIAL
2
-
of President Lopez Portillo. While the Mexicans see this
as an opportunity to establish personal contact, they
will also wish to examine specific issues which might
be discussed when Lopez Portillo meets with President
Carter.
1.
Issues which Mexicans are Expected to Raise:
(a) Establishment of a mechanism for dealing
with bilateral economic issues.
The Mexicans have indicated a desire to
establish some type of mechanism which would
facilitate frequent meetings, at a technical
level, to examine various bilateral economic
issues and problems in depth. The mechanism
would not necessarily need to be structured
in a formal sense, e.g., "US-Mexican Joint
Economic Commission," but in a way that would
provide for a focal point for increased cooperation
and coordination on issues of mutual concern.
(b) Given that the 1977 external financing
requirement which may approach $3 billion
in new funds, and the possible reluctance on
the part of the private banking sector to
increase lending to Mexico, the Mexicans may
request the US Government to intervene on
their behalf in urging U.S. banks to increase
their exposure in Mexico.
Mexico, like many countries, has rapidly increased
their external debt in recent years as excessive
domestic demand went unchecked. Mexico's external
public sector debt totalled $20 billion at end-1976.
It is estimated that the gross external financing
requirement in 1977 will be approximately $9 billion
of which, $6 billion will be for debt rollover and
restructuring and $3 billion representsnew borrowing.
There is growing concern on the part of some Mexican
officials that the private banking sector, and in
particular U.S. banks, will be unwilling to increase
the amount of their outstanding loans to Mexican
enterprises. Because of this growing concern, they
may request U.S. Government assistance in obtaining
private bank financing along two lines:
FORD LIBRARY & GERALD
CONF IDENTIAL
CONFIDENTIAL
3 -
1) A request for a direct approach by high
level U.S. Government officials to U.S. bankers,
urging them to increase their lending to both
public and private enterprises in Mexico.
2) Ask that during the course of U.S. bank
examinations, examiners from the Comptroller
of the Currency and Federal Reserve relax their
requirements regarding classification of loans
to Mexico.
In either case, the Mexicans would be seeking
preferential treatment in order to assure continued
access to U.S. capital markets.
(c) Discussion of U.S. Swap Arrangements
The U.S. provided $300 million of financial
assistance in November 1976 (split evenly between
the Treasury and the Federal Reserve) in accordance
with the existing agreements. The Federal Reserve
Swap is due for repayment on the 10th and 17th of
February ($75 million on each date) and the Bank
of Mexico has informed us that they intend to make
repayment as scheduled. The $150 million Treasury
Swap is due in November and we expect repayment on
or before the due date.
In the fall of 1976 an additional $600 million in
bridging finance was made available, contingent upon
IMF drawing. $365 million was drawn and repaid, and
$235 million remains available. (A record of the
swap is attached at Tab 2) We also provided a $150
million one month swap on November 30, to help them
meet their reserve requirement at the end of November.
This was repaid at maturity on December 30.
(d) Renegotiation of the IMF Stabilization Agreement.
In September 1976, Mexico agreed to an economic
stabilization program in cooperation with the IMF
which provided for balance of payments financial
assistance based on the attainment of mutually agreed
upon economic performance targets. When the Lopez
Portillo government came to power on December 1, there
was much discussion about whether to reaffirm the
GERALD FORD LIBRARY
CONF IDENTIAL
CONFIDENTIAL
- 4 -
program or to begin renegotiation discussions.
It was decided that for reasons of maintaining
confidence, the stabilization program would be
implemented although many recognized that in all
likelihood, renegotiation would be required later
this year.
(e) Increases in the exploitation and exportation
of Mexican petroleum products.
Recent nonpublic estimates indicate that
Mexican petroleum reserves may be among the largest
in the world. Rapid exploitation of these reserves,
however, remains a politically sensitive issue
in Mexico. Nonetheless, Lopez Portillo is expected
to discuss privately the possibility of increasing
petroleum production and ask for U.S. financial
assistance. They claim that physical capacity
constraints can only be overcome through external
financing, and are anticipated to seek additional
Export-Import Bank financing for PEMEX (the State
owned petroleum company). They may also wish to
explore other possible sources of U.S. financial
assistance for the acquisition of capital goods
for the petroleum sector.
(f) Increased access to U.S. markets for Mexican
exports.
Given the need to increase their exports to
the U.S., the Mexicans will be looking for assurances
that our trade policies will not limit access to
U.S. markets. They have special concerns about
non-tariff barriers, such as marketing orders, and
are interested in increasing coordination on trade
matters.
Mexico is anticipating a large inflow of tourist
receipts from the U.S., and would like to see the
$100.00 duty free limit increased to $200.00. They
are extremely concerned about adverse publicity
regarding the safety of U.S. travellers in Mexico.
FORD is LIBRARY GERALD
CONFIDENTIAL
- 5 -
(g) There are other issues related to access to
U.S. capital markets such as "Blue Sky Laws"
which may arise but will require further con-
sideration and consultation with other agencies
such as the S.E.C.
2. Issues you may wish to raise:
(a) Given that one of the stated purposes of this
visit was to prepare for the meetings with President
Lopez Portillo, you may wish to ask if there are
any specific financial or economic issues that will
arise during the Presidential talks.
(b) Although there have been indications of a
return of confidence since Lopez Portillo's inaugura-
tion on December 1, there still appears to be a
"wait and see" attitude on the part of private
bankers and investors. You may wish to ask what
policies are being instituted to meet the economic
performance targets in the IMF stabilization program.
(c) The 1977 budget calls for a 39 percent increase
in public sector expenditure although this is described
as only "modest increases" in real terms. You may
wish to ask if there are plans for additional expendi-
ture cuts or revenue measures during the year. The
Finance Ministry has been urging for additional cuts
in public spending combined with price increase by
some public sector enterprises. However, the economic
cabinet, chaired by the President, has not taken any
actions of this nature.
GERALD FORD LIBRARY
ATTACHMENTS
1- Current Economic Situation
2- Record of US-Mexican Swap
Agreements
3- Biographies
GERALD R: FORD
CONF IDENTIAL
Background on the Current
Economic Situation in Mexico
The rate of growth of industrial activity began to
slow in mid-1976 in response to the Bank of Mexico's
tight credit policies. "The industrial production index
peaked in June, and has run at lower levels through
October, the latest date for which it is available. The
October index is 140.7 (below levels prevailing in this
month in two previous years). The average index numbers
for the first six months of 1976 was 144.3, whereas it was
142.1 for the period July-October. Partial data for November
is mixed but the index is unlikely to be higher than October.
Mexico's gross domestic output is estimated to have
grown about 3 percent in real terms from 1975 to 1976. Most
of this growth would have been in the first half of the year
with total output holding steady or declining slightly from
the first half to the second half. The price deflator for
1976 as a whole is estimated to have been about 20 percent.
Actual price data is now available for the year 1976.
The average year on year increase, in the CPI was 15.88,
while the December over December 1976 increase was 27.2
percent. The increase in the WPI was more marked, 22.3
percent on an average year on year basis and 45.9 percent
December over December. The reason for this is that the
WPI is heavily influenced by raw material prices, most of
which trade at or close to world prices, and was heavily
influenced by the devaluation in the last four months of
1976.
Lopez Portillo has publicly stated that the first six
months of 1977 will be particularly difficult and that
Mexico must find a new development strategy. While he
admits that economic problems are the most pressing, there
is no public evidence that the government has a coherent
short-term economic strategy. GOM policymakers are working
on various policy options, but have not yet come to any
conclusions as far as we know. Lopez Portillo's first two
priorities appear to have been a restoration of confidence,
largely through words, and administrative reform. The
latter has meant that in addition to filling positions to
a fairly low level in the bureaucracy, new lines of
command are being drawn with resultant confusion over
responsibilities, information flow, etc. Administration
is reportedly Lopez Portillo's strong point and first love
DECLASSIFIED
E.O. 12958 Sec. 3.6
Treasury Hr. 3/7/96
GERALD FORD LIBRARY
CONFIDENTIAL
By let NARA, Date 5/3/96
CONFIDENTIAL
- 2 -
judging from the priority he has given to administrative
reform. The major loser in this reform at least with respect
to control over spending and trade policy appears to have been
Lopez Portillo's stepping stone to the Presidency, the
Finance Ministry. The biggest gainers would appear to be
the new Budget and Planning Ministry (ex-Presidency) and the
Patrimony and Industrial Development Ministry. The significance
of administrative reform in the overall context is the impact
it might have on the economic policymaking process and on
the level of government expenditure.
The economic policymaking process in the new government
is not yet clearly defined. At the present time the Minister
for Budget and Planning, Carols Tello, appears to be the
preeminent, though not necessarily dominant advisor to the
President. Tello's economic philosophy appears to favor
acting against inflation on the supply side. Opposed to
him are the financial officials from the Finance Ministry and
Bank of Mexico who want to reduce inflation by cutting back
demand. Key presidential advisor Rafael Izquierdo is said to
be somewhere between these two schools of thought. The
President seems to lean to the former school of thought
perhaps because he fears the political consequences that a
reduction in per capita consumption and employment might
have. Even as Finance Minister at the time of the U.S.
recession, Lopez Portillo stated privately that Mexico could
not afford a recession because of the lack of social welfare
programs to take care of the unemployed, a theme he continues
to repeat.
The new administration's first internal policy debate
is focusing on the budget. There is pressure on him
from the Bank of Mexico and Finance Ministry to reduce
expenditures as well as to increase revenues, particularly
by higher public sector prices. It is possible that the
delays caused by the administrative reform will impact on the
level of expenditures. Whether this will result in permanent
savings or merely a brief delay in making expenditures is unknown.
The outcome of this debate will be the key in determining
economic developments later in the year. There are reports that
Lopez Portillo has ordered cuts in current spending by federal
government agencies and has instructed public sector enter-
prises to increase revenues or cut expenditures. We have not
yet been able to qualify these policies.
CONFIDENTIAL
GERALD FORD LIBRARY
CONFIDENTIAL
3 -
Apart from the question of public sector spending,
the GOM is faced with the problem of financing a current
account deficit which is being forecast at anywhere from
$1.8 billion to $2.6 billion. In addition to this, the
public sector's short-term debt of $4.2 billion has to be
rolled over and public sector long-term debt amortization
payments of $1.7 billion have to be refinanced.
Mexico's financial problem is twofold and inter-
related. That is, the GOM not only has to finance a
substantial budget deficit, the size of which will impact
on the external accounts, but it also has to arrange, one
way or another, for substantial gross foreign borrowing.
The latter is the primary concern of the GOM.
While senior GOM officials often state that Mexico
cannot afford a recession, the economy is in a recession
according to the informal Mexican definition, i.e., a
negative per capita growth rate. The recession may be worse
than commonly believed. Industrial activity may be lower now
than it was in last October. This judgment is based on the
following factors. (1) The industrial work force is probably
lower now than last summer. Various businessmen have told us
that they are laying off workers. (2) Public sector spending
is probably running below the budget level due to the
reorganization of the entire public sector. We hear reports
of major spending has been the underpinning of Mexico's
economic growth since 1972. (3) Private investment was
undoubtedly affected negatively by the events of last fall.
The lack of ability to forecast economic developments with
any certainty is affecting investment decisions. Many
private businessmen say they are waiting to see specific
economic measures rather than base investment decisions on
moral suasion. (4) Foreign exchange transactions are
reportingly declining. This may indicate a continued decline
in imports that began last September and would in turn affect
domestic economic activity. (5) Increased peso and dollar
financing is not available to Mexico's private sector, nor
has it been for some months. The impact of these, plus the
delayed impact of the devaluation may be hitting domestic
economic activity, particularly in the private sector,
harder than is generally known.
The picture in the agriculture sector is more difficult
to discern. Output of some crops may be up whereas output
of other crops may be down. It is not possible to measure
the impact of the land seizures in northwest Mexico, but
these were certainly not conducive to increased private
CONFIDENTIAL
GERALD FORD LIBRARY
CONFIDENTIAL
4
-
sector investment in agriculture and may have a negative
impact on output in that region. (These judgments are
extremely qualitative because of the lack of current
data on which to base quanitative analysis.)
The GOM is undoubtedly aware of these developments
and the prospect of continued stagnation or even further
declines in economic activity may be one of the reasons
Lopez Portillo could opt for a relatively high level of
public sector spending even though this means more foreign
financing than would otherwise be necessary.
The current economic slowdown is a mixed blessing. It
should lead to a reduction in the current account deficit
and, if there are actual budget savings, make attainment of
IMF's EFF program targets somewhat more likely. On the
other hand, Lopez Portillo is unlikely to be satisfied with
a growth rate of 0-2 percent because of what he views as
the political risks from reduced employment and per capita
consumption.
Although a significant turnaround in economic activity
could hardly have been expected within two months of taking
office, we believe the suspected deterioration in the
economic situation could have been mitigated by more positive
action by the new government. In particular, while Lopez
Portillo has stated that this will be a difficult period,
neither he nor other GOM spokesmen have laid out in any
detail what the Mexican business community and public might
expect in 1977. This has never been done in Mexico, but
it is important in the present context because the economic
policy framework that predominated for over twenty years
and provided a basis for forward planning disappeared with
the devaluation.
Some areas where coherent policies have not yet been
developed are the following:
A)
Exchange rate policy (Fluctuations in rates
generally attributed to changes in supply
and demand. GOM has not said publicly that
exchange rate might also be determined by
such objectives as reducing the current account
deficit and making manufactured exports
competitive in worlk markets.)
B)
Interest rate policy. (Higher interest rates
on peso deposits will be necessary to retain
existing peso financial savings and attract
more pesos into banking system.)
FORD & LIBRARY 9ERALD
C)
Fiscal policy. (Ideally, some target figure
CONFIDENTIAL
CONF IDENTIAL
5 -
for budget cuts could be announced along with
a revenue increase target. The details need
not be made public at this time. The intention
to pursue a less inflationary policy would be
reassuring to foreign bankers and to local
businessmen who want financial stability.)
D)
Wage Guidance. (The 10 percent minimum wage
increase of January 1, is being intrepreted as
a guideline for settlements of individual union
contracts. It may not be possible for the
GOM to do more than continue to urge restraint
in wage negotiations.)
While Lopez Portillo has prepared the country for bad
economic news, he has not provided any details. The
economic situation is confused and the economic climate is
radically different from what it was even a year ago.
Confusion complicates planning and investment. It also
delays the necessary structural changes in the economy. The
public does not understand GOM objectives. Without guidance,
stagnation is likely to last longer than would otherwise
be necessary. Further, the foreign banking community is
unlikely to be as supportive as it could be in the light of
this uncertainty.
OASIA/ODN
2/8/77
19th
FORD i LIBRARK GERALD
CONFIDENTIAL
CONFIDENTIAL
US/MEXICAN SWAP ARRANGEMENTS
Record of Finance Arrangements
Between the United States and Mexico
GERALD R. FORD LIBRANA
During 1976
April 9 - Mexico drew $360 million from its swap arrangement
with the Fed.
July 9 - Mexico rolled over its $360 million swap with the
Fed.
October 7 - Mexico withdrew $365 million from its September 2
swap agreement with the Treasury.
October 8 - Mexico repaid $360 million to the Fed.
November 5 - Mexico repaid $365 million to the Treasury.
November 10 - Mexico withdrew $75 million from its regular
swap arrangement with the Treasury.
November 10 - Mexico withdrew $75 million from the Fed.
November 17 - Mexico withdrew $75 million from its regular
swap arrangement with the Treasury:
November 17 - Mexico withdrew $75 million from the Fed.
November 30* - Mexico drew $150 million from its swap arrange-
ment with Treasury.
December 30 - Mexico repaid $150 million, 30-day swap to
the Treasury.
*NOTE: This swap arrangement was for a 30-day period, due
December 30, 1976 (although renewable by agreement).
It is important to remember that this drawing was
deposited in a U.S. Treasury account and could not
be withdrawn. The drawing was for window dressing
purposes and will not be announced by the Mexican
Government.
E.O. 12958 Sec. 3.6
MR95-2, #25; Treasury Hr. 3/7/96
AVAILABLE FINANCING REMAINING FROM U.S. GOVERNMENT:
DECLASSIFIED
By let NARA, Date 5/3/96
Only $235 million remains unutilized under Mexico's
current swap arrangement with the Treasury. The funds are
available in installments contingent on drawings from the
IMF's Extended Fund Facility (EFF). Any drawings under the
current arrangement are to be liquidated within 90 days or
10 days after eligibility to draw an equivalent amount from
the EFF, whichever occurs earlier. Under the EFF, Mexico
CONFIDENTIAL
CONFIDENTIAL
2 -
may draw in installments of $55 million, the cumulative total
drawing is not to exceed $100 million on May 15, 1977; $150
million on August 15, 1977; and, $200 million, $318 million,
and $518 million at end-1977, 1978, 1979 respectively.
Mexico's total swap arrangement with the Fed is $360
million of which $150 million has been drawn. It has been
agreed that its drawdown from the Fed must be made on an
equivalent basis as those from the Treasury. The unutilized
portion of the Fed swap currently stands at $210 million.
FORD & GERALD LIBRARY
Alfredo PHILLIPS Olmedo
MEXICO
(Phonetic: feeLEEPS)
Deputy Director for
International Affairs,
Bank of Mexico (since
October 1975)
Addressed as:
Mr. Phillips
A competent banker,
Alfredo Phillips is the
youngest of the five
deputy directors of the
Bank of Mexico. In his
current post, newly
created at the time of
his appointment, he is
responsible for coordinating all the international
operations that had previously been handled by the
various departments of the bank. He served during
1970-75 as the manager of the bank's International
Organization Division.
Phillips' banking career began in the 1960's,
when he became an official in the Credit Direc-
torate of the Secretariat of Finance and Public
Credit. He joined the Bank of Mexico in 1970.
As the Mexican Director of the International Mon-
etary Fund in the 1960's, Phillips attended meetings
of that organization and of the Inter-American
Development Bank and the International Bank for
Reconstruction and Development.
A graduate in economics of the National Auto-
nomous University of Mexico, Phillips also studied
economics at University College in London and at
George Washington University and American University
in Washington, D.C. Phillips, 41, is married to
the former Maureen Greene, an Irish Catholic whom
he met in London. The couple has two sons, Alfredo
and Ricardo, and a daughter, Adriana. Phillips
speaks English. His brother Carlos is married
to the former Guadalupe Margaín, daughter of Hugo
B. Margaín, current Ambassador to the United States.
CR M 77-10447
2 February 1977
GERALD FORD LIBRARY
GERALD R. FORD LIBRARY
This form marks the file location of item number Id- - If
as listed on the pink form (GSA Form 7122, Withdrawal Sheet)
at the front of the folder.
February 8, 1977
To:
Chairman Burns
From: Edwin M. Truman and Yves Maroni
We are attaching background material on Mexico.
(a) a note on the possible topics which the
Mexican visitors may wish to raise.
(b) a paper assessing Mexico's external
financing needs and prospects.
(c) a note on Mexico's borrowing.
(d) biographical sketches on Finance Minister
Moctezuma and Bank of Mexico Director
General Romero Kolbeck.
(e) a note containing some information on the
background of Mexico's new economic
leaders.
(f) a copy of the latest Board briefing on Mexico.
(g) a note on recent Mexican peso trading on the
International Monetary Market.
(h) two tables on economic and financial
indicators for Mexico.
GERALD R. FORD LIBRA
(a)
RESTRICTED
E.M. Truman
February 8, 1977
Topics Likely to be Raised by Messrs. Moctezuma & Romero Kolbeck
I. The stated purpose of this visit is to prepare for the visit of the
Mexican President next week.
A. Messrs. Moctezuma and Romero, therefore, will want to discover
possible topics that President Carter may want to raise with President Lopez
Portillo.
B. These individuals, of course, have a general interest in
economic policies in the United States and Mexico.
C. The Mexicans are also apparently interested in establishing a
new mechanism of cooperation and consultation between the two countries. No
one, including the Mexicans, apparently knows precisely what they have in
mind. They do not want to appear to be creating a new symbol of dependence
on the United States, but they would like to benefit from a special relation-
ship. It is most likely that such a mechanism would deal with trade,
migration, tourism and narcotics issues.
II. The Mexicans, according to my latest information, are planning to repay
the Federal Reserve swap drawings due on February 10 and 17. But they will
not repay the U.S. Treasury at that time. Messrs. Moctezuma and Romero
presumably will want at least to review Mexico's eligibility for drawing
again -- perhaps, in the near future -- on the Federal Reserve swap line and
the procedures that would be followed.
III. We understand that the Mexicans are concerned about the heavy volume
of borrowing that they will have to accomplish in 1977. Under the IMF
RESTRICTED
FORD is LIBRARY GERALD
MR 95-1, # 29
143H 4/12/96
RESTRICTED
-2-
program, they are allowed to make net new borrowings of up to $3 billion
in 1977, $3/4 to $1 billion of which must be added to net reserves. In
addition, it is estimated that they will have to roll over $6 billion in
maturing debt, $4 billion in short-term debt and $2 billion in maturing long-
term debt. In this connection, Messrs. Moctezuma and Romero may raise the
following points.
A. They may request better treatment from Federal Reserve and
the Comptroller of the Currency's examiners; some Mexican officials have
recently complained that the examiners on "on their backs."
B. It is possible that they may even request the Federal Reserve
and the Treasury to take positive steps to encourage U.S. bank lending to
Mexico.
IV. Messrs. Moctezuma and Romero may request U.S. support in connection with
renogotiation of the terms of the Extended Fund Facility agreement with the
IMF. (It is generally accepted that some adjustments will be needed, but it
is also thought that they should come later in the year, as necessary, for
reasons of confidence in the Mexican program and for reasons of ensuring
a higher level of over-all compliance.) Two issues in particular might be
raised.
A. The Mexicans are unlikely to be able to meet their target for
reducing their public sector deficit in 1977. The target is a deficit of 90
billion pesos. This is unlikely to be met. The only question is whether
Mexico will at least hit the target of a deficit no larger than 6 per cent
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of 1977 GDP*!, which would imply a deficit of about 100 billion pesos, or
whether it will miss this target as well. (We have heard estimates of
budget deficits in 1977 up to 127 billion pesos.)
B. The Mexicans are also, we understand, concerned about the
tightness of the IMF conditions with respect to monetary policy. Essentially
they are required to operate in 1977 under gold-standard rules of the game.
The Bank of Mexico can only increase the monetary base (currency plus other
net liabilities to the private and public sector) by as much as Mexico's
net international reserves increase.
V. The Mexicans are also expected, while in Washington, to discuss a number
of trade issues with administration officials. These pertain mainly to
supposed non-tariff barriers, e.g., against Mexican tomatoes, and textiles.
They have not yet focused, we understand, on the fact that if the President
or Congress accepts the International Trade Commission's recommendation to
impose a tariff-quota on U.S. imports of non-rubber footware, Mexico will be
adversely affected. (U.S. imports of such products from Mexico in 1976 were
10 times U.S. imports in 1974, which would be the base level for the quotas,
and amounted to about $30 million.)
VI. The Mexicans are scheduled to discuss with the Export-Import Bank a
proposal that the Bank open up a special line of credit for Pemex, the govern-
ment-owned oil company, in return for a Mexican agreement to increase its oil
exports. The Export-Import Bank's board has, we understand, given its tentative
approval to this concept.
*/ The deficit is estimated at 8.2 per cent of GDP for 1976.
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(b)
Mexico
External Debt
Mexico's external debt at the end of 1976 is estimated
at about $25 billion, 6-1/4 times as large as the estimated value
of 1976 merchandise exports. Of this amount, some $19 billion is
owed or guaranteed by the public sector. The public sector debt
consists of over $15 billion with a maturity of one year or more and
nearly $4 billion maturing in less than one year. The debt has been
rising rapidly in recent years. As recently as the end of 1970, the
total external public debt was only about $4 billion.
A substantial portion of the external debt is owed to banks
in the industrial countries. At the end of September 1976, total bank
claims on Mexico reported to the BIS were $16.8 billion, of which
$12.1 billion were the claims of U.S. banks and their foreign branches.
Included in the debt is $478 million drawn on the International
Monetary Fund, consisting of the gold tranche ($107 million), the first
credit tranche ($158 million), and a compensatory financing drawing
($213 million). Since the end of 1976, another $115 million has been
drawn, against the Extended Fund Facility.
The burden of servicing the debt is rising rapidly. The
interest payments alone were approximately $2.0 billion in 1976, close
to 28 per cent of the gross earnings from goods and services last
year.
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Current Economic and Financial Situation
The growth of the external debt of Mexico reflects the
deterioration of the country's external balance, partly because of
developments in the world economy, but mainly because of internally
generated inflationary pressures. Internal inflation was stimulated
by an expansion in the size of the public sector and of the public
sector deficit. The deficit rose to 9.3 per cent of GDP in 1975.
There was also an increase in the size and in the frequency of
administratively determined increases in the minimum wage (which sets
the standard for many wage settlements).
The Bank of Mexico sharply increased reserve requirements
of the commercial banks and other financial institutions in 1974, in
an attempt to channel an increased amount of financial resources from
the private sector to the public sector, but the financing needs of
the public sector exceeded what could be mobilized in this fashion
and the Bank's own holdings of government securities rose markedly.
Interest rates were not permitted to rise in line with interest rates
in world markets in 1973-74, and this discouraged the inflow of funds
into the Mexican financial institutions in this period, further
aggravating the problem of financing the public sector deficit. Money
supply, which rose at an average annual rate of less than 8 per cent
in the period 1965-71, increased by more than 20 per cent in each of
the next five years.
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These developments were reflected in a more rapid increase
in prices, from rates ranging up to 6 per cent and averaging sub-
stantially less in the 15 years 1958-72, to more than 20 per cent in
1973 and 1974 and 13 per cent in 1975. Industrial production rose
more than 7 per cent in 1974, but only 4 per cent in 1975 and less
than 3 per cent in 1976. Private investment, already discouraged by
a distrust of the policies of the Echeverria Administration, stagnated.
The internal inflationay pressures stimulated imports after
1972 and slowed exports, especially those of in-bond assembly plants
located on the Mexican side of the border with the United States.
The value of imports was also swollen by the worldwide inflation of
1973-74. The ensuing recession further slowed the rise of exports
and brought about a drop in tourist earnings. Interest payments on
the rising external debt grew more rapidly.
For these reasons, the deficit on goods, services and private
transfers increased from about $800 million in 1972 to over $4 billion
in 1975, and was only moderately smaller last year. This deteriora-
tion is not attributable to the sharp increase in petroleum prices
in 1973 and 1974 since Mexico was only a small net importer of petro-
leum in 1973 and has more recently become a net exporter of the product.
External borrowings were stepped up to cover the growing
current account deficit and a moderate outflow of short-term capital,
while allowing international reserves to continue rising. International
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reserves increased until March 1976. But, early in 1976, the
outflow of short-term capital intensified as doubts spread that the
disequilibrium could be corrected without a devaluation of the peso.
This necessitated a further increase in external borrowings. At the
end of August 1976, the Government opted to devalue the peso, effective
on September 1.
Devaluation came only three months before the President of
Mexico was to turn his office over to his successor. In the transi-
tion period, considerable uncertainty prevailed, and a wide range of
rumors gained circulation, stimulating renewed capital flight. This
caused a substantial drain on the country's international reserves,
led to a second devaluation at the end of October, and eventually
forced the Bank of Mexico on November 22 to withdraw completely from
the exchange market. New external borrowings had to be negotiated
to replenish the reserves and provide means to maintain payments on
outstanding debts.
To gain lasting advantages from the devaluation and to
strengthen their ability to obtain new borrowings, the Mexican
authorities undertook to take measures to correct the disequilibrium.
They formulated a stabilization program which received the approval
of the International Monetary Fund. In October, the Fund authorized
an Extended Fund Facility arrangement for Mexico, calling for dis-
bursements over a three-year period, subject to the fulfillment of
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specific commitments regarding various aspects of economic and
financial policy. This paved the way for Mexico to obtain a large
new loan from a group of private banks in the latter part of November.
Assessment
The Mexican program approved by the Fund is a very com-
prehensive one covering all facets of economic and financial policy.
If the Mexican authorities adhere to it, this program should restore
a sustainable degree of external balance and relative internal
financial stability to the Mexican economy. However, during the last
four months of 1976, when there were no policy understandings between
Mexico and the Fund, there was some erosion of the advantages expected
from the September 1 devaluation. Specifically, wages were increased
across the board by 23 per cent at the end of September. This raise
was in addition to the wage bargains recently agreed upon and in process
of being negotiated by individual employers and unions and the result
was to bring the total wage increases for the year to about 35 per cent
for most workers.
The 1977 budget calls for a deficit well in excess of the
level specified in the Fund agreement. It is expected that the rates
charged by public enterprises will be increased, so as to reduce the
deficit to about 10 per cent above the level specified in the Fund
agreement. But this has not yet happened. Moreover, the new Mexican
President and some of his ministers have said publicly that the way to
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curb inflation is to increase production, that there is little room
to reduce demand, and that an increase in output will require in-
creased investment. These statements would seem to indicate an
intention to pursue policies which would run counter to the austerity
trends called for by the Fund agreement. It is possible that the
shakedown process associated with the advent of the new administra-
tion will hold down the rise in public spending. But the extent of
such a slowdown is very uncertain.
A further increase in the minimum wage, of 9-10 per cent,
took effect on January 1, 1977, bringing the minimum wage about
35 per cent above the level of a year ago. For comparison, the con-
sumer price index rose about 30 per cent during 1976. This does not
seem consistent with the objective of reducing aggregate demand.
These developments do not help to promote the belief that
Mexico will adhere to the targets specified in the Fund agreement.
On the other hand, the Mexican authorities seem to be aware that they
cannot afford to lose the confidence of the foreign banking community
if they are to obtain the external financing they require. This
should help to strengthen their resolve to adhere to their commit-
ments to the Fund and to protect their eligibility to draw on the
Fund, so that the banks will not be discouraged from continuing to
lend to Mexico.
We estimate Mexico's balance of payments needs in 1977 at
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about $3 billion in new borrowings and about $6 billion to roll over
existing debts, or an average of about $750 million a month for the
two purposes combined. The current account deficit this year should
be about $2-3/4 billion, some $650 million less than last year, with
heavy interest payments preventing a greater decline. There should
also be an inflow of direct private investment capital and some reflow
of short-term private capital, altogether amounting to about $500
million. But net international reserves must rise by at least $750
million to comply with the Fund agreement. As of February 4, the
Bank of Mexico's gross reserves appeared to be about $700 million above
the minimum legally required as backing against its domestic liabilities.
In a foreign policy context, it should be noted that the
new Mexican administration has adopted, as one of its goals, to seek
an improvement in relations with the United States. Relations cooled
somewhat during the last administration which often adopted "third
world" positions. An improvement in relations would seem to require
that new irritants be avoided as far as possible. A debt default
would probably constitute a significant irritant, particularly if it
were on a large scale and if it did not lead promptly to a settlement
and to remedial action in the internal economic and financial field.
1/ This includes $4 billion in short-term debts and $2 billion in
long-term debts maturing in 1977.
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Therefore, the pursuit of improved relations may strengthen the
Mexican resolve to continue servicing external debts on schedule.
The Mexican economy is highly dependent on that of the
United States, where its principal markets and source of supply are
located and from which over 90 per cent of its visiting tourists
originate. The cyclical position of the United States economy heavily
influences Mexican exports and tourist earnings.
On the other hand, Mexico stands to benefit from develop-
ments which adversely affect supply of some United States products.
Specifically, barring import restrictions which might be applied by
the United States at the instigation of interested U.S. farmers, the
recent freeze in Florida could be a substantial windfall for Mexico,
where there is a significant exportable surplus of tomatoes. It has
also been reported that Mexico has some excess supply of natural gas
and that it will begin to sell it to the United States to help in
the current emergency.
Mexico's own agriculture is also vulnerable because of the
social unrest associated with the land tenure problem, particularly in
the northwest part of the country where expropriations and invasion of
land by peasants have occurred in recent weeks. The turmoil is reported
to have disrupted farm output in some highly productive areas, requiring
some increase in certain imports and interfering with some exports.
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The tourist business is quite sensitive to reports of
occasional violence and harassment of foreigners, which have appeared
in the press in recent months. If these reports should persist or
multiply, there could be serious trouble for the tourist earnings
on which Mexico counts heavily.
Yves Maroni
February 8, 1977
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Mexico's Borrowing Needs
We estimate Mexico's gross external financing needs in
1977 at about $3 billion in new borrowings and about $6 billion to
roll over existing debts, or an average of about $750 million a month
for the two purposes combined. The roll over obligations include
about $4 billion in short-term debts and about $2 billion in long-term
debts maturing in 1977.
The current account deficit this year should be about $2-3/4
billion, some $650 million less than last year, with heavy interest pay-
ments preventing a greater decline. There should also be an inflow of
direct private investment capital and some reflow of short-term capital,
altogether amounting to about $500 million. Net international reserves
must also rise by at least $750 million to comply with the Fund agreement.
We understand that Finance Minister Moctezuma and Bank of
Mexico Director General Romero Kolbeck will hold conversations with the
Export-Import Bank of the United States concerning the possibility that
Eximbank might establish a special line of credit for PEMEX, the Mexican
State petroleum company, to help finance its import requirements. The
establishment of the line of credit for PEMEX would be in return for
PEMEX agreeing to increase petroleum exports to the United States. The
Board of Directors of Eximbank has already discussed the matter and has
given tentative approval to the concept.
The Wall Street Journal of February 4 reports that, according
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to a PEMEX spokesman, "Mexico has offered to sell the U.S. additional
oil." The Journal adds that Mexico's exports of oil to the U.S. were
expected to average 153,000 barrels a day this year, and that PEMEX
could supply an average of up to 43,000 barrels a day in additional
oil over a two-month period, the spokesman said.
According to the same story, the PEMEX spokesman announced
that, in a few days, Mexico would begin sending up to 40 million cubic
feet of natural gas a day to the U.S. and would continue these deliveries
for 60 days. The gas will be sold to Texas Eastern Gas Transmission
Corp. for distribution through its pipeline system to the U.S. East
Coast.
We understand that PEMEX is going ahead with negotiations
for a $300 million loan from a group of banks headed by Citibank.
However, a previously reported negotiation for another $300 million
loan for a Mexican copper company has been shelved for the time being
so as not to crowd the market with Mexican paper. Bank of America
is also reportedly organizing a $150 million loan in connection with
the settlement of the default of a large Mexican steel firm.
Yves Maroni
February 8, 1977
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ROMERO KOLBECK, Gustavo
MEXICO
Present Position:
Director General of the Bank of Mexico
Personal Data:
Born in 1923. Married. Three
children.
Education:
Graduated in 1946 from the National
Autonomous University of Mexico
where he majored in economics.
Received a master's degree in
economics in 1948 from The George
Washington University, Washington,
D.C. Also studied economics at
the University of Chicago.
Languages:
Speaks English fluently.
Career:
1949-54:
Chief of Economic Studies at the
National Bank of Mexico (a com-
mercial bank).
1954-58:
Deputy Director of the Investment
Commission in the Secretariat of
the Presidency.
1959-61:
Director of the Office of Investments
in the Secretariat of the Presidency.
1961-70:
Director of the Private Sector
Economic Research Center.
1971-73:
Mexican Ambassador to Japan and
South Korea.
1973-74:
Director of the National Sugar
Finance Company.
1974-76:
Director General of Nacional
Financiera (the Government invest-
ment bank)
Other Activities:
1948-70:
Taught economics at the National
Autonomous University of Mexico
and at the Ibero-American University.
1967-70:
Dean of the School of Economics
at the University of Anáhuac.
FORD & LIBRARY GERALD
MOCTEZUMA CID, Julio Rodolfo
MEXICO
Present Position:
Secretary of Finance and Public Credit
Personal Data:
Born in 1927. Married.
Education:
Graduated in 1947 from the National
Autonomous University of Mexico
where he majored in law and social
sciences.
Languages:
Does not speak English
Career:
1947-59:
Practiced law and taught at the
University.
1959-63:
Private Secretary to the Under-
Secretary in the Secretariat of
the Presidency.
1963-64:
Deputy Director of Planning in
the Secretariat of the Presidency
1964-70:
Director of Public Investment in
the Secretariat of the Presidency
1971-73:
President of Preinversion de
Mexico, a private consulting
firm.
1974-75:
Chief Administrative Officer of
the Secretariat of Finance and
Public Credit.
1975-76:
Director of the Institute of
Political, Economic, and Social
Studies (the research arm of the
ruling political party) and Chief
of Staff for Candidate (later
President-elect) José Lopez Portillo.
FORD & LIBRARY GERALD
or GOVERNORS
OF THE
(d)and (e)
EDERAL RESERVE SYSTEM
Office Correspondence
Date December 13, 19761/
To
Mr. Reynolds
Subject: New Mexican Financial Officials
From
Yves Maroni Yr
In response to Chairman Burns' question at the briefing
on Friday, December 10, we have collected the following information
regarding the new Mexican Secretary of Finance and Public Credit,
Mr. Julio Rodolfo Moctezuma Cid, the new Director General of the Bank
of Mexico, Mr. Gustavo Romero Kolbeck, and some of the other members
of the new Mexican economic and financial team.
Mr. Romero Kolbeck, who is in his fifties, served in the
Echeverría administration as Director General of Nacional Financiera,
the Government development bank which is the principal conduit for
external borrowings by the Mexican government. He has taught economics
and previously was Director of the Private Sector Economic Research
Center. While on a visit to Mexico in 1964, I was referred to him at
the Research Center when I sought to get the views of the private
business sector regarding the country's economic prospects at the time.
As I recall my interview with him on that occasion, he was not very
forthcoming in his comments, and I did not seek further appointments
with him on subsequent visits to Mexico.
A recent telegram from the U.S. Embassy in Mexico City con-
tains the following comments on Mr. Romero Kolbeck: "Romero is con-
sidered to be reasonably close to López Portillo through their common
teaching experience, though in different fields. Romero is an economist,
DECLASSIFIED
Sec.
3.6
With
POATIONS
EXEMPTED
Revised February 8, 1977.
E.O.12000 Coo.1.5
Federal Receive Restrictions
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By KBH NARA, Date 4/19/96
- 2 -
but not a Bank-of-Mexico-trained economist. He is pleasant, speaks
English,
Mr. Moctezuma Cid, who is 49 years old, was one of the
Under Secretaries of Finance in the Echeverría administration. He
also has served in the Secretariat to the Presidency and as a
Director of the ruling party's Institute for Political, Economic,
and Social Studies. In this latter capacity, he is reported by the
Journal of Commerce to have been "responsible for putting together
what is expected to be López Portillo's government program." He
has the reputation of being politically moderate. In a recent tele-
gram, the U.S. Embassy in Mexico City reported that foreign bankers
attending the presidential inauguration told the Embassy that he was
not known to them. The Embassy commented that this "is probably a
negative factor, at least until Moctezuma can prove himself." In
the same telegram, the Embassy reported that Mr. Romero Kolbeck, as
head of Nacional Financiera, was known to the foreign bankers, but
not very well, as lower level officials handled most of Nacional
Financiera's negotiations for external loans.
One U.S. banker told a Journal of Commerce reporter that
he understood Mr. Moctezuma Cid "to be in favor of stimulating the
economy very strongly, not with government spending but with higher
productivity, especially in the government agencies." In another
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story, the Journal of Commerce said that "Mr. Moctezuma Cid is
respected by local businessmen, although he is not well known to the
foreign business community."
Two other members of the new Mexican economic team about
whom we have information are Mr. José Andrés Oteyza, Secretary of
National Patrimony, and Mr. Fernando Solana Morales, Secretary of
Industry and Commerce. Mr. Oteyza is 34 years old, has a master's
degree in Economics from Cambridge University, and has served in lower
level posts in the ministry which he now heads, as well as in the Bank
of Mexico, and as a Director of the National Sugar Development Bank.
Mr. Solana is 42 years old and has served as Secretary General
of the National University of Mexico and as Deputy Director of Planning
and Finance of the agency responsible for supplying basic commodities
at controlled prices.
The Journal of Commerce quotes one U.S. banker attending
the presidential inauguration as praising the López Portillo appoint-
ments: "The cabinet proves Mr. López Portillo is going to be his own
man. He picked his own people, he did not load the cabinet with
leftists, and he kept most the technicians in the Finance Ministry,
which is a good sign." In another story, the Journal of Commerce
quotes the president of S. G. Rundt & Associates, a New York firm of
1/ This is the ministry which is responsible for policy on natural
resources and other real national assets.
GFRALD FURD LIBRARY
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consultants on international business, as saying: "The ministers
appointed by Mexican President José López Portillo add up to a very
pro-business cabinet."
President López Portillo will also have a group of economic
advisers reporting directly to him. This group will include Mr. Saúl
Trejo, who holds a Ph.D. degree in Economics from Yale University,
and Mr. Rafael Izquierdo, who has a degree in Economics from a Canadian
University. Mr. Trejo has held a variety of posts in several ministries,
most recently in the Ministry of National Patrimony. Mr. Izquierdo is
a long-time employee of the Bank of Mexico. In recent years, he served
as economic adviser to the Secretary of Finance and Public Credit.
In the Bank of Mexico and in the Ministry of Finance and Public
Credit, the second level positions have been given to professional
economists who have had considerable experience at the Bank of Mexico.
The principal Deputy Director General at the Bank of Mexico
during the last five years, Mr. Miguel Mancera, is staying on. Two new
Deputy Directors General have been named, and one of them, Mr. Leopoldo
Solis, will deal with policy formulation. Mr. Solis did graduate work
in Economics at Yale University and has held a number of positions at the
Bank of Mexico in the late fifties and sixties, eventually becoming
Director of Economic Research. When President Echeverría assumed
office, at the end of 1970, Mr. Solís became an economic adviser to
the President. However, he left this post over a year ago.
In the Ministry of Finance and Public Credit, the principal
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Undersecretary is Mr. Miguel de la Madrid, who held the same job in
the last year of the Echeverría administration. He formerly worked
at the Bank of Mexico, and in lower level posts at the Ministry of
Finance. I do not know where he received his economic training, but
he has a good professional reputation. Under him, one of the key
officials is Mr. Gilberto Escobedo, who has the title of Director
General of Credit, and responsibility for the financing operations of
the public sector. He was most recently working at the Bank of Mexico.
I do not know where he received his economic training, but I know that
he spent several months at the Federal Reserve Bank of St. Louis two
or three years ago.
The outgoing Minister of Finance, Mr. Mario Ramón Beteta,
has been appointed Director General of a government-owned financiera,
or investment bank. The outgoing Director General of the Bank of
Mexico, Mr. Ernesto Fernandez-Hurtado, has not been offered another
official position.
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(b)
Board Briefing
Yves Maroni
January 24, 1977
It is the staff's best judgment that Mexico will implement
sufficiently sound economic policies to ensure its continued access to
foreign loans on a scale large enough to finance its balance of payments
needs. This judgment rests on the belief that the Mexican authorities
are aware that they cannot afford to lose the confidence of the foreign
banking community if they are to obtain the external financing they re-
quire. They know that the foreign banks' confidence in Mexico is
bolstered by the existence of the IMF Extended Fund Facility agreement,
the Mexican stated commitment to comply with it, and the Fund sur-
veillance which it entails. This should help to strengthen their re-
solve to adhere to their commitments to the Fund and to protect their
eligibility to draw on the Fund, so that the banks will not be dis-
couraged from continuing to lend to Mexico.
We estimate Mexico's balance of payments needs in 1977 at
about $3 billion in new borrowings and close to $2 billion to roll
over existing debts, or an average of about $400 million a month for
the two purposes combined. The current account deficit this year should
be about $2-3/4 billion, some $650 million less than last year, with
heavy interest payments preventing a greater decline. But net inter-
national reserves must rise by at least $750 million to comply with the
Fund agreement. As of January 20, the Bank of Mexico's gross reserves
appeared to be about $650 million above the minimum legally required
as backing against its domestic liabilities.
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Mexican domestic policies are evolving slowly. The 1977
public sector deficit is forecast at about 100 billion pesos, 10 per
cent above the amount specified in the Fund agreement. But the increases
in rates charged by public sector enterprises, needed to validate this
forecast, have not yet occurred. On the other hand, the shake down
process accompanying the advent of the new administration is holding
down public spending. Effective January 1, minimum wages were raised by
9-10 per cent and now are about 35 per cent higher than a year ago. For
comparison, the consumer price index rose about 30 per cent during 1976.
Some Mexican officials worry that the Fund agreement's targets will not
be fully observed, but, by and large, guarded optimism prevails, especially
in the private sector.
Some Mexican companies, faced with the increased peso cost of
external debt servicing following devaluation, have been arranging a re-
structuring of their obligations, and creditors have reportedly agreed
informally to give them a few months of grace on their payments. The
biggest such case involves a large steel company, in which the Government
has a minority interest. In this case, a Mexican official entity may
provide funds to allow interest payments to resume as part of a settle-
ment. The company's external debts total close to $400 million and it
was reportedly not well managed. No other case with such heavy debts
is expected.
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LISAARY GERALD ? FORD
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
(g)
Office Correspondence
Date February 8, 1977
To
John E. Reynolds
Subject: Recent Mexican Peso trading on
From John E. Morton Jim
the International Monetary Market (IMM).
The volume of trading in Mexican peso futures on the International
Monetary Market (IMM) in recent weeks, shown in the attached table, does
not indicate any sharp increase in speculative activity.
On January 18 and 19, the two days immediately preceeding the
14 per cent depreciation of the spot peso rate on the New York foreign
exchange market, the table shows that trading volume in pesos on the IMM
was unusually high, and the price of pesos for future delivery declined.
The most active day of trading in pesos shown in the table was the following
Monday, January 24, when the forward peso price recovered sharply. The
average daily trading volume in the most recent week, January 31-February 4,
was 54 contracts (about $2 million) per day. This was below the weekly
average trading volume in the two preceeding weeks, 66 contracts per day
(Jan. 17-21) and 106 contracts per day (Jan. 24-28). By comparison, the
average daily trading volume in peso futures on the IMM in the week of
December 6-10, 1976 -- a period of relatively quiet peso trading on foreign
exchange markets in New York and Mexico -- was 87 contracts per day.
In the three week period covered by the table, the spot peso
exchange rate in the New York foreign exchange market dropped from about
5 cents on January 17 to a current level of about 4.4 cents, a depreciation
of 12 per cent. The current price on the IMM for pesos delivered in June
is about 4.0 cents, indicating market expectations of a further 9 per cent
decline in the spot peso rate during the first half of this year.
Attachment
FORD & LIBRARY
cc: Messrs. Morton, Smith, McCormick, Hooper and Truman
February 8, 1977
Recent Mexican Peso Trading on the
International Monetary Market (IMM) of
The Chicago Mercantile Exchange
Trading Volume
Closing Price
(IF of 1 million
(June delivery, in
Date
peso contracts sold)
U.S. cents per peso)
January 17, 1977
42
4.25
"
18, "
138
4.19
11
19, "
100
4.11
"
20, "
34
4.00
"
21, "
15
3.85
"
24, "
233
4.14
"
25, "
85
4.08
"
26, "
81
4.14
"
27, "
63
4.14
"
28, "
66
4.18
"
31, "
60
4.15
February 1, "
89
4.14
"
2, "
51
4.03
"
3, "
37
3.95
11
4, "
31
4.01
FORD & DERALD LIBRARY
FORD
(h)
GERALD
LIBRARY
MEXICU: ECONOMIC INDICATORS
February 3, 1977
C.9a
1973
1974
1975
1975
1975
1975
1976
1976
1976
1976 1976 1976 1976 1970 1916 1976
II
III
IV
I
II
III
MAY
JUNE
JULY
AUG
SEPT
OCT
NUV
REAL GDP, 1970=100
119.4
126.4
131.8
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A. N.A. N.A. N.A. N.A. N.A. N.A.
REAL GOP, PER CENT
CHANGE (1)
7.6
5.9
4.2
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A. N.A. N.A. N.A. N.A. N.A. N.A.
INDUSTRIAL PRODUCTION
1970=100
123.8
132.8
139.0
143.2 139.7 140.8 144.0 144.6 142.6
145.9 147.4 145.1 143.7 138.4 N.A. N.A.
INDUSTRIAL PRODUCTION
PER CENT CHANGE (1)
10.1
7.3
4.7
8.2
-2.5
0.8
2.2
0.4
-1.4
3.8
1.0
-1.6
-1.0
-3.5
N.A.
N.A.
WHOLESALE PRICES
PER CENT CHANGE (1)
15.7
22.4
10.5
4.0
3.3
2.5
5.0
5.2
5.6
1.5
0.9
2.5
-0.3
6.2
8.4
0.2
CONSUMER PRICES
PER CENT CHANGE (1)
12.2
25.8
15.0
3.0
3.2
2.0
4.4
2.6
3.2
0.7
0.4
0.8
1.0
3.4
5.6
4.5
MUNEY STOCK (M1) (SA)
PER CENT CHANGE (1)
24.8
20.9
22.3
0.6
2.9
5.8
3.9
4.7
5.8
3.1 -0.4 3.0 -1.2 8.2 1.9 N.A.
PUBLIC SECTOR DEF.(-)
AS PER CENI UF GUP
-5.7
-7.8
-9.3
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A. N.A. N.A. N.A. N.A. N.A. N.A.
CENTRAL GUVI. DEF.(-)
AS PER CENT OF GUP
-4.4
-3.8
-4.3
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
EXPORTS (2)
($ BILLION)
2.4
3.4
3.5
0.9.
0.8
0.9
0.9
1.1
0.9
0.5
0.3
0.2
0.2
0.2
0.2
N.A.
IMPORTS ( $ BILLION)
3.8
0.1
0.0
1.7
1.6
1.9
1.4
1.7
1.5
U.S
0.0
0.0
U.O
0.4
0.4
N.A.
TRADE BALANCE (2)
( $ BILLION)
-1.4
-2.6
-3.1
-0.8
-0.8
-1.0
-U.S
-0.6
-0.0
-0.2 -0.3 -0.3 -0.3 -0.1 -0.2 N.A.
BALANCE UN GUUDS AND
SERVICES (D BILLION) -1.5 -2.0 -3.8
-0.9 -1.0 -1.1 -0.7 -0.9 -0.9
N.A. N.A. N.A. N.A. N.A. N.A. N.A.
(1) PER CENT CHANGE FRUM PREVIOUS PERIOD. QUARTERLY CHANGES
AT QUARTERLY RATES; MONTHLY CHANGES AT MONTHLY RATES.
(2) MUNTHLY DATA EXCLUDE EXPORTS UF BURDER ASSEMBLY PLANTS AND UF SILVER
ANU ARE NUT CUNSISTENT WITH QUARTERLY UR ANNUAL DATA.
RESTRICTED-CONTROLLED
C.9b
FINANCIAL INDICATORS MEXICO
(dollar amounts in millions)
1975
1976
1977
Week ended
YEAR
QI
QII
QIII
QIV
NOV
DEC
JAN
FEB 1-2
JAN 5
JAN 12
JAN 19
JAN 26
FEB 2
XCHANGE RATE (CENTS PER PESO. END OF PERIOD)
8.00
8.00
8.00
8.00
4.98
4.40
4.98
4.55
4.40
5.00
5.00
4.98
4.55
4.40
SDR VALUE OF PESO
.06842
.06924
.06985
.04364
.04297
.03940
.04297
.03960
.03796
.04297
.04297
.04318
.03960
..03796
SHORT TERM INTEREST RATE (E.O.P.)
12.94
13.11
13.11
14.36
14.36
14.36
14.36
14.36
14.36
14.36
14.36
14.36
14.36
14.36
t t
LONG TERM INTEREST RATE (E.O.P.)
13.02
12.86
14.17
15.09
14.29
15.25
14.29
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
RESERVES (IFS. E.O.P.)
1.533
1,501
1,585P
870P
1,261
1.417
1,261
1,512
1,473
AVAILABLE IMF CREDIT TRANCHES (E.O.P.)
433
620
615
621
596
596
596
596
596*
INTERVENTION. PURCHASES (+) OR SALES (-)
OF DOLLARS
-558
91.1
24.3
-22.4
16.7
-2.7
-21.4
32.7
-63.3
(OF OTHER CURRENCIES; EQUIVALENT)
WAP ACTIVITY
360
360
--
150
:
--
--
:
:
--
--
--
DRAWINGS (+). REPAYMENTS (-)
-360
SWAP LINE -- 360
*
Available under three-year Extended Fund
Facility program starting January 1, 1977.
QERALD FORD LIBRARY
February 3, 1977
RESTRICTED-CONTROLLED
Prepared by Financial Markets Section
en
RESTRICTED
The [2-8-77]
RESTRICTED
HANDLE THE ATTACHED DOCUMENT IN ACCORDANCE WITH INTERNAL
INFORMATION SECURITY PROCEDURES FOR RESTRICTED INFORMATION
FORD is LIBRARY 074800
RESTRICTED
BOARD OF GOVERNORS
,
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
Date February 8, 1977
Chairman Burns
To
Subject:
From Governor Coldwell G
RESTRICTED
Attached for your information is a note concerning
my recent trip to Mexico City and the impressions I gained
on the Mexican economic and financial situation.
Attachment.
cc: Governor Wallich
Mr. Maroni
MR, Turman
DERALD & FORD LIRRARY
RESTRICTED
MR 95-1,#31
KBH 4/12/96
IMPRESSIONS OF FEBRUARY 1977 MEXICAN SITUATION
Overall Evaluation
Mexico faces difficult times ahead. Its poor and lower middle
class have been severely damaged by inflation but must be called upon to
sacrifice more and give up their expectations of a better life for yet
another period of time. The country's goal of social and economic improve-
ment must be put off to accommodate the final realities of the moment.
The nation faces an immediate crisis of decisional management
in the fiscal and monetary fields. The old procedures of policy determina-
tion have given way to a new more concentrated procedure which focuses
the power in a person without demonstrated capacity in monetary policy
and with heavy political orientation. The new procedures are not tried
and could create significant delays and lack of programs in the immediate
future. In fact, some knowledgeable observers in Mexico believe this is
already developing. The process seems to work better for long-range goals
than short-run solutions. If the new decision-making process is to be used,
there is likely to be a very heavy political input--perhaps to the detriment
of sound economic and financial policy.
The current thrust of policy rests most heavily on the proposi-
tion that debts will be extended, new borrowings will be available, the
inflation rate will decline (especially for the 70 market basket items)
and unions and management will maintain their moderate demands permitting
time to re-stabilize the economy. How well this policy will work remains
to be seen, but there are obvious hazards and pitfalls in the assumptions.
Mexican officials believe they can meet most of the IMF con-
ditions, but are squeamish about the money supply and budget deficit
relationship. They expect the peso-dollar rate to fluctuate considerably,
but hope the range will be in the lower 20's. Others think the pattern
will be upward perhaps to 30 by year-end. The odds at present seem
against the official position, but with great luck and a dedicated populace,
there is a chance of stability.
FORD i LIBRARY GERALD
-2-
In summary, Mexico needs heavy continuous access to credit
markets but has an economy faced with troubled times ahead. The
nation will need all its administrative skill, economic and financial
talent, a population and politicians willing to sacrifice and a large
measure of luck to stabilize its economy and redevelop a program of growth.
It seems to me that from a U.S. viewpoint, the fundamental long-
range elements are the close U.S. -Mexican ties in trade and border, the
need for a sympathetic Mexican administration, the basic raw material wealth
of the nation and, very practically, the heavy U.S. investment and creditor
positions in Mexico. These auger for an accommodative, but not overly
easy policy, which can maintain our ties, encourage appropriate Mexican
policy, and retain a measure of caution for U.S. banks involved.
Following are some specific comments and interpretations I re-
ceived in my visits with various people.
Discussions with representatives of U.S. banks in
Mexico brought the following:
1. Many U.S. banks are near their own "country limits" for
Mexico and a few are nervous about their current level of lending.
2. Most seemed resigned to debt renegotiation extending
maturities.
3. Most were guardedly optimistic for Mexico's long-range
future based on oil and other natural wealth, but somewhat pessimistic
on population control and the implication thereof.
4. Most were willing to participate in specific project loans
but somewhat concerned by potential diversion of funds loaned, from projects
to BOP.
5. Bankers have the impression that government has not done
enough nor given sufficient policy guidance in the present situation.
6. Banks expect Mexico to borrow $6 billion in 1977 with $3
billion for repayments due this year. They hope that the burden of
borrowings will shift to international financing institutions and bilateral
aid, thus reducing drawings on private banks.
7. Some bankers predict that the interruption of agricultural
production, because of the peasant revolt may cause greater wheat and
grain imports. (See Romero-Kolbeck response.) A few bankers ventured
the opinion that Mexico has decided to export products from labor-
intensive agriculture and import products of mechanized agriculture (i.e.,
tomatoes for wheat).
BERALD FORD LIBRARY
-3-
8. The bankers were obviously nervous about the peso-dollar
exchange rate and cited the recent run up to 24 pesos to the dollar the
day before. A few expected an exchange rate over 30 pesos to the dollar
by year-end (see Romero-Kolbeck).
9. The primary short-run concerns are the handling of Fundidora,
the steel company, and San Rafael, the paper company, debts. All expected
long-run extensions (Romero-Kolbeck says EXIMBK has been the stumbling
block).
10. The bankers believed that Mexican hotel and other tourist
services have raised prices to nearly equal the benefits of devaluation
(Romero-Kolbeck believes this has occurred only up to two-thirds of the
change).
11. Bankers believe U.S. banks hold a dominant position on
Mexican credits, but German, Swiss and U.K. banks are becoming a more
important force.
12. Bankers believe they must have more information on any
future loans, not only about government programs but the condition of
the companies. They cite Fundidora as the prime example of lack of
information on government involvement.
Discussion with Ernesto Fernandez-Hurtado, former
Director-General of the Banco de Mexico, S.A.,
reflected the following:
1. Believes Mexico still headed downward and into greater
trouble.
2. Says Banco de Mexico's substructure good but new Director
does not have any say with President. Believes Finance Minister
has too much influence without basic knowledge, but that the President
has final say on policy.
3. Believes long-range plans are good but thinks short-range
policies being slighted and will create major new problems.
4. Believes Banco de Mexico will lose its independent voice
under the new administration.
LIBRARY GERALD FORD
-4-
Discussion with Romero-Kolbeck and Moctezuma Cid:
1. Romero-Kolbeck believes Mexico can meet the IMF conditions,
except perhaps for money supply growth, which he ties to the budget deficit.
Budget based on 18 percent inflation while non-government sources expect
25-30 percent. Key differential is effectiveness of labor-wage and business-
profit limits agreed to by unions and companies.
2. Romero-Kolbeck says Banco de Mexico and Finance (Treasury)
see eye-to-eye and have 98 percent of cabinet behind them.
3. Believes agricultural output interruption may cause some
additional wheat imports but these may be partially offset by sales of
citrus and tomatoes to make up for loss in U.S. freeze.
4. Says Mexico will borrow net of repayments $3 billion with
structure of type of borrowings, same as in the past--largely private.
Implied that Mexico will use IMF as back-up or security.
5. Believes exchange rate will fluctuate in low 20's but gave
impression of some upward move, but specifically not as high as 30 pesos
per dollar.
6. Expects money supply growth of 18-25 percent for 1977.
Thinks IMF condition of peso creation tied to dollar liabilities is un-
reasonable if budget deficit enlarges.
7. Moctuzuma Cid said budget faced a 27.5 billion peso deficit, of
which, 5.5 billion was covered by new taxes, 9.0 billion by petroleum,
utility, and transport price increases already accomplished and remaining
13.0 billion, hopefully by same and other price increases (Metro) and by
tax inflation. Recognized price inflation on expenditures too.
8. Moctuzuma Cid believes budget will be balanced.
9. Romero-Kolbeck and others say attitude of cooperation,
optimism, and sacrifice, provide environment for improvement. Says the
President implicitly agreed to two years of no growth to correct problems,
but as a politician will head for new growth then.
10. Expectations of overall improvement rest crucially upon the
interaction of limited wage increases, limited profits, reduced money supply
and government spending, and reduced inflation, tied to continued develop-
ment growth by foreign borrowing. If any of these links are broken, then
unfavorable results are expected. Union willingness to limit wages is tied
to a 70 item market basket of relatively stable prices and thus no big
inflation.
GERALD
LIBRARY
-5-
11. Believes prices have only eaten up 30 percent of devaluation
benefit for exports and reports significant gains in exports already.
12. Romero-Kolbeck says government has taken steps to help
companies meet major dollar debt payments, both by loans and by prompt tax
write-off.
13. Two loans are apparently under negotiation--a $300 million
PEMEX loan from a Citibank group and a $150 million one from a Bank of
America group to Fundidora. The latter is a trade-off to extend over
$400 million in loans to 6-8 years maturity, while the proceeds of the
$150 million will pay the interest and principal due now.
14. Moctuzuma Cid said reorganization of the Executive has
created an economic-monetary policy group of the heads of the public
banks (Agriculture, Public Works, etc.), plus, the Director General of
the Banco de Mexico, to advise Moctuzuma Cid on foreign debt and exchange
actions. He said the final decision is his alone--subject to the President's
ratification.
16. Romero-Kolbeck says the Banco de Mexico has no independent
status, but reports to Finance Minister Moctuzuma Cid, though in theory
he (Romero-Kolbeck) can appeal directly to the President.
FORD i LIBRARY 03RA70
Visit of Mexican Officials to
Chairman Burns
February 10, 1977
The visitors were the Minister of Finance and Public
Credit, Mr. Julio Moctezuma, and the Director General of the Bank of
Mexico, Mr. Gustavo Romero Kolbeck. They were accompanied by Messrs.
Miguel de la Madrid, Undersecretary of Finance, Leopoldo Solis and
Alfredo Phillips, Deputy Director General and Deputy Director, re-
spectively, of the Bank of Mexico. Also attending were Governor
Wallich, Mr. Truman, and Mr. Maroni.
Chairman Burns welcomed the visitors and indicated his
concern over the serious Mexican situation. He said that last year,
there had been a lack of information about Mexico and about the policies
being followed. He cited the repeated assurances that there would be
no devaluation, which tended to hide the true situation. He noted that
there had begun to develop an improved flow of accurate information
and he expressed the hope that this would increase.
said that an improved flow of accurate informa-
tion was very important and he indicated that this might well be one
of the results to be derived from an informal bilateral commission
which President Lopez Portillo would propose to President Carter
during his visit here.
said that he was not aware that there
had been a lack of information about Mexico. He noted the frequent
visits to Washington by Mr. Phillips and, the day-to-day contacts
DECLASSIFIED E.O. 12958 Sec. 3.6
With PORTIONS EXEMPTED
SERALS FORD
E.O. 12958 Sec. 1.5
Federal Reserve Restrictions
MR 95-1,# 32, Fed. Res.ltr. 2/13/96
By KBH NARA, Date 4/19/96
- 2 -
with the U.S. Treasury through Mr. Britt Swofford, and he emphasized
that he wanted no information held back so that there would be no
surprises.
Chairman Burns asked for details on the proposal to
establish an informal bilateral commission.
replied
that the idea was to set up a commission consisting of representa-
tives of the two countries' Treasury Departments, Central Banks,
and Foreign Affairs Departments. The principals might meet once a
year and there might be more frequent meetings of deputies or working
level officials. He said that at least two working groups were en-
visaged, one to deal with trade matters, the other with financial
matters. He thought that this device might help improve the flow
of accurate information.
Chairman Burns expressed sympathy for the idea. He went
on to ask what were the prospects that Mexico would fulfill its agree-
ment with the IMF.
replied that there had been a return of con-
fidence since December 1. He noted that President Lopez Portillo
attached great importance to the agreement and had taken careful
steps to show his support of it, and to make this support effective.
An economic cabinet has been set up to coordinate the main decisions
in implementing the policies that will be needed to fulfill the
agreement. This group has formally approved the agreement.
GERALD FORD STORABLE
- 3 -
added that the measures taken so far would
help in implementing the agreement. He noted that the budget was
anti-inflationary and was within the IMF limits. He said that
fiscal reform, which was being pushed, would have an anti-inflationary
impact. As regards wages, he noted that the previous administration
had put into effect a raise of more than 23 per cent last September--
a raise that exceeded that of the cost of living, Chairman Burns com-
mented--that this raise was the cause of the confidence crisis and
the second devaluation, and that the new 10 per cent increase, which
took effect on January 1, was small when viewed against the fact that
the controlled prices of basic commodities were raised a few days
before.
went on to say that the Government had con-
cluded ten sectoral agreements with the private sector regarding in-
vestment plans and that this had helped to restore the Government's
negotiating capacity vis-à-vis the private sector. He added that a
return of funds to the banks had gotten under way on December 1, and
that prices had risen more slowly in December and January than before
December.
Governor Wallich asked about the prospects for the budget.
replied that he hoped the deficit would be about 105
billion pesos. He thought that this would be consistent with the IMF
agreement which specifies that it should not exceed 6 per cent of GDP.
He pointed out that the absolute amount would be higher than called for
GERALD
- 4 -
under the Fund agreement, but he said that the agreement had been
formulated before the 23 per cent wage increase and before the second
devaluation. He thought that the figure of 105 billion pesos would
be an accurate reflection of the Fund agreement target after taking
account of the intervening price effects. He noted that the budget,
as approved, called for a deficit of about 130 billion pesos, but that
this would be cut by a tax bill, which would yield 5.5 billion pesos.
Chairman Burns wondered whether the Mexican authorities
would seek to renegotiate the Fund agreement.
replied
that there would be no renegotiation of the fiscal targets, but that
the ceiling on net foreign external debt was troublesome. He noted
that the ceiling covered the current account deficit and the reserve
increase associated with the need for domestic financing, but that
it left out the needs of the financial intermediaries in Mexico. He
insisted that this required a quantitative adjustment, not a qualita-
tive one. He explained that Mexico would need $4 billion in net new
money in 1977, $1 billion more than agreed with the Fund. Under
questioning, he repeated that the additional $1 billion was for the
capital account (to cover the needs of the financial intermediaries),
not to help finance the current account. He pointed out that new
borrowings would still be less than in 1976, when he estimated they
reached $5 billion.
Chairman Burns commented that Mexico should take steps
GERALD
to reduce its borrowings even more, that the level was high and a
- 5 -
cause for concern.
replied that efforts were being
made to reduce the external deficit and the need for new borrowings.
He said that it was not certain that Mexico could reduce the borrowing
need sufficiently, although there was a tendency toward a decline.
added that there was a problem with the
lending limits of U.S. banks and with the regulations under which
they operate. He thought that the additional $1 billion of new borrow-
ings might be hard to negotiate.
Chairman Burns said that the interest burden on the Mexican
balance of payments looked very high to him. He noted that he under-
stood it to be about 28 per cent of the value of exports of goods and
services. The visitors were skeptical of this estimate (which they
felt sure must include amortization as well) and both sides agreed
that their respective staffs should get together to bring their
estimates closer to each other, and more generally to develop a common
set of facts and figures on the Mexican situation.
explained that the outflow of funds from
the banks had ended and that their liabilities were now increasing.
He cited an 18 billion peso rise in December and a 6 billion peso rise
in January when there usually is a large decline. He said that the
Bank of Mexico had helped the banks by relaxing reserve requirements
on a temporary basis when the banks found themselves with frozen
loan portfolios (as borrowers became unable to pay back their debts
CERRAL FORD
- 6 -
following the devaluation). He said that the relaxation of reserve
requirements amounted to 20 billion pesos in December and 1.6 billion
more in January. He pointed out that the Treasury account was now
in surplus, and that the Government deposit balance at the Central
Bank was now about 12 billion pesos. He noted that, in the past,
this balance never exceeded 2.5 billion pesos. He added that the
implementation of the budget was moving slowly, especially as regards
investment spending, which has not started. This was partly attributable
to a reorganization which has shifted authority over spending to a new
budget office. He commented that, if this continued, total spending
for the year would be less than in 1976.
added that the exchange market was calm
and that the peso was now floating normally. He said that the banks
were back in the market, that the free convertibility and transferability
that were traditional for Mexico were continuing, and that the gold
market in Mexico was normal. He pointed out that price increases were
moderating, and he cited monthly increases in the consumer price index
of 2.6 per cent in December and 2.3 per cent in January, following
three months of increases around 5 per cent. He concluded by saying
that the Mexican authorities knew that they had a serious problem on
their hands but that they were working to rectify the situation.
Chairman Burns commented that this report was very encouraging.
returned to the fiscal situation to explain
that a special commission had been appointed to review and make recom-
GERALD
- 7 -
mendations on the tariffs and rates charged by public enterprises.
He said that the commission had recommended increases totalling
8-9 billion pesos and that these were being put into effect. He
noted that this would help to bring down the deficit from its initial
estimate of 130 billion pesos. He added that the public enterprises
were "well under control."
Chairman Burns drew attention to the possibility that it
might be difficult for Mexico to borrow as much as $4 billion in
new money. He wondered whether there were any contingency plans in
case this could not be done.
:
replied that the situation would be
difficult, that adjustments would be necessary, perhaps involving
cuts in imports. But he said that the authorities preferred not to
think about that. He said that there was a need to roll over maturing
obligations of some $6 billion, but that this was not causing concern.
The new borrowings were the problem. The $3 billion authorized under
the IMF agreement might be hard to get, but it was important to con-
tinue importing.
agreed that the maintenance of import levels
was very important. He pointed out that there was now a new public
debt law, which required the Treasury to authorize all external
debts. Even the Mexican Congress had to give its approval to overall
levels of borrowings. This would help to ensure that all borrowings
were strictly in accordance with plans. He emphasized that PEMEX was
OERALD FORD
- 8 -
an important part of the borrowing program, that its needs were
related to exploration and drilling requirements, and that this was
crucial for the country. He said that PEMEX was currently negotiating
a $350 million loan with Citibank. (Our information is that the loan
is for $300 million). He also mentioned that the Federal District
(Greater Mexico City) was seeking a restructuring of its external
debt with its French creditors, and was hoping to stretch it to
15 years.
also said that the authorities had approached
Bank of America and had asked them to study the possibility of setting
up a $3 billion short-term line of credit, in cooperation with other
banks in the United States, Europe, Canada, and Japan, to provide
"parallel" financing to be used alongside with the drawings under the
Extended Fund Facility.
likened this to the recent
United Kingdom loan organized by German banks.
said that there were no basic doubts about
the future of the Mexican economy, but that the American press had
spread inaccurate information. He mentioned stories suggesting that
the new budget was inflationary. He said that he had explained to
the representatives of the press that this was not true, and that, in
reality, the new budget showed a tendency against inflation.
said that debt renewals were proceeding
The Mexico City subway was built with French equipment
- 9 -
normally up to now. In support of this statement, he cited the
fact that Nacional Financiera had negotiated roll overs of obliga-
tions totalling $450 million since December 1.
asked whether Chairman Burns had any doubts
or suggestions for President Lopez Portillo, whom he and
would see the next day.
Chairman Burns replied that, in all frankness, the foreign
debt of Mexico looked very large and that he was not sure that the
balance sheet position of the U.S. banks would permit them to come
up with as much as Mexico is seeking in new borrowings. He added
that he was encouraged to see a Mexican Government oriented toward
sound policy lines.
Yves Maroni
February 14, 1977
GERALD 1020 LIBRAR,
01
February 11, 1977
TO:
Chairman Burns
FROM: Ted Truman
Attached is the latest cable from Mexico.
Attachment: Mexico 1587
cc: Governor Wallich
Defense classification f this document is due
to the inclusion of U.S. Government information
officially cinssified under Executive Order 10:01
which provides that A document shall bear a
classification at thast as high as that of its
highest classified component."
FORD is 93RA70 LIBRARY
MEXICO
OF STATE
Department of State
UNITED of /
TELEGRAM
STATES
EMT
LIMITED OFFICIAL USE
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FRB-03 INR-07 NSAE-00 USIA-86 XMB-02 OPIC-03 SP-02
CIEP-01 OMB-01 L-03 PA-01 PRS-01 1062 W
1003447 117189 172-62
R 9923387 FEB 77
FM AMEMBASSY MEXICO
TO SECSTATE WASHOC 221
PLEASE RETURN TO
TNFO TREASURY WASHDC
INTERNATIONAL INFORMATION CENTER
*
LIMITED OFFICIAL USE MEXICO 1587
FO 11652 : N/A
TAGS : EFIN MY
SURJ : RENEGOTIATION OF MEXICAN DEBT
: SUMMARY ! SEVERAL MEXICAN DAILIES OF FEBRUARY 9 CARRY
STORY DATELINED st WASHINGTON TO EFFECT THAT MEXICO
WILL TRY TO OBTAIN seom MILLION LOAN FROM IMF AND ORGANIZE
A CLUB OF PARIS GROUP TO RENEGOTIATE MEXICO'S EXTERNAL DEBT.
FND SUMMARY
?. SEVERAL MEXICAN PAPERS CARRIED, MOSTLY ON INSIDE PAGES, A STORY
STATING THAT JLP WILL TRY TO OBTAIN A $6.0 MILLION LOAN
FROM THE IMF WWILE IN WASHINGTON, TWAT MBCTEZUMA WILL ARRANGE
FOR A FUND TEAM TO VISIT MEXICO TO STUDY THE MEASURES TO
FIGHT INFLATION AND STABILIZE THE EXCHANGE RATE: AND THAT
MOCTEZUMA MAY TRV TO WAVE THE FUND ORGANIZE A MEETING OF THE
CLUB OF PARIS TO RENEGOTIATE MEXICO'S EXTERNAL DEBT. STORY
TS ATTRIBUTED TO "FINANCIAL CIRCLES".
3. WHILE STORY SEEMS FAR-FETCHED AND SOMEWHAT CONFUSED, IT
HAS ATTRACTED LOCAL INTEREST. SEVERAL EUROPEAN EMBASSIES
CONTACTED FINATT RE STORY. HE SAID TWAT IT HAD NO
BASIS AS FAR AS WE KNEW. LOCAL BANKERS ARE ALSO LIKELY
GERALD FORD LIBRARY
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TO PTCK UP STORY. WHILE BANKING COMMUNITY APPEARS
WILLING TO RENEGOTIATE INDIVIDUAL CREDITS IF NECESSARY,
SEVERAL HAVE EXPRESSED THEIR FEAR OF WHAT A CALL FOR
GENERAL DEBT RENEGOTIATION MIGHT HAVE ON MEXICO'S
ABILITY TO RAISE NEW FUNDS. THEY EVEN WORRY ABOUT WHAT
IMPACT STORIES LIKE THIS, EVEN IF GROUNDLESS, MIGHT HAVE.
TOVA
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BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
February 11, 1977
TO:
Chairman Burns
Governor Wallich
Governor Coldwell
FROM: Ted Truman
Attached is Part II of a New York
Times article on Mexico's new regime.
Part I, which was sent to you yesterday,
is also attached for your convenience.
FORD i LIBRARY GERALD
New York Times, 2/11/77
C
A27
Mexico's New Regime: II
P.R.I. operates, in fact, as a balancing
By John B. Oakes
device. It bears little resemblance to
that revolutionary Communist image
MEXICO CITY - When the new
of Mexico, engraved indelibly on the
President of Mexico meets the new
American mind a generation ago by the
President of the United States next
stirring murals and frescoes of Rivera
week at the White House, they will
and Siqueiros, or with the ultra-radical
discover many points in common, but
impression left more recently by form-
there's one great difference that they
er President Echeverría's florid third-
FORD & LIBRARY GENALD
York Times 2/10/77
39
Mexico Under Portillo-I
to reality. The most revolutionary
By John B. Oakes
thing about Mexico now is constant
oratorical reference to "the Revolu-
MEXICO CITY-The suave and suc-
tion"-which broke up most of the
cessful businessman, speaking easily
large estates, cost a great many lives,
1
in the comfortable surroundings of his
didn't do much else-and took place
FORD LIBRARY
February 15, 1977
TO:
Chairman Burns
FROM: Edwin M. Truman
Attached are the latest cables from Mexico. The first cable
(Mexico 1678) describes the problems of Dina, the fourth largest
automotive manufacturer in Mexico. The second cable (Mexico 1740)
describes President López Portillo's meeting with Business International.
Note paragraph 9 where the inference is drawn that Mexico wants to rene-
gotiate the terms of the IMF program; note also paragraph 11 where
Mr. Romero Kolbeck is described as believing that Mexican inflation is
caused by external forces.
Attachments: Mexico 1678
Mexico 1740
cc: Governor Wallich
Defense classification of this document is due
to the inclusion of U.S. Government information
officially classified under Executive Order 10001
which provides that "A document... shall bear
classification at lesst as high as that of in
highest classified component."
GERALD R. FORD LIBRARY
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Department of State
UNITED OF ,
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TO SECSTATE WASHDC IMMEDIATE 290
PLEASE RETURN TO
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#ITERNATIONAL INFORMATION CENTER
See Zattached
4
LIMITED OFFICIAL USE SECTION 1 OF 2 MEXICO 1740
FO 11652: NA
TAGS: EFIN.MX
SUBJECT: PRESIDENTIAL VISIT: JLP COMMENTS TO BUSINESS INTERNATIONAL
REF MEXICO 1384
1. SUMMARY: LOPEZ PORTILLO TOLD BUSINESS INTERNATIONAL
THAT MEXICO WELCOMED FOREIGN INVESTMENT ACCORDING TO ITS
WELL-KNOWN RULES AND THAT THE SOLUTION TO MEXICO'S
INFLATION PROBLEM WAS THROUGH INCREASED PRODUCTION FOR
WHTCH HE NEEDS FINANCING. END SUMMARY.
2. BUSINESS INTERNATIONAL GROUP HEADED BY ORVILLE FREEMAN
MET WITH LOPEZ PORTILLO ON FEB. 10. MEETINGS OF THIS
GROUP ARE TRADTTIONALLY OFF-THE-RECORD AND PRIVATE.
GROUP WAS TAKEN ABACK BY PRESENCE OF PRESS AND FREEMAN
REPORTEDLY HAD TO TONE DOWN HIS REMARKS. JLP'S
OPENING MEETNG TO PRESS ATTENDANCE MAY MEAN HE WANTED
HIS REMARKS TO REACH WASHINGTON AND MEXICAN PUBLIC.
MEETING GIVEN WIDE PUBLICITY IN FEB. 11 PRESS.
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3. FREEMAN OPENED MEETING BY SAYING HE HAD RECENTLY
MET WITH PRESIDENT CARTER WHO WAS LOOKING FORWARD TO
JLP'S TRIP. HE THEN QUERIED HOW GOM WOULD DEAL WITH
INFLATION AND THE GOM ATTITUDE TOWARD FOREIGN INVESTMENT.
4. JLP CONCENTRATED ON THE FORMER. HE SPOKE
FXTEMPORANEOUSLY. FOLLOWING ARE HIS MOST PERTIENT
REMARKS AS CARRIED IN EXCELSIOR TEXT. "FOR SOME TIME,
RECOGNIZING THE VIRULENT INFLATIONARY PROCESS, WE HAVE
ESTABLISHED CERTAIN POLICIES WITH WHICH SUPPORT WE ARE
REALIZING A NATIONAL PLAN THAT SUPPORTS A FUNDAMENTAL
TDFA. INFLATIONARY PRESSURES CAN BE ALLEVIATED IN
TWO WAYS: BY REDUCING DEMAND OR IN INCREASING SUPPLY.
SOMETIMES IT IS NECESSARY TO ACT IN BOTH WAYS, BUT
TN A COUNTRY WITH PERENNIAL NEEDS SUCH AS OURS, IN
WHICH THE DEMAND IS OCCASIONALLY AT MINIMUM SUBSISTENCE
LEVELS, THE SOLUTION TO THE INFLATIONARY PROBLEM, IF
WE WANT TO BE DEFINITIVE, MUST BE ORIENTATED
TOWARD PRODUCTION BEFORE REDUCING DEMAND WHICH WOULD
VERY OFTEN LEAD TO SOCIAL PROBLEMS: BUT IT IS
NATURAL THAT IN ORDER TO MAKE USE OF OUR RESOURCES,
WE HAVE FINANCING PROBLEMS. THEREFORE IN THE LIGHT
AGAINST THE INFLATIONARY PROCESS, WE ARE ATTEMPTING
AS THE FUNDAMENTAL ISSUE TO RESOLVE THE PROBLEM THAT WHICH I
HAVE: CALLED THE FINANCIAL TRAP".
5. REGARDING PETROLEUM, JLP SAID THAT THIS COULD
SOLVE MANY OF MEXICO'S EXPORTING PROBLEMS, BUT THAT "TO
INCREASE EXPORTS, WE NEED TO IMPORT EQUIPMENT AND
FOR THIS WE NEED FINANCIAL RESOURCES." AS PEMEX IS
A GOVERNMENT ENTITY, ITS BORROWING IMPACTS ON THE
PUBLIC SECTOR DEFICIT AND ITS SPENDING INCREASES
INFLATIONARY PRESSURES, WITH THE RIGHT THAT, HE SAID,
"WF HAVE AN ABSURD VICTOUS CIRCLE THAT IS TRULY A
TRAP FROM WHICH WE ARE TRYING TO ESCAPE WITH A SERIES
OF MEASURES, BOTH ECONOMIC AND SOCIAL."
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6. NOTING THE NEED IN THIS CONTEXT, JLP MOVED TO
THE SUBJECT OF FOREIGN DIRECT INVESTMENT, WHICH HE SAID
MEXICO NEEDED TO MAKE USE OF TECHNOLOGY, MARKETS AND
FOREIGN FINANCING. HE SAID MEXICO HAD SEEN AN
FROCH WHERE FOREIGN DIRECT INVESTMENT TOOK MORE
FROM THE COUNTRY THAN IT GAVE, CALLING THIS "BAD
BUSINESS".
7. JLP SAID THE FOREIGN INVESTMENT LAW WAS NOT
ALWAYS UNDERSTOOD, BUT CLEARLY SPELLS OUT THE RULES
OF THE GAME. "THE CARDS ARE ON THE TABLE", HE SAID.
HE ALSO AID THE FOREIGN INVESTMENT COMMISSION COULD
MAKE SOME MUTUALLY ADVANTAGEOUS ADJUSTMENTS WITH THE
BASIC PRINCIPLES BEING: "RESPECT FOR THE LAW, LOOK
FOR EQUILIBRIUM, DO GOOD BUSINESS FOR ALL, RUN RUSKS,
UNDERSTAND THINGS WITHOUT LOOKING FOR INCONVENIENT
ADVANTAGES THAT ARE NOT FOR EVERYBODY". HE WENT ON
TO DESCRIBE EQUILIBRTUM AS THE SECRET OF PEACE AND
GOOD BUSINESS, WHICH IS TO THINK FOR THE LONG TERM.
6. COMMENT: JLP SEEMS TO BE SENDING A MESSAGE THAT
HE DOES NOT WANT TO LIVE WITHIN THE CONFINES OF THE
PROGRAM AGREED UPON WITH THE IMF, AND THAT OBTAINING
ADDITIONAL FINANCIAL RESOURCES TO PERMIT HIM TO
PURSUE EXPANSIONARY POLICIES WILL HAVE SOME PRIORITY
TN HIS U.S. DISCUSSIONS.
is
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9. WE BELIEVE THAT JLP ENVISAGES NO CHANGES IN THE
FOREIGN INVESTMENT LAW OR THE RECENT LAW GOVERNING
PATENTS AND TRADEMARKS, AND THAT THESE WERE THE "RULES"
RY WHICH BUSINESS WOULD HAVE TO BE CONDUCTED IN MEXICO.
HONEVER, HE SOFTENED THE IMPRESSION BY REFERRING TO
THE OPERATIONS OF "A COMMISION (PRESUMABLY THE
INVESTMENT COMMISSION) WHICH COULD MAKE "ADJUSTMENTS
TO MUTUAL ADVANTAGES". WE DOUBT THAT THIS IS GOING
TO BE SATISFACTORY IN ACCELERATING FOREIGN INVESTMENT
COMING AS IT WOULD FROM COUNTRIES WHERE THE LAWS
CANNOT BE so READILY RE-INTERPRETED.
10. LOPEZ PORTILLO MAY ALSO HAVE BEEN USING THE
OCCASION TO GET A MESSAGE ACROSS TO THE MEXICAN
PEOPLE THAT SOME FOREIGN INVOLVEMENT IN THE MEXICAN
PETROLEUM MIGHT BE NECESSARY, ALTHOUGH HIS
REPORTED TEXT IS OBSCURE ON THIS POINT, PROBABLY
DELIBERATELY.
11. AS REGARDS OTHER MEETINGS THAT BUSINESS
INTERNATIONAL HAD WITH SENIOR GOM OFFICIALS, SEVERAL
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ATTENDEES HAVE EXPRESSED TO US THEIR DISAPPOINTMENT
WITH THE LACK OF ANY SPECIFICS ON GOM POLICIES.
KEY MINISTERS, TELLO AND DE OTEYZA, APPARENTLY GAVE
THE SAME LINE AS THE PRESIDENT ON INFLATION. ROMERO
KOL BECK DENIED PUBLICLY THAT INFLATION WAS A DOMESTIC
PROBLEM, BLAMING IT INSTEAD ON EXTERNAL FORCES. HE
DID SAY PRIVATELY TO A PARTICIPANT THAT HE HAD READ
THE RECENT STATEMENT BY U.K. PRIME MINISTER
DENOUNCING KEYNESIAN-INSPIRED POLICIES. DE OTEYZA
REPORTEDLY ASKED THE AMERICAN CHAMBER HERE FOR THEIR
VIEWS ON THE PATENTS AND TRADEMARKS LAW AS A NEW
REGUATION WAS FORTHCOMING.
JOVA
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TNFO AMCONSUL MONTERREY POUCH
AMCONSUL GUADALAJARA POUCH
PLEASE RETURN TO
**ITERNATIONAL INFORMATION CENTER
TIMITED OFFICIAL USE MEXICO 1678
PASS EXIM BANK
FO 11652 : N/A
TAGS : EFIN EIND MX
SUBJ : DINA CUT IN PRODUCTION
1. SUMMARY
DINA, FOURTH LARGEST AUTOMOTIVE MANUFACTURER IN MEXICO AND
MATOR PARASTATAL COMPANY IN CIUDAD SAHAGUN COMPLEX, HALTED
PRODUCTION FOR TWO WEEKS AND FACES MAJOR ECONOMIC DIFFICULTIES
WHTCH MAY CAUSE PRESIDENTIAL CONCERN IN GOM. END SUMMARY.
" DINA, ONE OF PARASTATAL COMPANIES IN CIUDAD SAHAGUN COMPLEX,
SUSPENDED MOST ACTIVITIES FROM JANUARY 21 TO FEB 4.
MANAGEMENT CONVINCED LABOR UNION TO TAKE MAY VACATION NOW.
REFORE VACATION, DINA PRODUCTION WAS VIRTUALLY HALTED DUE TO
SCARCITY OF PARTS, BOTH DOMESTIC AND IMPORTED.
3. IN TELCON WITH EMBOFF, DINAIS SUBDIRECTOR OF FINANCING
REFERRED TO VICIOUS CIRCLE: BANKS WON'T SUPPLY CREDIT,
SUPPLIERS "ONIT SHIP Goons, LACK OF PARTS STALLS PRODUCTION,
FORD
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MEXICO 01678 111827Z
HENCE WORSENING FINANCIAL SITUATION OF COMPANY. SUBDIRECTOR
JUST RETURNED FROM 2-WEEK VISIT TO U.S. SUPPLIERS AND BANKERS,
WHO, SUBDIRECTOR SAID, HAVE "WAIT AND SEE" ATTITUDE TOWARDS
MEXICAN ECONOMY. IMPLICATIONS ARE THAT DELAYS IN CREDITS
AGGRAVATE CURRENT SITUATION.
Ao NEW DIRECTOR-GENERAL OF SAHAGUN COMPLEX, FORMER SECRETARY OF
NATIONAL PATRIMONY, FRANCISCO JAVIER ALEJO ALSO FACES STRIKE AND
NEGOTIATIONS ON NEW WAGE CONTRACTS STARTING FEB 7. INDEPENDENT
UNTON ASKING FOR 37 PERCENT WAGE INCREASE BUT ALL AUTO
INTONS CUSTOMARILY MAKE HIGH DEMANDS. GM ALSO OUT ON STRIKE
THIS WEEK OVER 24 PERCENT DEMAND. DINA UNION ALSO CONCERNED
ON POSSIBLE LAY-OFFS. OTHER CD. SAHAGUN COMPANIES HAVE HAD
RECURRENT LABOR PROBLEMS AND U.S. DIESEL MOTOR MANUFACTURER
CUMMINS MAY BE CONSIDERING SEEKING ALTERNATIVES TO ITS ASSEMBLY
CONTRACT WITH DINA.
5. DINA PRODUCED 23,692 RENAULT CARS, 13,190 TRUCKS, 384 MOTOR-
TRUCKS AND 678 BUSES IN 1976, UP SLIGHTLY FROM THE 1975 LEVEL,
BUT MONTHLY PRODUCTION DIPPED SUBSTANTIALLY IN THE LAST QUARTER.
6, OVER 8 BILLION PESOS INVESTED IN SAHAGUN COMPLEX, WHICH ALSO
INCLUDES 10 OTHER COMPANIES MAKING RAILROAD AND SUBWAY CARS,
AGRICULTURAL CONSTRUCTION TRACTORS, MOTORS, STEEL, AND
MEDICAL EQUIPMENT. DINA RANKED THIRTEENTH IN MEXICAN VERSION OF
FORTUNE 500 PUBLISHED BY EXPANSION AND RANKS SEVENTH IN SPENDING
AMONG PARASTATAL COMPANIES. THREE PRINCIPAL COMPANIES IN SAHAGUN
COMPLEX, DINA, CNCF (RAILROAD CARS) AND SIDENA (STEEL) EMPLOY
OVER 14, rya. CNCF AND SIDENA ARE REPORTED TO HAVE LAID-OFF MANY
WORKERS IN RECENT WEEKS. SAHAGUN COMPLEX MOSTLY LOCATED IN TOWN
OF THAT NAME NEAR MEXICO CITY, BUT PARTLY IN TOLUCA AND MONTERREY,
7. COMMENT. MEXICAN AUTOMOTIVE INDUSTRY HARD HIT BY DEVALUATION AS
SOME THIRTY TO FORTY PERCENT OF PARTS MUST STILL BE IMPORTED.
DINA'S NATIONAL INTEGRATION IS 64 PERCENT FOR CARS AND 70 PERCENT
FOR TRUCKS: IMPORTS OF PARTS: ESTIMATED AT 3.5 MILLION PESOS IN
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1976. STRUCTURE OF INDUSTRY WITH MULTIPLICITY OF MODELS PRODUCED
PREVENTS ECONOMIES OF SCALE. MOST COMPANIES INCLUDING DINA WERE
CONSIDERED INEFFICIENT EVEN BEFORE DEVALUATION, WHICH HAS WORSENED
THEIR FINANCIAL POSITION. ALL AUTO MANUFACTURERS CUTTING 1977
PRODUCTION AS SALES FELL SHARPLY FOLLOWING INCREASES IN UNIT
PRICES, AUTO TAXES, AND GASOLINE PRICE AND LACK OF CREDIT IN LATE
1976. LOPEZ PORTILLO'S GOVERNMENT HAS STATED POLICY OF ENFORCING
MORE EFFICIENT MANAGEMENT IN UNPROFITABLE PARASTATALS. SINCE
DINA IS MAJOR PARASTATAL AND DIRECTLY EMPLOYS SOME 7,500, PLUS SOME
3,000 THROUGH PRIVATE DISTRIBUTORS, GOM IS UNDER PRESSURE TO KEEP
DINA AFLOAT, HENCE LIKELY TO BECOME ACTIVE IN HELPING COMPANY FIND
NECESSARY SOURCES OF CREDIT, WHETHER DOMESTIC OR FOREIGN.
JOVA
FORD is LIBRARY 07827
LIMITED OFFICIAL USE
FORM DS-1652
February 15, 1977
To:
Chairman Burns
From: Edwin M. Truman
Attached are four background notes on Mexico prepared by
Mr. Maroni.
SERALD R. FORD LIBRANT
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
Date February 15, 1977
Chairman Burns
To
Subject: Interest Payments on Mexico's
Yves Maroni
External Debt
From
In a recent memorandum on Mexico, I estimated that Mexico's
interest payments on its external debt in 1976 amounted to about 28
per cent of the estimated gross earnings on goods and services.
This percentage was based on interest payments estimated at about
$1.9 billion and gross earnings on goods and services estimated at
about $6.8 billion. The interest payments figure, in turn, was de-
rived by applying an average interest rate of 8.5 per cent to the
estimated total external debt at mid-1976, which I placed at about
$22.5 billion.
This method was used because the Mexican balance of payments
statistics show interest payments in 1976 at something less than $1.5
billion, an amount which implies an average interest rate of 6.66 per
cent. Such a rate seemed unrealistically low, and led me to suspect
that not all interest payments were recorded.
FORD LIBRARY
However, it now appears that my use of an 8.5 per cent
average interest rate cannot be justified. While an exact rate would
take time to estimate, analysis undertaken since I prepared my earlier
memorandum leads me to believe that a rate of 7.5 per cent would be
closer to the truth. With such a rate, total interest payments in
1976 would amount to about $1,690 million, representing about 24.8
per cent of the estimated gross earnings on goods and services.
/ I was unable to discuss this matter with the Mexican officials
who accompanied Finance Minister Moctezuma and Bank of Mexico Director
General Romero Kolbeck when they visited you last Thursday. They checked
out of their hotel without contacting me and I have so far been unable
to locate them elsewhere.
- 2 -
About two-thirds of Mexico's external debt is owed to
banks and carries market rates of interest, which are often linked
to the -month or the 6-month London Inter-Bank Offer rate. Using
the 6-month rate and adding a spread representative of those agreed
to by Mexico in the years since 1973, yields a total rate of about
7.5 per cent. The remainder of the debt includes debts to the
international development lending institutions, some of which date
back many years when their lending rates were lower than 7.5 per cent,
while others were contracted more recently at rates in excess of 8
per cent. Debts to the U.S. Export-Import Bank were also mainly con-
tracted at rates lower than 7.5 per cent although rates of 8 per cent
and sometimes more have prevailed for about a year. There are also
Mexican external bonds, which carry rates in excess of 7.5 per cent,
as do credits from non-bank financial institutions. Credits from
suppliers are often subsidized by official agencies in the exporting
countries and may be at rates close to 7.5 per cent. Credits from
other Governments, mainly the United States under aid programs, are
often at concessional rates, but their total is not a large fraction
of Mexico's total external debt. This evidence seems to me strong
enough to warrant using the 7.5 per cent rate, which appears to be
a realistic average rate for loans from banks, as the overall average
rate for the entire debt.
The remainder of this memorandum explains the basis for
my estimate of the total external debt of Mexico at mid-1976.
FORD is LIBRARY GERALD
- 3 -
Mexico's total external debt may be estimated at $25
billion at the end of 1976. The Mexican authorities themselves
admit to a public sector external debt of $20 billion on that date.
The private sector debt is not available from Mexican sources, but may
be partially estimated by adding to the public sector long-term debt
the total claims on Mexico reported by banks in the industrial coun-
tries, and deducting from this sum the public sector's debt to banks
so as to avoid double counting.
The necessary information is not yet available in suffi-
ciently complete form to permit this calculation to be made for the
end of 1976. But the data for 1975 may be used as a starting point.
This yields a minimum external debt total for the end of 1975, as
follows:
Public Sector Long-Term Debt as of 12/31/75: $11,251
million
Total Claims of Banks in G-10 countries re-
porting to the BIS as of 12/31/75:
13,465 million
24,716 million
Public Sector Long-Term Debt to Private
Banks as of 12/31/75:
6,663 million
Minimum External Debt Total as of 12/31/75:
$18,053 million
It is not unreasonable to increase this total by about
10 per cent to include the unrecorded short-term debts to debtors
other than banks and an amount shown as "unknown medium and long-term
debts" in a recent IMF document on Mexico. When this is done, the
estimated level of the total external debt of Mexico at the end of
FORD & 07VR70 LIBRARY
- 4 -
1975 works out at about $19.8 billion.
We know that the total claims of the banks in the G-10 coun-
tries were $16,762 million at the end of September 1976 (the latest
date for which this information is available). This represents an
increase of $3.3 billion since the end of 1975. Conservatively, it
may be estimated that these claims rose at least another $700 million
in the fourth quarter. In addition, we know that Mexico drew $365
million from the IMF and $300 million under its swap agreements with
the U.S. Treasury and Federal Reserve which were still outstanding at
year end. There was also an increase in Mexico's debts to the inter-
national development lending institutions, the Export-Import Bank of
the United States, suppliers, and others, including private holders
of Mexican bonds. Partial information suggests that this amounted
to about $500 million. With these additions, the total external debt
may be estimated as follows:
Estimated total debt as of 12/31/75:
$19,800 million
Increase in bank claims through September 1976:
3,300 million
Estimated increase in bank claims, fourth quarter:
700 million
IMF drawings:
365 million
Treasury and Federal Reserve swap drawings:
300 million
Other:
500 million
Estimated Total External Debt as of 12/31/76:
$24,965 million
If Mexico's external debt rose evenly over the year, an appro-
priate mid-year figure would be $22.5 billion.
FORD & LIBRARY 076839
A Note on Mexican Oil and Natural Gas
Mexico has made important discoveries of oil and natural
gas resources in recent years, and has become a net exporter of oil
since the latter part of 1974. A reliable estimate of the magnitude
of the new oil reserves is not available, and the official Mexican
sources have tended to be cautious in their public statements on
this point. But some knowledgeable observers have gone so far as
to predict that Mexican reserves may rival those of Kuwait, i.e.,
about 60 billion barrels.
The new Director of PEMEX, the state petroleum company,
has announced a six-year plan to bring production up to 2,242,000
barrels per day by 1982. The plan calls for spending $15.5 billion
over the next six years. Half of this will be raised from external
sources. He placed proven reserves at 11 billion barrels. He added
that Mexico is exploiting only five of 180 known petroleum deposits.
Of these, 90 are offshore, he said. He indicated that offshore drilling
was expected to produce 118,500 barrels per day, or 45.1 million
barrels yearly, by 1982.
The PEMEX Director said that two new oil refineries will be
built and other facilities will be expanded so as to bring refining
capacity to 865,000 barrels per day. In addition, 55 new petrochemical
plants will be built by 1982, bringing the total to 115 plants. The
PEMEX Director said that 24 per cent of petrochemical production will
be sold abroad by 1982.
FORD & LIBRARY GERALD
- 2 -
The attached table summarizes the available information
on 1975 and 1976 production and exports, with official Mexican
projections of volume for 1977 and 1982 and my own estimates of
the corresponding export values based on the assumption that the
dollar price of petroleum in 1982 will be 40 per cent higher than in
1976 (this implies that, following a 5 per cent increase in 1977, the
price of petroleum will rise by 6 per cent each year until 1982).
The table shows that, if the plans to develop production as indicated
are carried out, by 1982, Mexican exports of petroleum may be close
to $2.6 billion, nearly five times as large as in 1976.
In the short run, Mexico appears willing to increase its
exports of oil to the United States as a quid pro quo for the establish-
ment of a special line of credit by the U.S. Export Import Bank to
help finance the import requirements of PEMEX. We understand that this
matter is being discussed this week in conversations between the visiting
Mexican officials and the top management of Eximbank. The Board of
Directors of Eximbank has already given tentative approval to the con-
cept.
The Wall Street Journal of February 4 reported that, according
to a PEMEX spokesman, "Mexico has offered to sell the U.S. additional
oil." The Journal added that Mexico's exports of oil to the U.S. were
expected to average 153,000 barrels a day this year, and that PEMEX
could supply an average of up to 43,000 barrels a day in additional
oil over a two-month period, the spokesman said.
GERALD FORD LIBRAPT
- 3 -
According to the same story, the PEMEX spokesman announced
that, in a few days, Mexico would begin sending up to 40 million cubic
feet of natural gas a day to the U.S. and would continue these
deliveries for 60 days. The gas will be sold to Texas Eastern Gas
Transmission Corp. for distribution through its pipeline system to
the U.S. East Coast.
Yves Maroni
February 15, 1977
FORD is GERALD LIBRARY
Mexico - Petroleum Production
and Exports in Selected Years
Production
Exports
(in thousands
Volume
Value
of barrels
(in thousands of
(in millions of
(in millions
per day)
barrels per day)
barrels per year)
of dollars )
1975
800
100
36.8
460
1976
960
131
47.8
550
1977P
n.a.
147
53.7
680
1
1
1
I
I
1
1
I
1
1
1
1
1
1
1
1982
2,242
400
146.0
2,585
p/ projected
GERALD FORD LIBRART
Latest Information from Mexico
The most recent statistics from Mexico are summarized in the attached
tables. According to these statistics, the first signs that the monthly
rate of price increases may be moderating have appeared and the trade deficit
is remaining in the lower range to which it declined after the September
devaluation. But the behavior of money supply continues to be erratic.
The consumer price index rose 2.5 per cent in December, about half
the average rate of the previous two months. During their visit last week,
Messrs. Moctezuma and Romero Kolbeck indicated that the January increase
was 2.3 per cent. The wholesale price index rose by 5.3 per cent in
December, compared to well over 8 per cent in each of the previous two
months.
Imports in November were less than $400 million, barely above their
monthly low for the year reached in September. For the three months
September-November, imports averaged just under $400 million a month,
compared to an average of about $530 million a month in the first eight
months of the year. Even if imports in December exceeded the recent
monthly average by as much as $100 million, total imports for the year
would be $5.9 billion, or 10 per cent less than in 1975.
FORD is 636870 LIBRARY
The preliminary export data for November (which do not include
silver exports or exports by the border assembly plants) were less
than $300 million, only slightly above the average monthly level of the
first 10 months of 1976. The trade deficit in November (on this preliminary
basis) was less than $100 million, for the first time since September 1971.
- 2 -
Data on tourism and border transactions indicate that Mexican
spending under these headings has declined substantially since the September
devaluation, but that the corresponding gross earnings have also declined.
In the three months September-November 1976, Mexican tourists and vistors
north of the border spend $52 million less than in the same months of 1975.
But foreigners spend $42 million less in Mexico in the period September-
November 1976 than in the corresponding months of 1975. The resulting
improvement in the net earnings from these accounts is negligible.
The erratic behavior of money supply is shown in increases of
over 8 per cent in September, less than 2 per cent in October, and over
7 per cent in November. At the end of November, money supply, seasonally
adjusted, was about 33 per cent above the level of a year earlier.
In September and October, the peso liabilities of the banking
institutions (excluding the Bank of Mexico) declined by about 20 billion
pesos, or about 6 per cent. In the same period, their liabilities denominated
in foreign currency rose by 171 billion pesos, or 115 per cent. The
November breakdown is not yet available. It is against this background
that Messrs. Moctezuma and Romero Kolbeck indicated during their visit
that the outflow of funds from the banks had ended and that bank liabilities
had increased by 18 billion in December and by another 6 billion pesos in
January. They did not mention the latest figures on liabilities denominated
in foreign currency.
FORD & 076839 LIBRARY
- 3 -
In September and October, credit extended by the banking institutions
(excluding the Bank of Mexico) increased by 24 per cent. In contrast,
the increase in the first eight months of the year was only about 15 per cent
Yves Maroni
February 15, 1977
Attachment
GERALD R. FORD LIBRABY
C.9a
MEXICO: ECONOMIC INDICATORS
February 10, 1977
1974
1975
1976
1975
1975
1976
1976
1976
1976
1976
1976
1976
1976
197c
1976
1976
III
IV
I
11
III
IV
JUNE
JULY
AUG
SEPT
UCT
NOV
DEC
REAL GDP, 1970=100
126.4
131.8
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
REAL GDP, PER CENT
CHANGE (1)
5.9
4.2
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
INDUSTRIAL PRODUCTION
1970=100
132.8
139.0
N.A.
139.7
140.8
144.0
144.6
142.6
N.A.
147.4
145.1
143.7
138.9
140.7
N.A.
N.A.
INDUSTRIAL PRODUCTION
PER CENT CHANGE (1)
7.3
4.7
N.A.
-2.5
0.8
2.2
0.4
-1.4
N.A.
1.0
-1.6
-1.0
-3.3
1.3
N.A.
N.A.
WHOLESALE PRICES
PER CENT CHANGE (1)
22.4
10.5
22.3
3.3
2.3
5.6
3.2
5.6
21.0
0.9
2.5
-0.3
6.2
8.4
8.2
5.3
CONSUMER PRICES
PER CENT CHANGE (1)
23.8
15.0
15.8
3.2
2.0
4.4
2.6
3.2
12.5
0.4
0.8
1.0
3.4
5.6
4.5
2.5
MUNEY STOCK (M1) (SA)
PER CENT CHANGE (1)
20.9
22.3
N.A.
2.9
5.8
3.9
4.7
5.8
N.A.
-0.4
3.0
-1.2
8.2
1.9
7.1
N.A.
PUBLIC SECTOR DEF.(-)
AS PER CENT OF GDP
-7.8
-9.3
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
CENTRAL GUVI. DEF. (-)
AS PER CENT OF GDP
-3.8
-4.3
-4.2
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
EXPORTS (2)
( $ BILLION)
3.4
3.5
N.A.
0.8
0.9
0.9
1.1
0.9
N.A.
0.3
0.2
0.2
0.2
0.2
0.3
N.A.
IMPORTS ($ BILLION)
6.1
6.6
N.A.
1.6
1.9
1.4
1.7
1.5
N.A.
0.0
0.6
0.6
0.4
0.4
0.4
N.A.
TRADE BALANCE (2)
($ BILLION)
-2.6
-3.1
N.A.
-0.8
-1.0
-0.5
-0.6
-0.6
N.A.
-0.3 -0.3 -0.3 -0.1 -0.2 -0.1 N.A.
BALANCE ON GOODS AND
SERVICES ( $ BILLION) -2.6 -3.8 N.A.
-1.0
-1.1
-0.7
-0.9
-0.9
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
(1) PER CENT CHANGE FROM PREVIOUS PERIOD. QUARTERLY CHANGES
AT QUARTERLY RATES: MONTHLY CHANGES AT MONTHLY RATES.
FORD
( 2 ) MONTHLY DATA EXCLUDE EXPORTS UF BORDER ASSEMBLY PLANTS AND OF SILVER
AND ARE NUT CONSISTENT WITH QUARTERLY OR ANNUAL DATA.
GERALD
LIBRARY
RESTRICTED-CONTROLLED
C.9b
FINANCIAL INDICATORS MEXICO
(dollar amounts in millions)
1975
1976
1977
Week ended
YEAR
QI
QII
QIII
QIV
NOV
DEC
JAN
FEB 1-9
JAN 12
JAN 19
JAN 26
FEB 2
FEB 9
EXCHANGE RATE (CENTS PER PESO, END OF PERIOD)
8.00
8.00
8.00
8.00
4.98
4.40
4.98
4.55
4.41
5.00
4.98
4.55
4.40
4.41
SDR VALUE OF PESO
.06842
.06924
.06985
.04364
.04297
.03940
.04297
.03960
.03798
.04297
.04318
.03960
.03796
.03798
SHORT TERM INTEREST RATE (E.O.P.)
12.94
13.11
13.11
14.36
14.36
14.36
14.36
14.36
14.36
14.36
14.36
14.36
14.36
14.36
LONG TERM INTEREST RATE (E.O.P.)
13.02
12.86
14.17
15.09
14.29
15.25
14.29
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
RESERVES (IFS. E.O.P.)
1,533
1,501
1,585
870P
1,261
1,417
1,261
1,512
1,634
AVAILABLE IMF CREDIT TRANCHES (E.O.P.)
433
620
615
621
596
596
596
596
481*
INTERVENTION, PURCHASES (+) OR SALES (-)
OF DOLLARS
-558
91.1
24.3
104.2
-2.7
-21.4
32.7
-63.3
126.6
(OF OTHER CURRENCIES; EQUIVALENT)
SWAP ACTIVITY
360
--
360
--
150
--
--
--
--
--
--
--
--
DRAWINGS (+). REPAYMENTS (-)
-360
SWAP LINE -- 360
* Available under three-year Extended Fund
Facility program starting January 1, 1977.
RESTRICTED-CONTROLLED
February 10, 1977
Prepared by Financial Markets Section
is
FORD
GERALD
AUVURIT
M
February 16, 1977
TO:
Chairman Burns
FROM: Ted Truman
Attached is the latest cable from Mexico.
Attachment: Mexico 1874
cc: Governor Wallich
bee:
Defense classification et this document is due
to the inclusion of U.S. Government information
officially classified under Executive Order 10501
which provides that "A document.. shall bear a
classification at least as high as that of its
highest classified component."
FORD & GERALD LIBRARY
EMT
or
DEPA
STATE
Department of State
OF STATE UNITED AMERICA
TELEGRAM
LIMITED OFFICIAL USE
3268
PAGE 01
MEXICO 01874 152345Z
ACTION EB-08
INFO OCT-01 ARA-06 ISO-00 COME-00 CIAE-00 INR-07 NSAE-00
OPIC-03 FRB-03 OMB-01 /029 W
152349Z 055286 /64
F 152326Z FEB 77 15
-
AMEMBASSY MEXICO
TO SECSTATE WASHDC PRIORITY 347
NFO TREAS WASHDC PRIORITY
/A
Please return to
IMITED OFFICIAL USE MEXICO 1874
International Information Center
20 11652 : N/A
TAGS : EFIN BPRO MX
SUBJ : BUSINESS INTERNATIONAL DISAPPOINTED WITH MEXICO VISIT
REF 8 A) MEX 1384
B) MEX 1740
1. DURING COURSE OF FEB 13 DINNER CHARGE WAS TOLD BY SEVERAL
PARTICIPANTS IN RECENT BUSINESS INTERNATIONAL (BI) DISCUSSIONS
WITH GOM SENIOR OFFICIALS INCLUDING PRESIDENT, THAT MEETING
GENERALLY CONSIDERED DISAPPOINTING.
BI PARTICIPANTS WERE MADE UNEASY BY WHAT THEY INTERPRETED AS
REPEATED INDICATIONS FROM PRESIDENT AND CABINET MEMBERS THAT
GOM WILL PURSUE EXPANSIONARY POLICIES AS IT TRIES TO SPEND ITS
WAY OUT OF "STAGFLATION."
2. WE HAVE HAD OTHER REACTIONS FROM PARTICIPANTS INDICATING THAT,
AMONG THOSE INTERVIEWED BY BI, JLP (SEE REFTEL B) SOUNDED
ALMOST SOLE NOTE OF AUTHORITATIVE POLICY AS HE TOLD BI VISITORS
THAT MEXICO WELCOMED INVESTORS ON ITS TERMS. OTHER CABINET
OFFICERS GENERALLY OFFERED BLAND STATEMENTS WHICH SUGGESTED THAT
BROAD COHERENT POLICIES IN MOST IMPORTANT PROBLEM
AREAS HAVE YET TO BE ACHIEVED. THEY ALSO WERE UNANIMOUS
IN ESPOUSING NEED FOR GREATER ACCESS TO NEW FINANCING.
GERALD FORD LIBRARY
LIMITED OFFICIAL USE
FORM
PARANTMENT on state
UNITED AMERICA
Department of State
TELEGRAM
STATE
OF
LIMITED OFFICIAL USE
PAGE 02
MEXICO 01874 152345Z
3. BI PARTICIPANTS WENT AWAY WITH NEGATIVE FEELING THAT
E THER THEIR VISIT HAD BEEN PREMATURE, OR THAT GOM SO
I TENT ON JLP'S WASHINGTON TRIP, THEY REALLY HAD NO TIME
R TYPE OF PRESENTATION WHICH WOULD HAVE IMPRESSED OR
TICEO THESE POTENTIAL INVESTORS.
OMPSON
LIMITED OFFICIAL USE
FORM
February 17, 1977
TO:
FROM:
Ted Truman
Chairman Burns EMT
SUBJECT: Additional Information on Mexican Oil Production in Relation to
U.S. Imports
1. In 1976, the United States imported an average of 7.8 million
barrels per day (b.p.d.) of petroleum and petroleum products. The rate
of imports rose from 6.8 million b.p.d. in the first quarter to 8.3 million
b.p.d. in the fourth quarter.
2. In 1976, it is estimated that Mexico exported an average of 131
thousand b.p.d. (See Mr. Maroni's table; a copy of his note is attached.)
This figure represented 1.68 per cent of U.S. imports of petroleum and
petroleum products in 1976. In fact, about 70 per cent of Mexican exports
went to the United States; in other words, 1.19 per cent of U.S. imports
in 1976 actually came from Mexico.
3. We estimate that in 1977 U.S. imports will average 8.3
million b.p.d. of oil -- about 45 per cent of domestic consumption needs.
If Mexico were to increase its total oil exports in 1977 to 147 thousand
b.p.d. as they have said publicably they would, this would only raise
Mexican oil exports to 1.78 per cent of estimated U.S. import needs in 1977,
compared with 1.68 per cent in 1976.
4. However, it might be reasonable to expect Mexico to raise its oil
production by 200 thousand b.p.d. over the rate in 1976, since this is in
line with the growth of production that they have forecast. It might also
FORD & LIBRARY GENALD
Chairman Burns
-2-
be reasonable to expect also that Mexico would export all of this in-
crease in production, i.e., raise average 1977 oil exports to 331 thousand
b.p.d. (This would imply either a conservation effort in Mexico or a
larger than now planned increase in domestic oil production.) Under these
assumptions Mexican oil exports in 1977 would rise to 4.01 per cent of
estimated U.S. oil imports.
5. It should be pointed out that the projected rate of increase in
Mexican oil exports, rising only to 400 thousand b.p.d. in 1982, contained
in Mr. Maroni's table is very low and might be called into question although
it is based on published sources. We have also seen estimates of Mexican
oil exports of 1 million b.p.d. by 1982. Therefore, it would seem reasonable
to expect that Mexico could step up its production and oil exports much
faster than they are now planning. If they were to do so, this would have
the beneficial effect of bringing pressure to bear on the OPEC cartel and
on the price of oil set by OPEC. (Of course, Mexico now exports, and would
presumably continue to export, its oil at the world price set by OPEC.)
CC: Mr. Maroni
FORD & LIBRARY GERALD
A Note on Mexican Oil and Natural Gas
Mexico has made important discoveries of oil and natural
gas resources in recent years, and has become a net exporter of oil
since the latter part of 1974. A reliable estimate of the magnitude
of the new oil reserves is not available, and the official Mexican
sources have tended to be cautious in their public statements on
this point. But some knowledgeable observers have gone so far as
to predict that Mexican reserves may rival those of Kuwait, i.e.,
about 60 billion barrels.
The new Director of PEMEX, the state petroleum company,
has announced a six-year plan to bring production up to 2,242,000
barrels per day by 1982. The plan calls for spending $15.5 billion
over the next six years. Half of this will be raised from external
sources. He placed proven reserves at 11 billion barrels. He added
that Mexico is exploiting only five of 180 known petroleum deposits.
Of these, 90 are offshore, he said. He indicated that offshore drilling
was expected to produce 118,500 barrels per day, or 45.1 million
barrels yearly, by 1982.
The PEMEX Director said that two new oil refineries will be
built and other facilities will be expanded so as to bring refining
capacity to 865,000 barrels per day. In addition, 55 new petrochemical
plants will be built by 1982, bringing the total to 115 plants. The
PEMEX Director said that 24 per cent of petrochemical production will
be sold abroad by 1982.
FORD LIBRARY
- 2 -
The attached table summarizes the available information
on 1975 and 1976 production and exports, with official Mexican
projections of volume for 1977 and 1982 and my own estimates of
the corresponding export values based on the assumption that the
dollar price of petroleum in 1982 will be 40 per cent higher than in
1976 (this implies that, following a 5 per cent increase in 1977, the
price of petroleum will rise by 6 per cent each year until 1982).
The table shows that, if the plans to develop production as indicated
are carried out, by 1982, Mexican exports of petroleum may be close
to $2.6 billion, nearly five times as large as in 1976.
In the short run, Mexico appears willing to increase its
exports of oil to the United States as a quid pro quo for the establish-
ment of a special line of credit by the U.S. Export Import Bank to
help finance the import requirements of PEMEX. We understand that this
matter is being discussed this week in conversations between the visiting
Mexican officials and the top management of Eximbank. The Board of
Directors of Eximbank has already given tentative approval to the con-
cept.
The Wall Street Journal of February 4 reported that, according
to a PEMEX spokesman, "Mexico has offered to sell the U.S. additional
oil." The Journal added that Mexico's exports of oil to the U.S. were
expected to average 153,000 barrels a day this year, and that PEMEX
could supply an average of up to 43,000 barrels a day in additional
oil over a two-month period, the spokesman said.
FORD LIBRARY
- 3 -
According to the same story, the PEMEX spokesman announced
that, in a few days, Mexico would begin sending up to 40 million cubic
feet of natural gas a day to the U.S. and would continue these
deliveries for 60 days. The gas will be sold to Texas Eastern Gas
Transmission Corp. for distribution through its pipeline system to
the U.S. East Coast.
Yves Maroni
February 15, 1977
FORDO i LIBRARY GENALD
Mexico - Petroleum Production
and Exports in Selected Years
Production
Exports
(in thousands
Volume
Value
of barrels
(in thousands of
(in millions of
(in millions
per day)
barrels per day)
barrels per year)
of dollars )
1975
800
100
36.8
460
1976
960
131
47.8
550
1977P
/
n.a.
147
53.7
680
1
1
1
I
1
1
1
I
1
I
1
1
1
1
1
1982₽/
2,242
400
146.0
2,585
p/ projected
FORD is LIBRARY GERALD
February 18, 1977
TO:
Chairman Burns
FROM: Ives Maroni and Ted Truman
1. We contacted the Director of Research at the Bank of Mexico
about Mexican money supply statistics. They have no information for
January 1977. Data through the end of 1976 including preliminary estimates
for December are presented in the attached table.
2. The table shows that between November and December the monthly
rate of increase in M1 declined from 7.1 per cent the previous month to
over year
3.2 per cent. On a year/basis the increase in M1 in November 1976 was 32.9
per cent and that in December was 30.5 per cent.
3. The published figures for M₁ in Mexico do not include dollar-
denominated deposits at banks, although in principle they could. Between
November 1975 and November 1976 the peso value of dollar-denominated
deposits (excluding time deposits) at Mexican banks increased by about
300 per cent, while the peso price of the dollar increased by about 80 per
cent. Between the end of November 1976 and the end of December 1976 the
peso value of dollar-denominated deposits at Mexican banks declined by
9.2 per cent, but the peso price of the dollar declined by 11.7 per cent
as the peso appreciated after the inauguration of Lopez Portillo.
GERALD ? FORD
refice
Changes in Money Supply 1976
(Seasonally Adjusted)
Total
change
change
Currencyard changed change Coin
checking change Accounts change
from
from
from
from
from
previous
12 months
Previous
12 with
previous
12 from month
Month
earlin
routh
earlin
month
earlin
July
+3.0
+20.9
+4.8
+26.7
+ 1.6
+ 16.5
Anjust
I
- 1.2
+17.1
-3.4
+18.7
+ 0.6
+ 18.8
September
+8.2
+27.1
+14.5
+38.4
+ 3.1
+ 18.5
October
+1.9
+26.9
+8.3
+44.5
-3.8
+ 13.2
November
+7.1
+32.9
+
+13.6
+60.6
-0.2
+ 10.2
December
+3.2
+30.5
-1.1
-
+
+52.8
+9.3
+ 13.7
FORD i GERALD LIBRARY
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
Date February 22, 1977
To
Chairman Burns
Subject: Two Points on Mexico
From
Ted Truman
EMT
RESTRICTED
When you met with Messrs. Julio Moctezuma and Gustavo
Romero Kolbeck on February 10, two points that they raised without
adequate explanation were (a) an addition of $1 billion to their IMF-
authorized new external borrowing in 1977 and (b) a possible $3 billion
short-term credit package involving the Bank of America. Mr. Maroni
and I have consulted with our Treasury counterparts on these two points
and have reached the following interpretation.
1. The Mexican's spoke of the need, as they saw it, to raise
the IMF's limit on new external borrowing in 1977 from $3 billion to
$4 billion. They indicated that this would not be used to finance a
larger current account deficit. Our present understanding is that it
would be used, however, to finance a larger government deficit. (Note
that $1 billion equals about 23 billion pesos at the present exchange
rate, which would "cover" a large part of the estimated excess over a
public sector deficit equal to 6 per cent of 1977 GDP.) The argument
that the Mexican's have used is that under present conditions domestic
supply must be stimulated by public sector investment, which they would
propose to finance from abroad. The central feature of this idea is
that it would involve a substantial modification of the IMF's restrictions
on (a) new external borrowing and (b) the public sector deficit. (It
RESTRICTED
DECLASSIFIED E.O. 12958 Sec. 3.6
With PORTIONS EXEMPTED
E.O. 12059 800.1.5
FORD & GERALD LIGRARY
Federal Reserve Restrictions
MR 95-1,1,133 Fed. Res. Hr. 2/13/96
By KBH NARA, Date 4/19/96
Chairman Burns
-2-
RESTRICTED
would also probably increase the current account deficit.)
2. The $3 billion, short-term line of credit that the
Mexicans spoke of was apparently an idea put to them by the Bank of
America. This apparently would be an official credit package. (Our
information on this comes from the Treasury staff who contacted
...
of the Bank of America, who was also contacted for an
explanation by Mr. Richard N. Cooper, Under Secretary of State
Designate.) I suppose that it is understandable that the Mexicans did
not know what they were talking about if this was the Bank of America's
idea. The notion, we gather, is that the package would be similar to
that put together for the British in June 1976 to tide the Mexicans
(and the banks) over temporary borrowing difficulties.
cc: Governor Wallich
LIDRARY
February 28, 1977
TO:
Chairman Burns
FROM: Ted Truman
Attached is a cable on possible lending by the Overseas
Private Investment Corporation to Mexico.
Attachment: Mexico 2241
cc: Governor Wallich
Defense classification of this document is due
to the inclusion of U.S. Government information
officially classified under Exacutive Order 10501
which provides that "A document.... shall bear di
classification at least 25 high as that ./ its
highest classified component."
GERALD R. FORD
DEPARTMENT OF STATE
E
UNITED AMERICA
Department of State
TELEGRAM
STATES OF
LIMITED OFFICIAL USE
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PAGE 01
MEXICO 02241 241745Z
ACTION OPIC-06
INFO OCT-01 ARA-06 ISO-00 EB-08 L-03 AID-05 CIAE-00 INR-07
NSAE-00 COME-00 FRB-03 OMB-01 SP-02 TRSE-00 XMB-02
USIA-06 /050 W
242336 030471 /64
R 241655Z FEB 77 24
FM AMEMBASSY MEXICO
TO SECSTATE WASHDC 0498
LIMITED OFFICIAL USE MEXICO 2241
Please return to
E.O. 11652: N/A
international Information Center
TAGS: EFIN, MX
SUBJ: OPIC FINANCE PROGRAMS IN MEXICO
REF: STATE 040144.
1. WE BELIEVE THE POSSIBILITY OF USING OPIC FINANCE
PROGRAMS IN MEXICO WOULD BE AN APPROPRIATE SUBJECT FOR
DISCUSSION IN ONE OF THE WORKING GROUPS TO BE SET UP IN
THE CONTEXT OF THE PRESIDENTIAL VISIT.
2. IT IS POSSIBLE THAT OPIC LOANS TO PRIVATE INDUSTRY WOULD
PROVIDE AN EARLY AND POSITIVE REACTION ON THE PART OF THE
USG TO MEXICO'S FINANCIAL PROBLEMS, EVEN THOUGH THE AMOUNTS
INVOLVED MIGHT BE SMALL RELATIVE TO MEXICO'S TOTAL REQUIREMENTS.
3. MEXICO'S PRIVATE SECTOR CAN BORROW IN DOLLARS WITHOUT
ANY RESTRICTIONS AND HAS BEEN DOING so FOR MANY YEARS.
FROM TIME TO TIME PUBLIC SECTOR ENTITIES SUCH AS NACIONAL
FINANCIERA GUARANTEE THESE LOANS IF THE LENDER so DEMANDS.
4. THERE IS A WITHHOLDING TAX LEVIED ON INTEREST PAYMENTS
TO FOREIGN FINANCIAL INSTITUTIONS. THIS IS 10 PERCENT
ON INTEREST PAYMENTS TO GOVERNMENT-OWNED FINANCIAL
LIBRARY
LIMITED OFFICIAL USE
COMMITMENT OF STATE
STATE UNITED AMERICA
Department of State
TELEGRAM
OF
LIMITED OFFICIAL USE
PAGE 02
MEXICO 02241 241745Z
INSTITUTIONS SUCH AS EXIMBANK AND 21 PERCENT TO
FINANCIAL INSTITUTIONS REGISTERED WITH THE MEXICAN
TREASURY. OPIC WOULD PRESUMABLY BE CONSIDERED A
GOVERNMENT OWNED FINANCIAL INSTITUTION, BUT THIS WOULD
HAVE TO BE CONFIRMED.
5. WE BELIEVE GOM WOULD BE RECEPTIVE TO OPIC'S MAKING
LOANS TO MEXICAN COMPANIES THOUGH GOM IS LIKELY TO
CONTINUE TO OPPOSE OPIC GUARANTEES FOR U.S. PRIVATE
INVESTMENT IN MEXICO. BECAUSE OF THE PROSPECTIVE
ESTABLISHMENT OF JOINT WORKING GROUPS, WE BELIEVE THAT
OPIC DIRECT LENDING PROGRAMS WOULD BE MOST PROFITABLY
DISCUSSED IN THIS FRAMEWORK.
6. IN LIGHT OF MEXICO'S PRESENT FINANCIAL PROBLEMS AND
USG INTERESTS, WE ASSUME THAT ANY OPIC LENDING PROGRAM
WOULD BE COORDINATED WITH THE INTERESTED U.S. AGENCIES.
THOMPSON
MITED OFFICIAL USE
FORM
DS-1652