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{
    "localId": "324801948",
    "label": "Mexico, 4/76-10/77 (9)",
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    "citationUrl": "https://catalog.archives.gov/id/324801948"
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{
    "id": "324801948",
    "sourceUrl": "https://catalog.archives.gov/id/324801948",
    "contentType": "document",
    "title": "Mexico, 4/76-10/77 (9)",
    "citationUrl": "https://catalog.archives.gov/id/324801948",
    "collections": [
        "Arthur F. Burns Papers",
        "Federal Reserve Board Subject Files"
    ],
    "subjects": [
        "Mexico",
        "International Monetary Fund. (07/1944 - )",
        "Credit",
        "International economy",
        "Foreign exchange",
        "Monetary policy",
        "Balance of payments",
        "Finance"
    ],
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    "coverageEndDate": {
        "logicalDate": "1977-10-31",
        "month": 10,
        "year": 1977
    },
    "coverageStartDate": {
        "day": 1,
        "logicalDate": "1976-04-01",
        "month": 4,
        "year": 1976
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    "seq": 1,
    "pageIndex": 0,
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    "ocrText": "The original documents are located in Box B80, folder \"Mexico 4/76 - 10/77 (9)\" of the\nArthur F. Burns Papers at the Gerald R. Ford Presidential Library.\nCopyright Notice\nThe copyright law of the United States (Title 17, United States Code) governs the making of\nphotocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United\nStates of America his copyrights in all of his unpublished writings in National Archives collections.\nWorks prepared by U.S. Government employees as part of their official duties are in the public\ndomain. The copyrights to materials written by other individuals or organizations are presumed to\nremain with them. If you think any of the information displayed in the PDF is subject to a valid\ncopyright claim, please contact the Gerald R. Ford Presidential Library.\nNATIONAL ARCHIVES AND RECORDS SERVICE\nWITHDRAWAL SHEET (PRESIDENTIAL LIBRARIES)\nFORM OF\nCORRESPONDENTS OR TITLE\nDATE\nRESTRICTION\nDOCUMENT\n1. memo case, Truman to Bunns, c. 3/10/77\nopened\n4/22/96 KBH\nla. memo\nTed Truman to Burns re cables from Mexico (1 p.)\nc.3/10/77\nC(A)\nlb. telegram\nAmerican Embassy Mexico to Sec. of State,\n3/8/77\nA\nA\nMexico 2875, re debt renegotiation rumors (2 pp.)\nDECLASSIFIED\n3/10/08\nlc. telegram\nAmerican Consul, Hermosillo, to Sec. of State,\n3/8/77\nA\nHermosillo 066, re land reform in Sonora (4 pp.\nDECLASSIF ED 2/12/15\n2. memo case, Truman to Burns, 3/22/77\n2a. telegram\nAmerican Embassy Mexico to Sec. of State,\n3/11/77\nA\nMexico 3051 re Mexican economic and financial\npackage (3 pp.)\nDECLASSIFIED\n3. memo case, Truman to Burns, 3/23/77\n3a. memo\nYves Maroni to Mr. Truman re IMF mission to\n3/23/77\nC(A)\nMexico and Mexican negotiations with Export-\nImport Bank (3 pp. )\nopened 4/22/96 143H\n4. memo case, Truman to Burns, 3/28/77\n4a. telegram\nAmerican Embassy Mexico to Sec. of State,\n3/24/77\nA\nMexico 03576, re Mexico' external borrowing\n(3 pp. 0 ASSIFIED 3/10/08\n4b. telegram\nAmerican Embassy Mexico to Sec. of States,\n3/24/77\nA\nMexico 03581, re Mexican Bankers Convention\n(6 pp. ) DECLASSIFIED 3/10/08\n5. memo\nTed Truman to Burns re visit of Kolbeck and Phillips\n4/1/77\nC(A)\n(2 pp. opened 4/22/96 KBH\n6. memo\nTed Truman to Burns re possible multilateral standby\n4/4/77\nC(A)\ncredit for Mexico (4 pp. ) opened 4/22/96 KOBH\n7. memo\nTed Truman to Burns re Burns' meeting with Lopez-\n4/4/77\nC(A)\nPortillo in February (1 p.) (1 opened 4/22/96 10BH\nFILE LOCATION\nArthur Burns Papers\nSR\nFederal Reserve Board Subject File, Box B80\n8/14/84\nMexico, Mar. -Apr1977\nRESTRICTION CODES\n(A) Closed by Executive Order 12065 governing access to national security information.\n(B) Closed by statute or by the agency which originated the document.\n(C) Closed in accordance with restrictions contained in the donor's deed of gift.\nGENERAL SERVICES ADMINISTRATION\nGSA FORM 7122 (REV. 1-81)\nNATIONAL ARCHIVES AND RECORDS SERVICE\nWITHDRAWAL SHEET (PRESIDENTIAL LIBRARIES)\nFORM OF\nCORRESPONDENTS OR TITLE\nDATE\nDOCUMENT\nRESTRICTION\n8. memo\nTed Truman to Burns re possible multilateral swap\n4/7/77\nC(A)\narrangements for Mexico (2 pp. ) opened 4/22/96 KBH\n9. memo\nTreasury memo re possible multilateral swap arrange-\nn.d.\nA\nments for Mexico (7 pp. ) DECLASSIFIED iet 5/96.\n(c. 4/77)\n10a. memo\nTed Truman to Burns re cable from Mexico opened (1 p.) 4/22/96 KBH\n4/14/77\nC(A)\n10b. telegram\nAmerican Embassy Mexico to Sec. of State,\n4/8/77\nA\nMexico 04844, re current economic situation (5 pp.\nDECLASSIFIED\n11. memo caBe, T ruman to Burns, 4/22/77\nlla memo\nTed Truman to Burns re visit by Mexican officials\n4/22/77\nC(A)\n(2 pp.)\nopened 4/22/96 KBH\n1lb. paper\nMexico's Current Economic Situation and Prospects\n4/77\nA\nUnder Secretary Solomon's Trip to Mexico,\nApril 12-15, 1977 (7 pp. ) DECLASSIFIED\nhts/96.\nllc. memo of\nTreasury officials and Mexican financial officials,\n4/14/77\nA\nconversation\nMexíco City, April 13, 1977 (2 pp. ) DECLASSIFIED\n1ld. memo of\nLopez-Portillo, Romero Kolbeck and U.S. Treasury 4/14/77\nA\nconversation\nofficials, Mexico City, April 13, 1977 (2 pp.\n)\nlle. memo\nYves Maroni Board Briefing re Mexican economic\n4/8/77\nC(A)\nsituation (5 pp. ) sanitized 4/22/96 193H\n1lf. memo\nRecent Fiscal Policy and Wage Policy Trends in\n4/22/77\nC(A)\nMexico (3 pp.)\nopened 4/22/96\n12. memo case, Truman to Burns, 4/26/77\n12a. memo\nNotes on Meeting with Mexican Officials by Ted\n4/26/77\nC(A)P\nTruman (6 pp. ) sanitized 4/22/96 KBH\nFILE LOCATION\nArthur Burns Papers\nSR\nFederal Reserve Board Subject File, Box B80\n8/14/84\nMexico, Mar. - Apr. 1977\nRESTRICTION CODES\n(A) Closed by Executive Order 12065 governing access to national security information.\n(B) Closed by statute or by the agency which originated the document.\n(C) Closed in accordance with restrictions contained in the donor's deed of gift.\nGENERAL SERVICES ADMINISTRATION\nGSA FORM 7122 (REV. 1-81)\nMarch 1, 1977\nTO:\nFROM: E.M. Truman\nChairman Burns EMT\nAttached are the latest cables from Mexico including two\non Mexico's external debt (State 042442 and Mexico 2385), one on\nthe Bank of Mexico's Annual Report (Mexico 2328), and two on 1976\neconomic statistics.\nAttachments\ncc: Governor Wallich\nDetense classification of this document is due\nto the inclusion of It.S. Government information\nefficially classified under Executive Order 10501\nwhich provides that A document... shall bear I\nclassification at least as high as that of its\nhighest classified component.\"\nFORD & LIBRARY GERALD\nOFFICE OF THE CHAIRMAN\nRECEIVED\n1977 MAR - 1 -1 AM11:46 46\nFEDERAL RESERVE SYSTEM\n3HI do\nBOARD OF GOVERNORS\nEMT\nIMITED OFFICIAL USE\nOUTGOING\nDepartment of State\nTELEGRAM\nPAGE 01\nSTATE 042442\n0085\nORIGIN EB-08\nINFO OCT-01 ARA-06 ISO-00 TRSE-00 AID-05 CIAE-00 COME-00\nFRB-03 INR-07 NSAE-00 USIA-06 XMB-02 OPIC-03 SP-02\nLAB-04 SIL-01 OMB-01 L-03 PA-01 PRS-01 IO-13 /067 R\nDRAFTED BY EB/IFD/OMA: BGCROWE\nAPPROVED BY EB/IFD: EHPREEG\nEB/PAS: JGERVERS\nARA/MEX: GFALK\nARA/ECP: RTAYLOR\nTREASURY: SCANNER\nTREASURY: SWOFFORD\n252030 046612 /50\nR 251708Z FEB 77\nFM SECSTATE WASHDC\nTO AMEMBASSY MEXICO\nLIMITED OFFICIAL USE STATE 042442\nE.O. 11652: N/A\nPlease return to\nInternational Information Center\nTAGS:\nEFIN\nSUBJECT:\nRENEGOTIATION OF MEXICAN DEBT\nREF: MEXICO 1587\n1. WE WOULD BE INTERESTED IN ANY OTHER REPORTS YOU RECEIVE\nREGARDING GOM INTENTION TO RENEGOTIATE ITS EXTERNAL DEBT.\nAS YOU WELL KNOW, MEXICO IS SECOND LARGEST (AFTER BRAZIL)\nLDC DEBTOR AND ANY MOVE TO \"RENEGOTIATE\" DEBT WOULD HAVE\nBROAD IMPLICATIONS.\n2. WE SHARE YOUR BELIEF THAT IT IS HIGHLY UNLIKELY THAT\nGOM INTENDS TO RENEGOTIATE DEBT. MEXICO CONTINUES TO SEEK\nSUBSTANTIAL PRIVATE BANK BORROWINGS, AND BY EMPHASIZING\nFAVORABLE ECONOMIC PROSPECTS HOPES TO ENHANCE ITS IMAGE\nOF \"CREDITWORTHINESS\". MOVES TO RENEGOTIATE DEBT WOULD\nCAST DOUBTS ON MEXICO' S CREDIT STANDING, AND JEOPARDIZE\nGOM ACCESS TO PRIVATE MARKETS. MOVEOVER, THE \"PARIS CLUB\"\nTRADITIONALLY RESCHEDULES ONLY GOVERNMENT OR GOVERNMENT\nGUARANTEED DEBT. USUALLY SHORT-TERM CREDITS, ALL BANK\nCREDITS AND ALL LOANS FROM THE INTERNATIONAL LENDING\nINSTITUTIONS (WORLD BANK, ETC.) HAVE BEEN EXCLUDED. THERE-\nFORE, ONLY A SMALL PORTION OF MEXICO' S CURRENT DEBT\nSERVICE COULD BE COVERED BY A PARIS CLUB RESCHEDULING.\nVANCE\nGERALD FORD LIBRARY\nLIMITED OFFICIAL USE\nDEPARTMENT OF STATE\nEMT\n*\nSTATE UNITED NAME AMERICA\nDepartment of State\nTELEGRAM\nOF\nUNCLASSIFIED 1638\nPAGE 01\nMEXICO 02385 252321Z\nACTION ARA-10\nINFO OCT-01 ISC-00 AID-05 CIAE-00 COME-00 EB-08 FRB-01\nINR-07 NSAE-00 USIA-15 TRSE-00 XMB-04 OPIC-06 SP-02\nCIEP-00 OMB-01 /060 W\n250858 052130 /13\nR 252237Z FEB 77 25\nFM AMEMBASSY MEXICO\nTO SECSTATE WASHDC 0564\nINFO TRSY WASHDC\nUNCLAS MEXICO 2385\nE.O. 11652: N/A\nInternational Please Information Center\nreturn to\nTAGS: EFIN MX\nSUBJ: PUBLIC SECTOR EXTERNAL DEBT.\nREF: 76 MEXICO 15938\n1. BANK OF MEXICOIS ANNUAL REPORT INCLUDES DATA ON THE\nPUBLIC SECTOR'S EXTERNAL DEBT AS OF DECEMBER 31, 1975\nAND 1976. THIS DATA IS ATTRIBUTED TO MEXICAN TREASURY\nBUT DIFFERS SLIGHTLY FROM THAT REPORTED IN REFTEL. ALL\nFIGURES ARE IN US$ MILLIONS; FIGURES IN PARENTHESES ARE FOR\nEND-UTI\n1975?\n2. TOTAL DEBT\n19,600.2\n(14,419.0)\nA. DEBT WITH MATURITY\nOVER ONE YEAR\n15,923.4\n(11,612.0)\n1. FEDERAL GOVERNMENT\n2,863.8\n( 1,550.6)\n2. PUBLIC SECTOR ORGANISMS\nCOMPANIES\n6,893.7\n( 5,515.4)\n3. FEDERAL DISTRICT AND\nGERALD R. FORD jekyw LIBRARY\nUNCLASSIFIED\n3)\nOF STATE\n*\n*\nUNITED NAME AMERICA\nDepartment of State\nTELEGRAM\nSTATES OF\nUNCLASSIFIED\nPAGE 02\nMEXICO 02385 252321Z\nMETRO\n763.4\n( 712.8)\n4. OTHER, NON-FINANCIAL\n1795.7\n( 1601.5)\n5. FINANCIAL INTERMEDARIES\n3606.8\n( 2231.7)\nB. SHORT-TERM\n3676.8\n( 2837.0)\nPUBLIC SECTOR ORGANISMS\nAND COMPANIES\n656.8\n( 670.8)\nFEDERAL DISTRICT AND METRO\n59.1\n(\n61.5)\nFINANCIAL INTERMEDIARIES\n2960.9\n( 2104.7).\nTHOMPSON\nlereckyw\nJNCLASSIFIED\nor STATE\nEMT\nDepartment of State\nof I AMERICA UNITED\nTELEGRAM\nLIMITED OFFICIAL USE\n0465\nPAGE 01\nMEXICO 02328 01 OF 02 2517397\nACTION ARA-10\nINFO OCT-01 ISO-00 AID-05 CIAE-00 COME-00 EB-08 FRB-03\nINR-07 NSAE-00 USIA-06 XMB-02 OPIC-03 SP-02 LAB-04\nSIL-01 OMB-01 NSC-05 SS-15 STR-04 CEA-01 H-01 PRS-01\nPA-01 AGRE-00 FEAE-00 L-03 INT-05 /089 W\n251915 046632 /46\nR 251710Z FEB 77\nFM AMEMBASSY MEXICO\nPlease\nTO SECSTATE WASHDC 0538\nINFO TRSY WASHDC\nInternational Information Center\n/Azatt\nLIMITED OFFICIAL USE SECTION 1 OF 2 MEXICO 2328\nE.O. 11652: N/A\nTAGS: EFIN, MX\nSUBJ: BANK OF MEXICO ANNUAL REPORT\n1. SUMMARY: BANK OF MEXICO ISSUED ITS PRELIMINARY ANNUAL\nREPORT ON FEBRUARY 23. AS USUAL REPORT CONCENTRATES ON PAST,\nBUT CONTRARY TO TRADITION, REPORT DETAILS WHAT HAS PROBABLY\nBEEN THE BLEAKEST ECONOMIC YEAR SINCE 1945, IN CONSIDERABLE\nFRANKNESS. REMARKS ON 1977 ARE VERY GENERAL. THIS\nCABLE SUMMARIZES REPORT. SUBSEQUENT CABLES WILL GO INTO\nGREATER DETAIL. END SUMMARY.\n2. NATIONAL ACCOUNTS. MEXICO'S GDP INCREASED BY ABOUT TWO\nPERCENT IN REAL TERMS, THE LOWEST GROWTH RATE SINCE 1953.\nOUTPUT IN AGRARIAN SECTORS WAS DOWN 2.10 PERCENT.\nPETROLEUM AND ELECTRICAL ENERGY WERE ONLY INDUSTRIAL SECTORS\nTO GROW MORE THAN 3.5 PERCENT. MANUFACTURERS OUTPUT UP\n1.8 PERCENT. GOVERNMENT SERVICES WERE UP 8.5 PERCENT. NO\nPRICE DEFLATOR PUBLISHED. PRIVATE CONSUMPTION EXPENDITURES\nDID NOT INCREASE DUE TO LOSS OF PURCHASING POWER FROM\nINFLATION BY MAJOR SECTORS OF THE POPULATION: I.E., THE\nUNDER-EMPLOYED. INVESTMENT REMAINED THE SAME IN REAL\nFORD & 076830 LIBRARY\nLIMITED OFFICIAL USE\n0\nFORM\nDS-1652\n9.66\nOF STATE\nDepartment of State\nof STATE AMERICA UNITED NAME\nTELEGRAM\nLIMITED OFFICIAL USE\nPAGE 02\nMEXICO 02328 01 OF 22 251739Z\nTERMS.\n3. BALANCE OF PAYMENTS. CURRENT ACCOUNT DEFICIT WAS\n$3,024 MILLIONI ERRORS AND OMISSIONS WERE MINUS $2,199\nMILLION; LONG-TERM CAPITAL NET INFLOWS WERE $4,890 MILLION\nOF WHICH $331 MILLION RESULTED FROM DIRECT INVESTMENT\nINFLOWS. RESERVES DECLINED 6333 MILLION, TO A YEAR-END\nTOTAL OF $1,412 MILLION. THIS FIGURE INCLUDES GOLD\nREVALUED AT MARKET PRICES. THIS REVALUATION AMOUNTED\nTO $136 MILLION. THE ERRORS AND OMISSIONS IS IN EFFECT\nUNDERSTATED BY THIS AMOUNT.\n4. MONETARY DEVELOPMENTS. CURRENCY IN CIRCULATION\nINCREASED BY 52.8 PERCENT; DEMAND DEPOSITS WERE UP 13.7\nPERCENT. MONEY SUPPLY GREW BY 30.9 PERCENT. TOTAL\nRESOURCES OF THE BANKING SYSTEM INCREASED BY 44.3 PERCENT.\nADJUSTING THIS FIGURE FOR REVALUATION OF DOLLAR-DENOMINATED\nLIABILITIES OF THE BANKING SYSTEM, THE INCREASE WAS 44.3\nPERCENT, OR 128.3 BILLION PESOS. ROUGHLY HALF OF THIS\nCAME FROM FOREIGN BANK LOANS, INTEREST BEARING DEPOSITS\nDENOMINATED IN PESOS DECLINED.\n5. BANK OF MEXICO. CENTRAL BANK CREDIT TO THE GOVERNMENT\nINCREASED 43.9 BILLION PESOS AND CENTRAL BANK CREDIT TO\nTHE BANKING SYSTEM INCREASED 20.1 BILLION PESOS, MOSTLY\nIN THE LAST FOUR MONTHS OF THE YEAR AND IN ORDER TO\nOFFSET WITHDRAWALS. THIS FIGURE COMPARES TO 40 MILLION\nPESOS IN 1975. DEPOSITS (FROM RESERVE REQUIREMENTS) IN\nTHE BANK OF MEXICO INCREASED ONLY 14.9 BILLION PESOS\nIN 1976 COMPARED TO 46.2 BILLION PESOS IN 1975. REPORT\nNOTES THAT A LARGE PART OF INCREASES IN ITS FINANCING\nWAS USED BY INDIVIDUALS TO ACQUIRE FOREIGN ASSETS.\nTHIS PUT PRESSURE ON RESERVES WHICH REQUIRED BANK OF\nMEXICO TO OBTAIN CREDITS FROM IMF, U.S. TREASURY, THE\nFEDERAL RESERVE, AND \"OTHER SOURCES\" TO SUPPORT ITS\nRESERVES.\nLIMITED OFFICIAL USE\n0\nFORM\nDS-1652\n9.65\ni\nSTATE\nDepartment of State\nof STATE UNITED AMERICA\nTELEGRAM\nLIMITED OFFICIAL USE\nPAGE 03\nMEXICO 02328 01 OF 02 251739Z\n6. PUBLIC SECTOR FINANCES. PUBLIC SECTOR REVENUE WAS\nUP 29.1 PERCENT IN 1976, EXPENDITURES GREW 28.9 PERCENT,\nAND THE DEFICIT INCREASED 28.5 PERCENT TO 124 BILLION\nPESOS. 67 PERCENT OF DEFICIT FINANCED EXTERNALLY.\nFEDERAL GOVERNMENT REVENUES WERE 134.7 BILLION PESOS\nAND EXPENDITURES WERE 192.0 BILLION PESOS. CURRENT\nEXPENDITURES INCREASED MORE THAN CAPITAL EXPENDITURES.\n7. COMMENT. THE TWO PERCENT REAL GROWTH RATE IS LOWER\nTHAN GENERALLY EXPECTED. IT IS POSSIBLE THAT, ONCE THE\nBAD ECONOMIC NEWS SINKS IN, THERE WILL BE INCREASING\nPRESSURE ON THE GOM TO PURSUE EXPANSIONARY MEASURES.\nREPORT WAS UNUSUALLY FRANK FOR A MEXICAN GOVERNMENT\nENTITY. REPORT BLAMES MEXICO'S PROBLEMS IN PART ON THE\nINCREASE IN THE PUBLIC DEFICIT FROM 3.4 PERCENT OF GDP\nIN 1970 TO 9.8 PERCENT IN 1975, AND ON THE INCREASE IN\nTHE CURRENT ACCOUNT DEFICIT FROM 2.8 PERCENT OF GDP IN\n1970 TO 4.8 PERCENT IN 1975. REPORT ALSO MAKES A POINT\nOF MENTIONING THAT MEXICO'S MANUFACTURED EXPORTS DID\nNOT INCREASE IN 1976 AS MUCH AS MIGHT BE EXPECTED BY THE\nINCREASE IN WORLD DEMAND.\nFORD & LIBRARY GERALD\nLIMITED OFFICIAL USE\nFORM\nDS-1652\n9.66\nDEPARTMENT OF STATE\nDepartment of State\nof STATE UNITED AMERICA\nTELEGRAM\nLIMITED OFFICIAL USE 0459\nPAGE 01\nMEXICO 02328 02 OF 02 251814Z\nACTION ARA-10\nINFO OCT-01 ISO-00 AID-05 CIAE-00 COME-00 EB-08 FRB-03\nINR-07 NSAE-00 USIA-06 XMB-02 OPIC-03 SP=02 LAB-04\nSIL-01 OMB-01 NSC-05 SS-15 STR-04 CEA-01 H-01 PRS-01\nPA-01 AGRE-00 FEAE-00 L-03 INT-05 /089 W\n251915 047179 146\nR 251710Z FEB 77\nFM AMEMBASSY MEXICO\nTO SECSTATE WASHUC 0539\nINFO TREASURY WASHDC\nLIMITED OFFICIAL USE SECTION 2 OF 2 MEXICO 2328\n8. WHILE REPORT DOES A REASONABLY GOOD JOB OF EXPLAINING\nHOW AND WHY MEXICOO'S ECONOMIC CRISIS DEVELOPED. IT DOES\nNOT OUTLINE IN ANY DETAIL POLICIES AIMED AT RESTORING\nFINANCIAL STABILITY OR ELIMINATING THE DISEQUILIBRIA THAT\nCAUSED THE PRESENT PROBLEMS IT DOES STATE THAT THE NEW\nADMINSTRATION IS TAKING MEASURES TO \"RECONCILE THE\nNATIONAL OBJECTIVES OF ECONIMIC DEVELOPMENT WITH THOSE OF\nSOCIAL JUSTICE AND SPECIFIC DEMANDS FROM VARIOUS FACTORS\nOF PRODUCTION. SUCH MEASURES ARE GEARED TO INCREASE THE\nRATE OF GROWTH IN A WAY TO SATISFY BASIC CONSUMPTION NEEDS\nAND GENERATE MORE EMPLOYMENT OPPORTUNITIES. WHILE THE\nREPORT MENTIONS THAT THE NEW ADMINISTRATION HAS RATIFIED\nTHE OCTOBER 27, 1976 AGREEMENT WITH IMF, IT DOES NOT\nELABORATE FURTHER ON THE MEASURES REFERRED TO ABOVE,\nEXCEPT TO NOTE THE ADMINISTRATIVE REFORM, TAX REFORM AND\nPUBLIC DEBT LAW.\n9. SEPARATELY, THE REPORT MAKES THE POINT THAT\nEQUKLBRIUM CAN BE RESTORED ONLY THROUGH A COORDINATED\nPOLICY COVERING THE BUDGET, SALARIES, PRICES AND PROFITS,\nPLUS APPROPRIATE MONETARY AND CREDIT POLICITES, ADDING\nTHAT THE EFFECTS OF THESE CAN BE SEEN ONLY IN THE MEDIUM-\nLIBRARY GERALD R. FORD\nLIMITED OFFICIAL USE\nD\nFORM\nDS-1652\n9.56\nDEPARTMENT on STATE\nDepartment of State\nSTATE UNITED AMERICA\nTELEGRAM\nOF\nLIMITED OFFICIAL USE\nPAGE 02\nMEXICO 02328 02 OF 02 251814Z\nTERM. IT WOULD APPEAR THAT THE BANK OF MEXICO IS CALLING\nFOR A BROADER RANGE OF POLICIES THAN ARE NOW IN PLACE AND\nTHAT THE NEXT YEAR OR SO IS LIKELY TO BE DIFFICULT.\n10. THE BANK'S REPORT TRADITIONALLY DOES NOT FORECAST\nECONOMIC DEVELOPMENTS. THIS YEAR IS NO EXCEPTION. IT\nDOES, HOWEVER, NOTE THAT THE CURRENT ACCOUNT DEFICIT\nSHOULD CONTINUE TO DECLINE AND THAT CURRENT CONDITIONS\nIN THE FINANCIAL MARKET SUGGEST THE DESIRABILITYOH\nMORE FLEXIBLE MEANS OF INCREASING SAVINGS. THIS WOULD\nSEEM TO INCLUDE HIGHER INTEREST PATES.\nTHOMPSON\nLIMITED OFFICIAL USE\nFORM\nDS-1652\nDEPARTMENT OF STATE\nEMT\n*\n*\nDepartment of State\nOF STATE UNITED AMERICA\nTELEGRAM\nUNCLASSIFIED 1646\nPAGE 01\nMEXICO 02383 2523272\nACTION ARA-10\nINFO OCT-01 ISO-00 AID-05 CIAE-00 COME-00 EB-08 PRB-01\nINR-07 NSAE-00 USIA-15 TRSE-00 XMB-04 OPIC-06 SP-02\nCIEP-00 LAB-04 SIL-01 OM8-01 NSC-05 SS-15 STR-04\nCEA-01 AGRE-00 1090 W\n260901 052230 /13\nR 2522357 FEB 77 25\nFM AMEMBASS MEXICO\nTO SECSTATE WASHOC 563\nINFU TREASURY WASHDC\nInternational Information Center\nUNCLAS MEXICO 2383\nEO 11652 : N/A\nTAGS : EFIN MX\nSUBJ : NATIONAL ACCOUNT DATA FOR 1976.\n1. BANK OF MEXICO'S ANNUAL REPORT CONTAINS PARTIAL AND\nPRELIMINARY NATIONAL ACCOUNT DATA FOR 1976, AS WELL AS COM-\nMENTARY ON THE ECONOMY DURING THE PAST YEAR.\n2. BELOW IS A TABLE SHOWING OUTPUT CHANGES FROM 1975 TO\n1976 IN PERCENT FOR PRIMARY AND SECONDARY SECTORS, BASED\nON 1960 PRICES. FIGURES IN PARENTHESIS ARE 1975/74 CHANGES.\nA) AGRICULTURE, LIVESTOCK, FORESTRY\nAND FISHING -2.1 (1.4)\nB) PETROLEUM AND DERIVATIVES 9.0 (11.0)\nC) PETROCHEMICALS 3.5 (11.9)\nD) MINING\n3.5 (-5.3)\nE) ELECTRICAL ENERGY 8.0 (5.7)\nF) CONSTRUCTION 0.0 (5/7)\nG) MANUFACTURES 1.8 (3.9)\n3. THE TEXT OF THE REPORT STATES THAT THE VOLUME OF\nSERVICES IN THE TRANSPORTATION AND COMMUNICATION SECTOR\nGERALD FORD LIBRARY\nUNCLASSIFIED\nD\nFORM\nOF\nSTATE\nDepartment of State\nof I AMERICA UNITED NAME\nTELEGRAM\nUNCLASSIFIED\nPAGE 02\nMEXICO 02383 2523272\nINCREASED 6.5 PERCENT (8.5 PERCENT) WHILE GOVERNMENT\nSERVICES GREW 8.5 (10.9 PERCENT).\n4. DATA IS NOT YET AVAILABLE ON COMMERCE AND OTHER\nSERVICES, HOWEVER, TOTAL GROSS DOMESTIC PRODUCT IS\nESTIMATED TO HAVE INCREASED ABOUT 2 PERCENT, IN REAL TERMS.\n5. THERE IS NO DATA FOR AGGREGATE DEMAND, BUT\nTHE REPORT STATES THAT PRIVATE CONSUMPTION DID NOT\nCHANGE SUBSTANTIALLY IN REAL TERMS. THIS IS ATTRIBUTED\nTO THE DETERIORATION IN THE PURCHASING POWER OF SIGNIFICANT\nPARTS OF THE POPULATION DUE TO INFLATION. REPORT STATES\nTHAT PUBLIC SECTOR CURRENT SPENDING WAS EXPANSIONARY\nFACTOR. TOTAL INVESTMENT SPENDING DID NOT INCREASE IN\nREAL TERMS, IN PART BECAUSE PUBLIC SECTOR INVESTMENT\nSLOWED DOWN TOWARD THE END OF THE YEAR AND IN PART DUE\nTO HESITANCY ON THE PART OF PRIVATE INVESTORS COMBINED\nWITH TIGHT CREDIT CONDITIOONS.\n6. THE POOR SHOWING IN AGRICULTURE IS ATTRIBUTED TO\nLOWER LEVELS OF WATERS IN DAMS, LONG DRY PERIODS, IRREGULAR\nRAINS, FREEZES IN THE NORTH, AND LOW LEVEL OF PRIVATE\nINVESTMENT. OUTPUT OF SAFFLOWER, SOYBEANS, RICE,\nSORGHUM, BEANS AND SUGAR CANE DECLINED. OUTPUT OF\nWHEAT, COTTON AND BARLEY INCREASED. REPORT SAYS THAT\nFURTHER IMPORTS OF CORN AND VEGETABLE OILS CAN BE\nEXPECTED.\n7. INDUSTRIAL PRODUCTION GREW AT PROGRESSIVELY\nLOWER RATES THROUGHOUT THE YEAR. THE LOW RATE OF GROWTH\nOF MANUFACTURES IS ATTRIBUTED TO THE LOSS OF PURCHASING\nPOWER. REPORT HAS FOOTNOTE SAYING THAT ONLY 20-25\nPERCENT OF ECONOMICALLY ACTIVE POPULATION BELONGS TO\nWORKERS GROUPS. THE IMPLICATION IS THAT THE MINIMUM\nWAGE AND NEGOTIATED SALARIES FOR SKILLED, ORGANIZED\nWORKERS COVER A SMALL PERCENTAGE OF THE WORKING\nUNCLASSIFIED\nFORM\nDS.1652\nDEPARTMENT or STATE\nDepartment of State\nSTATE UNITED AMERICA\nTELEGRAM\nOF\nUNCLASSIFIED\nPAGE 03\nMEXICO 02383 2523272\nOPPULATION AND THAT THE UNORGANIZED AND UNDER-EMPLOYED\nHAVE BEEN BADLY BURNT BY MEXICO'S INFLATION. THE\nIMPACT OF THIS LOSS OF PURCHASING POWER WAS FELT IN\nTHE NON-DURABLE CONSUMER GOODS INDUSTRIES. DURABLE\nCONSUMER GOODS FARED POORLY AS WELL, DUE IN LARGE PART\nTO LOWER PRODUCTION OF AUTOS. OUTPUT OF CAPITAL GOODS\nDECLINED 5.0 PERCENT, FROM 1975 TO 1976, DUE TO REDUCED\nPRODUCTION OF TRUCKS AND BUSES, AGRICULTURAL MACHINERY\nAS WELI AS OFFICE AND ELECTRICAL EQUIPMENT.\nTHOMPSON\nGERALO, FORD LIBRARY\nUNCLASSIFIED\nFORM\nMENT\nof\nDEPART\nSTATE\nEMT\nDepartment of State\nSTATES UNITED AMERICA\nTELEGRAM\nOF\nUNCLASSIFIED 1634\nPAGE 01\nMEXICO 02384 252318Z\nACTION ARA-10\nINFO OCT-01 ISO-00 MMO-04 AID-05 CIAE-00 COME-00 EB-08\nFRB-01 INR-07 NSAE-00 USIA-15 XMB-04 OPIC-06 SP-02\nCIEP-00 LAB-04 SIL-01 OMB-01 NSC-05 SS-15 STR-04\nCEA-01 AGRE-00 1094 w\n260854 052053 /11\nR 252236Z FEB 77 25\nFM AMEMBASSY MEXICO\nTO SECSTATE WASHDC 556\nINFO TREASURY WASHDC\nUNCLAS MEXICO 2384\nInternational Please Information Center\nEO 11652 : N/A\nTAGS : EFIN MX\nSUBJ : MEXICO'S BALANCE OF PAYMENTS IN 1976. CERP 0102\n1. BANK OF MEXICO HAS RELEASED PRELIMINARY BALANCE OF\nPAYMENTS DATA FOR 1976 CALL FIGURES IN US$ MILLIONS).\n2. TOTAL CURRENT ACCOUNT RECEIPTS WERE 6,971.4, BROKEN\nDOWN AS FOLLOWS: EXPORTS OF GOODS, 3,297.8; SILVER EXPORTS,\n157.8; TOURISM, 821.3; INTERNATIONAL TRAVEL 100,6; FRONTIER\nTRANSACTIONS, 1,609.4; IN-BOND ASSEMBLY PLANTS 520.1; OTHER\n464.4.\n3. TOTAL CURRENT ACCOUNT EXPENDITURES WERE 9,995.1, BROKEN\nDOWN AS FOLLOWS: IMPORTS OF GOODS, 6,029.6; TOURISM, 382.9;\nINTERNATIONAL TRAVEL, 154.5; FRONTIER TRANSACTIONS, 1,052.8;\nDIVIDENDS AND INTEREST OF PRIVATE SECTOR DEBT, 781.6;\nINTEREST ON PUBLIC SECTOR DEBT, 1057.6; OTHER 536.1.\n4. CURRENT ACCOUNT DEFICIT WAS 3,033.7. ERRORS AND\nOMISSIONS WERE MINUS 2,199.4.\n5. NET LONG-TERM CAPITAL INFLOWS WERE 4,889.9, BROKEN\nFORD is LIBRARY 076839\nUNCLASSIFIED\n0\nFORM\nDS-1652\n9-66\nDEPARTMENT\nSTATE\nOF STATES UNITED AMERICA\nDepartment of State\nTELEGRAM\nUNCLASSIFIED\nPAGE 02\nMEXICO 02384 252318Z\nDOWN AS FOLLOWS: DIRECT FOREIGN INVESTMENT, 330,6;\nOPERATIONS WITH SECURITIES, 344.2, PURCHASE OF FOREIGN\nCOMPANIES, MINUS 12.0, NET FOREIGN CREDITS, 3,077.2, OF\nWHICH PUBLIC SECTOR ACCOUNTED FOR 2701.9 (DISBURSEMENTS\nOF 3,806.8 AND AMORTIZATION PAYMENTS OF 1,104,9);\nGOVERNMENT DEBT (NET) 1,188.7, FOREIGN CREDITS, MINUS\n38.9.\n6. RESERVES DECLINED 333.1 TO 1,411.7. LATTER FIGURE\nINCLUDES GOLD REVALUED AT MARKET PRICE. THIS AMOUNTS\nTO 135.9. HENCE, REAL RESERVE DECLINE WAS 469,7.\n7. BANK OF MEXICO'S ANNUAL REPORT NOTES THT REDUCTION\nIN CURRENT ACCOUNT DEFICIT FROM 3768.9 IN 1975 WAS DUE\nTO 1002 DECLINE IN TRADE (PLUS SILVER) DEFICIT. EXPORTS OF\nGOODS WERE UP 15.4 PERCENT DUE TO INCREASES IN THE VALUE OF\nCOFFEE, CRUDE OIL, LIVESTOCK, COOTON AND TOMATO EXPORTS.\nEXPORTS OF OIL AND DERIVATIVES WERE UP 97 TO 557, EXPORTS\nOF MANUFACTURES, EX-SUGAR, WERE UP 11.5, BUT THIS INCREASE\nDOES NOT, THE REPORT STATES, CORRESPOND TO THE INCREASE\nIN DEMAND IN WORLD MARKETS. IMPORTS DECLINED 8.4 PERCENT\nDUE TO LEVELING OFF OF INDUSTRIAL ACTIVITY AND A REDUCTION\nIN THE IMPORTS OF CERTAIN FOODSTUFFS DUE TO HIGH INVENTORIES\nPREVAILING AT THE BEGINNING OF 1976.\n7. TOURISM RECEIPTS DID NOT INCREASE SIGNIFICANTLY IN\nSPITE OF NEW HOTEL SPACE, PUBLICITY, ETC., ACCORDING TO\nTHE REPORT, WHICH ATTRIBUTES THIS TO THE U.S. BICENTEN-\nNIAL, THE OLYMPIC GAMES IN CANADA, NEGATIVE PUBLICITY,\nINCREASE IN AIRFARES, DELAYS IN NEGOTIATING A NEW AIR\nAGREEMENT, AND THE INCREASE IN INTERNAL PRICES.\n9. DIVIDEND AND INTEREST PAYMENTS BY COMPANIES WITH\nFOREIGN PARTICIPATING TOTALED 782, OF WHICH 358 WERE\nSHORT AND LONG-TERM INTEREST PAYMENTS, UP 23.4 PERCENT\nFROM 1975, AND 423 FOR DIVIDENDS, TECHNICAL ASSISTANCE,\nUNCLASSIFIED\nFORM\nDS-1652\n9.66\nOF STATE\nDepartment of State\nUNITED STATES OF 1)\nTELEGRAM\nUNCLASSIFIED\nPAGE 03\nMEXICO 02384 2523182\nROYALTIES, ETC., UP 3.8 PERCENT FROM 1975. THIS SMALL\nINCREASE PROBABLY REFLECTS THE IMPACT OF DEVALUATION\nON COMPANY PROFITS.\n10 REPORT NOTES UNPRECEDENTED VOLUME OF PUBLIC SECTOR\nLONG-TERM BORROWING, ATTRIBUTING THIS TO LARGE BUDGET\nDEFICIT, LIMITED DOMESTIC SAVINGS AND THE LARGE INCREASE\nIN FOREIGN ASSETS HELD BY MEXICANS. REPORT ALSO STATES\nTHAT IN SPITE OF CORRECTION OF CURRENT ACCOUNT IN THE\nFOURTH QUARTER, THE CONFIDENCE OF INTERNATIONAL CAPITAL\nMARKETS IN MEXICO WAS \"ALTERED\" AND CREDIT TERMS WERE\nLESS FAVORABLE.\n11. COMPARATIVE DATA FOR 1975 CAN BE FOUND IN BANK\nOF MEXICO'S MONTHLY ECONOMIC INDICATORS.\nTHOMPSON\nGENETA 11. FORD ADDRESS\nUNCLASSIFIED\nFORM\nDS-1652\n9.66\nDEPARTMENT\nOF\nEMT\nSTATE\n*\nDepartment of State\nSTATES UNITED AMERICA\nTELEGRAM\nOF\nCONFIDENTIAL 1\n1024\nPAGE 01\nHERMOS 00066 0900342\nACTION ARA-10\nINFO OCT-01 ISC-00 CIAE-00 DODE-00 PM-04 H-01 INR-07 L-03\nNSAE-00 NSC-05 PA-01 PRS-01 SP-02 5S-15 USIA-06 EB-08\nAID-05 COME-00 AGRE-00 DHA-02 FR8-03 TRSE-00 XMB-02\nOPIC-03 LAB-04 SIL-01 OMB-01 MCT-01 /086 W\n0905027 078667 122\nR 081730Z MAR 77\nFM AMCONSUL HERMUSILLO\nTO SECSTATE WASHOC 1192\nINFO AMEMBASSY MEXICO\nPlease return to\nC 0 N F I 0 E N T I A t HERMOSILLO 066\nInternational Information Center\nE.O. 11652: GDS\nTAGS\n: ECON, MX\nSUBJECT\n: LAND REFORM IN SONORA; DEVELOPMENTS AT\nSAN IGNACIO, RIO MUERTO, SONORA\nSUMMARY: FOR THE FIRST TIME SINCE OCTOBER 1975, WHEN SONORA\nGOVERNOR CARLOS ARMANDO BIEBRICH WAS SUMMARILY REMOVED FROM\nOFFICE FOLLOWING THE KILLING OF CAMPESINO INVADERS AT SAN\nIGNACIO, RIO MUERTO, SONORA, THE STATE GOVERNMENT IS TALK-\nING BACK TO CONTINUED DEMANDS OF CAMPESINOS, EJIDATARIOS,\nDECLASSIFIED\nAND THEIR LEADERSHIP. GOVERNOR CARRILLO MARCOR ADDRESSED\nTHREE HUNDRED EJIDATARIOS FROM SAN IGNACIO IN THE SHARPEST\nTONE HEARD FROM THIS OLD CHAMPION OF \"AGRARIAN REFORM\"\nAUTHORITY state dept sep rev 5/23/09\nWHEN THEY DEMANDED, MARCH 7, THE RETURN OF TWO OF THEIR\nBY dal NARA, DATE 2/12/15\nLEADERS WHO RECENTLY DISAPPEARED AND ARE BELIEVED UNDER\nARREST AND INVESTIGATION ON VARIOUS CHARGES INCLUDING RAPE\nOF A MINOR FEMALE. CARRILLO MARCOR, FOR THE FIRST TIME SHOW-\nING IMPATIENCE WITH THE COMPLAINTS AND DEMANDS OF THE\nEJIDATARIOS, TOLD THEM IT WAS NOW TIME TO WORK AND NOT TO\nCONTINUE TO CREATE PROBLEMS: HE REMINDED THEM THAT MANY OF\nTHEM WERE NOT EVEN FROM SONORA, BUT FROM SINALOA, AND THAT\nNUMEROUS SONORANS HAD BEEN DISPOSSESSED TO GIVE THEM THE\nLANDS OF THEIR NEW EJIDO; AND HE DENIED CHARGES THAT STATE\nGERALD FORD LIBRARY\nCONFIDENTIAL\nD\nCHARTMENT OF STATE\nSTATES AMERICA\nDepartment of State\nTELEGRAM\nOF\nCONFIDENTIAL\nPAGE 02\nHERMOS 00066 0900342\nOFFICIALS WERE NOT INFORMING HIM OF THE TRUE SITUATION IN\nTHE SAN IGNACIO AREA. AS A CONCILIATORY GESTURE AT THE CON-\nCLUSION OF A STORMY SESSION, HOWEVER, CARRILLO MARCOR\nALLOWED THE EJIDATARIOS TO REMAIN IN \"OCCUPATION\" OF THE\nPLAZA ZARAGOZA IN FRONT OF THE GOVERNOR'S PALACE AND ONE\nBLOCK FROM CONGEN. THE PRESS REPORTS THAT THE MAJORITY OF\nTHE EJIDATARIOS ARE CARRYING PISTOLS. END SUMMARY\n1. THE \"MASSACRE AT RIO MUERTO\" OF OCTOBER 25, 1975, WHICH\nLED TO THE NOVEMBER 1975 CONFISCATION OF OVER FOUR THOU-\nSAND HECTARES HITHERTO OWNED BY SOME EIGHTY SMALL PROPERTY\nOWNERS, MARKED THE BEGINNING OF ONE OF THE LONGEST YEARS\nIN THE VIOLENCE PRONE PROCESS OF \"AGRARIAN REFORM\" IN\nSONORA. OVERRULING \"AMPAROS\" OR COURT WRITS, DISREGARDING\nEVIDENCE ADVANCED BY THE PREVIOUS OWNERS THAT THEIR TITLES\nWERE LEGAL AND CONSTITUTIONALLY CORRECT, PRESIDENT ECHE-\nVERRIA AND HIS AGRARIAN REFORM SECRETARY BARRA GARCIA\nTREATED THE PRIVATE FARMERS OF SONORA AS THE LAST BASTION\nOF REACTION TO PROGRESS AND JUSTTICE. ON NOVEMBER 19,\n1976, ELEVEN DAYS BEFORE THE END OF ECHEVERRIA'S PRESIDEN-\nTIAL TERM, BRIGADES OF SUVERYORS FROM THE AGRARIAN REFORM\nSECRETARIAT FLEW INTO SOUTHERN SONORA IN THE NIGHT TO\n\"EXECUTE\" CONFISCATION DECREES SIGNED BY THE PRESIDENT,\nBUT NOT YET PUBLICHED IN THE OFFICIAL GAZETTE, WHICH GAVE\nNEARLY 100,000 OF THE BEST IRRIGATED LANDS IN NORTHWEST\nMEXICO TO SOME EIGHT THOUSAND CAMPESINO CLAIMANTS.\n2. THE MASSIVE IMPACT OF THE NOVEMBER 1976 LAND CONFISCA-\nTIONS HAS NOT COMPLETELY OVERSHADOWED WHAT HAPPENED IN\nSAN IGNACIO, RIO MUERTO ONE YEAR EARLIER, WHERE ECHEVERRIA'S\nHAND PICKED INTERIM GOVERNOR, CARRILLO MARCOR, TOLD THE\nCAMPESINOS THAT THEY WERE BEING GIVEN THE LANDS OF\nSAN IGNACIO, RIO MUERTO AS PAYMENT FOR THE BLOOD OF THEIR\nMARTYRS. WHAT THE NEWLY ARRIVED GOVERNOR DID NOT MENTION,\nAND MAY NOT HAVE KNOWN, WAS THAT THE BULK OF THE NEW\nEJIDATARIOS AT SAN IGNACIO WERE NOT SONORAN \"WORKERS OF THE\nCONFIDENTIAL\nFORM\n%\nSTATE\nDepartment of State\nOF STATES AMERICA UNITED\nTELEGRAM\nCONFIDENTIAL\nPAGE 03\nHERMOS 00066 0900342\nSOIL, BUT PEOPLE FROM SINALOA AND OTHER PARTS OF MEXICO WHO\nHAD BEEN HAULED TO SONORA BY THE CAMPESINO ORGANIZATIONS\nOF THE PACTO DE OCAMPO, NOTABLY BY CELESTINO SALCEDO MON-\nTEON. THEY CAME To SONORA HEAVILY ARMED, AND NOT CONTENT\nTO OCCUPY THE LANDS AWARDED THEM BY PRESIDENTIAL DECREE,\nTHEY ALSO SEIZED ADJOINING LANDS THAT HAD NOT BEEN CON-\nFISCATED. CONTRARY TO EARLIER PRACTICE, THE NEWLY ENDOWED\nEJIDATARIOS KEPT THE CROPS STILL ON THE GROUND, AND OF THE\nFARMS BUILDINGS AND MACHINERY OF THE PREVIOUS OWNERS. NOW,\nMORE THAN FIFTEEN MONTHS AFTER THEY \"INVADED\" LANDS THAT\nHAD NOT BEEN AFFECTED BY THE PRESIDENTIAL DECREES, THEY\nARE STILL OCCUPIING THESE LANDS WHICH INCLUDE 300 HECTARES\nBELONGING TO DESCENDENTS OF PRESIDENT PLUTARCO ELIAS CALLES.\n3. UNVERIFIED REPORTS HAVE REACHED us OF PROBLEMS AT\nSAN IGNACIO, RIO MUERTO. THESE INCLUDED CONFICTS BETWEEN\nRIVAL EJIDATARIO LEADERS AND THEIR FOLLOWERS, AND BETWEEN\nEJIDATARIOS AND THE FARM WORKERS OF THE FORMER OWNERS.\nTWO HUNDRED OF THE LATTER HAVE LOST THEIR JOBS AND HOMES.\nTHERE HAVE BEEN REPORTS OF IMPROPER HANDLING OF FUNDS.\nTHERE ARE RUMORS THAT THE EJIDO LEADERS HAVE BEEN STOCK-\nPILING ARMS AND THAT INCIDENTS INVOLVING BLOODSHED HAVE\nTAKEN PLACE IN THE RECENT PAST. THE EJIDATARIOS NOW IN\nFRONT OF THE GOVERNOR'S PALACE DEMAND THE RETURN OF TWO OF\nTHEIR LEADERS, URBANO TERAN ENRIQUEZ AND ALEJO CARDENAS,\nWHO ARE REPORTEDLY UNDER ARREST BY THE FEDERAL JUDICAL\nPOLICE FOR CONTRABAND OF ARMS. (THIS IS BORNE OUT BY THE\nFACT THAT EARLY LAST WEEK THE FEDERAL DISTRICT ATTORNEY,\nCHIEF OF THE FEDERAL JUDICIAL POLICE, AND CHIEF OF THE\nCUTO RPT CUSTOMS POLICE, ALL OF HERMOSILLOA, WERE IN THE\nCIUDAD OBREGON AREA ON OFFICIAL BUSINESS.)\n4. A FEW DAYS AGO, A MEMBER OF THE ELIAS CALLES FAMILY TOLD\nTHE UNDERSIGNED THAT THE SITUATION IN SAN IGNACIO WAS EX-\nTREMELY TENSE. THE FEW PRIVATE FARMERS WHO STILL HAVE LAND\nIN THE REGION ARE AFRAID TO ENTER THERE, DESPITE THE ALMOST\nGERALD FORD LIBRARY\nCONFIDENTIAL\n0\nDEPARTMENT OF STATE\nDepartment of State\nOF STATES UNITED sume AMERICA\nTELEGRAM\nGONF IDENTIAL\nPAGE 04\nHERMOS 00066 090034Z\nCONSTANT PRESENCE OF JUDICIAL POLICE. OUR VISITOR STATED\nTHAT THE PRIVATE FARMERS ARE NOW ONLY SEEKING SOME FORM OF\nCOMPENSATION FOR THEIR LOST PROPERTIES; THEY DO NOT BELIEVE\nTHAT PRIVATE ENTERPRISE CAN COEXIST SIDE BY SIDE WITH\nEJIDATARIOS WHO FOLLOW SUCH RADICAL LEADERS AS THOSE OF\nSAN IGNACIO.\n5. GOVERNOR CARRILLO MARCOR, WHO HAS PROVED FAIRLY ADEPT AT\nCARRYING WATER ON BOTH SHOULDERS, DID S0 AGAIN WHEN HE\n\"SCOLDED\" THE VISITING EJIDATARIOS. INSTEAD OF SENDING THEM\nHOME AND BACK TO WORK, HE GRANTED THEIR DEMAND THAT THEY BE\nALLOWED TO \"CAMP\" ON THE PLAZA \"UNTIL THE RETURN OF THEIR\nMISSING LEADERS.\" AS THE GOVERNOR DID SO, HE REPEATEDLY\nPROFESSED HIS \"AGRARIAN REFORMER\" CONVICTIONS.\nSACKSTEDER\nCONFIDENTIAL\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\n1977 MAR 10 PM 2:41\nBOARD OF GOVERNORS OF THE FEDERAL RESERVE RECEIVED SYSTEM\nOFFICE OF THE CHAIRMAN\nCONF IDENTIAL\nTO:\nChairman Burns\nFROM: Ted Truman\nAttached are the latest cables from\nMexico. You may be particularly interested\nin Mexico 2875. The cable states that\nrumors of debt renegotiation by Swiss banks\nare incorrect; however, the Swiss banks have\nbeen rolling over their claims on Mexico\nwhich probably total less than $200. The\ncable was prepared by the Financial Attache\nat Mr. Maroni's request.\nAttachments: Mexico 2875\nMexico 2877\nMexico 2882\nMexico 066\nCC: Governor Wallich\nDefense classification of this document is\nto the inclusion of U.S. Government information\nofficially classified under Executive Order 10501\nwhich provides that \"A document. shall bear a\nclassification at least as high as that of its\nhighest classified component.\"\nDECLASSIFIED\nE.O. 12958 Sec. 3.6\nMR95-1,#36 Fed, Res ltr 2/13/96\nBy KBH NARA, Date 4/12/96\nFORD i LIBRARY GERALD\nDEPARTMENT OF STATE\nEmTw\nDepartment of State\nOF STATES AMERICA UNITED immes\nTELEGRAM\nCONF IDENTIA\n1066\nPAGE 01\nMEXICO 02875 090020Z\nACTION ARA-10\nINFO OCT-01 ISUM00 XMB-02 FRB-03 OMB-01 EUR-12 EB-08\nCOME-00 CIAE-00 INR-07 NSAE-00 SP-02 PA-01 PRS-01\nUSIA-06 /054 W\n090520Z 078534 /23-11\nR 0823322 (MAR 77\nFM AMEMBASSY MEXICO\nTO SECSTATE WASHOC 768\nPO TREASURY WASHDC\n/A\nI\nD\niss\nN\nT\nH\nn\nMEXICO 2875\nPlease return to\nInternational Information Center\nEO 11652 : GDS\nTAGS : AFIN MX\nSUBJ : DEBT RENEGOTIATION RUMORS\n1. SUMMARY : IN RESPONSE TO TREASURY AND FEDERAL RESERVE\nPHONE CALLS, FINATT CHECKED ON RUMORS THAT SWISS BANKS\nWERE RENEGOTIATING LOANS TO MEXICAN PUBLIC AND PRIVATE\nSECTORS. WHILE SWISS BANKS ARE ROLLING OVER MATURING\nCREDITS AND TAKING OTHER MEASURES TO EASE SITUATION OF\nPRIVATE BORROWERS THEY ARE NOT RENEGOTIATING PUBLIC SECTOR\nDEBT. END SUMMARY.\n2. RUMORS TO EFFECT THAT SWISS BANKS ARE RENEGOTIATING\nTHEIR LOANS TO MEXICO MAY BE BASED IN PART ON FEBRUARY 9\nFRONT PAGE STORY IN EXCELSIOR. HEADLINE WAS \"MEXICO\nRENEGOTIATED ITS PUBLIC AND PRIVATE DEBT WITH THE SWISS\nBANK. STORY IS BASED ON INTERVIEW WITH REPRESENTATIVE\nOF SWISS CREDIT BANK. IN RESPONSE TO QUESTION,\nREP SAID THT ALL THE REQUESTS FOR\nRENEGOTIATION HAD BEEN MET. HE WAS ALSO QUOTED AS\nSAYING THAT HIS BANK WOULD CONTINUE EXTENDING CREDIT\nTO MEXICO.\n3. ACCORDING TO SWISS EMBASSY COUNSELOR, SWISS 55 CREDIT\nDECLASSIFIED\nE.O. 12958 SEC. 3.6\nMR07-117, #24; stltr 2/22/08\nBERALD FORD LIBRARY\nBY dol NARA DATE 3/10/08\nCONF IDENTIAL\nDEPARTMENT OF STATE\nDepartment of State\nUNITED\nTELEGRAM\nDECI STATES OF\nSEC 3'8\nCONFIDENTIAL\nPAGE 02\nMEXICO 02875 0900202\nBANK REP WAS CALLED BY REPORTER AND HIS\nREMARKS WERE DISTORTED, PARTICULARLY IN THE HEADLINE.\nAPPARENTLY THE REPORTER COULD NOT DIFFERENTIATE BETWEEN\nRENEGOTIATION AND RENEWAL OR ROLL-OVER. FINATT CHECKED\nWITH REP OF SWISS BANK CORPORATION WHO SAID\nTHAT WHILE HIS BANK WAS RENEWING MATURING CREDITS AS A\nMORE OR LESS NORMAL OPERATION, THEY WERE NOT RENEGOTIATING\nANY PUBLIC SECTOR LOANS.\n4. WE REMAIN UNAWARE OF ANY REQUEST BY GOM OR OFFER\nB'- BANKS TO RENEGOTIATE PUBLIC SECTOR DEBT. PUBLIC\nSECTOR ENTITIES ARE TRYING TO RENEW MATURING SHORT-\nTERM CREDITS, BUT THEY ARE NOT FORCING ANY LENDERS\nTO RENEW TO THE BEST OF OUR KNOWLEDGE.\n5. THERE ARE, WE UNDERSTAND, A NUMBER OF CASES\nWHERE LOANS TO PRIVATE SECTOR COMPANIES HAVE BEEN\n\"RESTRUCTURED\" OR WHERE INFORMAL MORATORIUMS ON\nINTEREST PAYMENTS HAVE BEEN GRANTED. THE MAJOR CASE\nIS FUNDIDORA OF MONTERREY WHICH GOM CONSIDERS A PRIVATE\nSECTOR COMPANY, THOUGH THE FOREIGN BANKS PREFER TO\nVIEW IT AS SOMETHING VERY CLOSE TO A GOVERNMENT ENTITY\nBECAUSE OF THE GOMIS MINORITY HOLDING OF SHARES.\n6. ACCORDING TO LOCAL U.S. BANK REPS, TOTAL\nEXPOSURE OF BIG THREE SWISS BANKS IN MEXICO WOULD NOT\nEXCEED $200 MILLION AND MOST OF THIS WOULD BE IN SHORT\nTERM CREDITS. IF THEY IS ACCURATE, SWISS BANKS HOLD A\nVERY SMALL SHARE OF MEXICOIS TOTAL FOREIGN DEBT AND\nANY RENEGOTIATIONS BY THEM WOULD HAVE A LIMITED IMPACT\nON MEXICO'S DEBT SERVICING BURDEN,\nTHOMPSON\nDEPARTMENT OF STATE\nEMT\n*\nUNITED and AMERICA\nDepartment of State\nTELEGRAM\nSTATES OF\nUNCLASSIFIED 1037\nPAGE 01\nMEXICO 02877 0901452\nACTION ARA-10\nINFO OCT-01 ISO-00 SP-02 USIA-15 AID-05 EB-08 NSC-05 SS=15\nSTR-04 OMB-01 CEA-01 CIAE-00 COME-00 FRB-01 INR-07\nNSAE-00 XMB-04 OPIC-06 LAB-04 SIL-01 IGA=02 PA-02\nPRS-01 AGRE-00 /095 W\n090509Z 079273 /21\nR 082336Z MAR 77\n8\nFM AMEMBASSY MEXICO\nTO SECSTATE WASHDC 771\nINFO DEPT OF TREASURY WASHDC\nUNCLAS MEXICO 2877\nPlease return to\nInternational Information Center\nE.O. 11652: N/A\nTAGS: ELAB, CI.MX\nSUBJ: WAGES AND PRICES SINCE THE DEVALUATION\n1. CONSUMER PRICE INDICES RECENTLY RELEASED BY THE\nBANCO DE MEXICO INDICATE THAT MEXICAN WAGE EARNERS HAVE\nNOT LOST AS MUCH PURCHASING POWER SINCE THE DEVALUATION\nAS THEIR LEADER ORIGINALLY FEARED (OR AS MANY ARE STILL\nCLAIMING). THE GENERAL INDEX OF PRICES ROSE BY 27.2\nPERCENT FROM DECEMBER 1975 THROUGH DECEMBER 1976 (INDEX\nOF 200.7 TO 255.3 WITH 1968 BASE OF 100). PRICES ROSE\nONLY 8.7 PERCENT FROM DECEMBER 1975 THROUGH THE DATE\nOF DEVALUATION, SEPT. 1, AND BY 18.5 PERCENT FROM THAT\nPOINT THROUGH THE END OF 1976. ON THE AVERAGE, WAGES\nINCREASED BY 23 PERCENT DURING THE SAME PERIOD\n(COVERING CALENDAR 1976).\n2. THOSE SUB-CATEGORIES WHICH MOST AFFECT WAGE EARNERS\nRAN SLIGHTLY HIGHER THAN THE GENERAL INDEX. FOOD,\nDRINK AND TOBACCO MEASURED A 24.1 PERCENT INCREASE\nFOR THE YEAR, 18.3 PERCENT OF THIS BETWEEN SEPT. 1\n:\nFORD\nTO JAN. 1. WEARING APPAREL-SHOES ROSE 37.1 PERCENT\nFOR THE YEAR WITH 25.3 PERCENT AFTER SEPT. 1.\nGERALD\nLIBRARY\nUNCLASSIFIED\n0\nDEPARTMENT OF STATE\nDepartment of State\nSTATES UNITED AMERICA\nTELEGRAM\nOF\nUNCLASSIFIED\nPAGE 02\nMEXICO 02877 090145Z\nTRANSPORTATION AND COMMUNICATIONS WENT UP BY 47\nPERCENT FOR THE YEAR, 33.4 PERCENT OF THIS REGIS-\nTERED SINCE THE DEVALUATION.\n3. THE GENERAL CPI FOR MEXICO CITY ROSE ONLY 24\nPERCENT DURING THE CALENDAR YEAR WITH 8.3 PERCENT\nOF THIS FIGURE RECORDED PRIOR TO SEPT. 1 AND 15.7\nPERCENT FROM THAT DATE THROUGH DECEMBER 31, 1976.\n4. COMMENT: ORGANIZED LABOR, SINCE THE SEPT. 1\nDEVALUATION HAS VOICED MUCH CONCERN THAT THEIR\nGAINS IN PURCHASING POWER, WON DURING THE PAST FIVE\nYEARS, HAVE RAPIDLY EVAPORATED DURING THE PAST FEW\nMONTHS. BANCO DE MEXICO FIGURES, IF THEY ACCURATELY\nREFLECT CONSUMER PRICE MOVEMENT, LEAVE LITTLE BASIS\nFOR THESE CLAIMS. SOME LOSS IN REAL WAGES IS\nINDICATED FOR THE PERIOD OF THE LAST ONE-THIRD OF\n1976, BUT NOT AS EXTENSIVE AS THAT GENERALLY\nCLAIMED BY ORGANIZED LABOR.\nTHOMPSON\nUNCLASSIFIED\nEmT\nPREARTMENT OF STATE\nDepartment of State\nUNITED\nTELEGRAM\nSTATES\nOF\nLIMITED OFFICIAL USE\n1021\nPAGE 01\nMEXICO 02882 0900532\nACTION ARA-10\nINFO OCT-01 ISO-00 AID-05 CIAE-00 COME-00 EB-08 FRB-03\nINR-07 NSAE-00 USIA-06 XMB-02 OPIC-03 SP-02 LAB-04\nSIL-01 OMB-01 NSC-05 SS-15 STR-04 CEA-01 L-03 H-01\nPA-01 PRS-01 /084 W\n090501Z 078820 /15\nR 082345Z MAR 77\nFM AMEMBASSY MEXICO\nTO SECSTATE WASHDC 773\nINFO TREASURY WASHDC\n&\nPlease return to\nLIMITED OFFICIAL USE MEXICO 2882\nInternational Information Center\nEO 11652 : N/A\nTAGS : EFIN MX\nSUBJ : GOM TO ISSUE PETRO BONDS\n1. SUMMARY : GOM PLANS TO ISSUE TWO BILLION PESOS OF\nPETROBONDS IN APRIL. DETAILS OF PROPOSED BONDS ARE BECOMING\nWIDELY KNOWN, THOUGH MORE SHOULD BE KNOWN NEXT WEEK AT\nBANKERS' CONVENTION WHEN GOM PLANS PUBLIC ANNOUNCEMENT.\nBONDS APPEAR AS EXPENSIVE WAY TO BORROW, BUT FULFILL A\nSTATEMENT MADE BY LOPEZ PORTILLO IN HIS DECEMBER 1 SPEECH.\nEND SUMMARY.\n2. ACCORDING TO VARIOUS REPORTS, GOM PLANS TO ISSUE TWO\nBILLION PESOS OF PETROBONDS SOME TIME IN APRIL. BONDS\nWILL HAVE A FOUR YEAR MATURITY AND PAY SEVEN PERCENT\nINTEREST. BONDS WILL BE IN THOUSAND PESO DENOMINATIONS,\nINDIVIDUAL PURCHASES WILL BE LIMITED TO ONE MILLION PESOS\nWHILE INSTITUTIONS WILL BE PERMITTED TO PURCHASE UP TO\nFIVE MILLION PESOS OF BONDS. BONDS WILL BE SOLD THROUGH\nBOTH PUBLIC AND PRIVATE CREDIT INSTITUTIONS PRESUMABLY\nAT PAR.\nFORD & LIBRARY 07VH30\nLIMITED OFFICIAL USE\n0\nDEPARTMENT OF STATE\n*\nDepartment of State\nUNITED\nTELEGRAM\nSTATES\nOF\nLIMITED OFFICIAL USE\nPAGE 02\nMEXICO 02882 090053Z\n3. INTEREST WILL BE PAID ON THE FACE VALUE OF THE BOND,\nWE UNDERSTAND. BONDS WILL BE TRADED ON MEXICAN STOCK\nEXCHANGE. GOVERNMENT MAY INTERVENE TO AVOID EXCESSIVE\nFLUCTUATIONS. THE PRICE WILL VARY ACCORDING TO THE\nDOLLAR PRICE OF CRUDE OIL AND THE PESO-DOLLAR EXCHANGE\nRATE. THAT IS, SHOULD THE DOLLAR APPRECIATE VIS A VIS\nTHE PESO AND/OR THE PRICE OF OIL IN TERMS OF THE DOLLARS\nINCREASE THE PESO PRICE OF THE BONDS SHOULD INCREASE.\n4. THE BONDS WILL MATURE APRIL 1, 1981. WHEN THE\nBONDS ARE SOLD THE TREASURY WILL CONTRACT WITH PEMEX\nFOR THE PURCHASE OF A VOLUME OF CRUDE OIL EQUIVALENT.\nIT APPEARS, TO THE VALUE OF THE PROCEEDS OF THE\nBOND ISSUE. THIS VOLUME OF CRUDE OIL WILL BE SOLD BY\nPEMEX FOR THE ACCOUNT OF THE FEDERAL GOVERNMENT AT THE\nINTERNATIONAL PRICE PREVAILING AT THE MATURITY DATE FOR\nTHE BONDS. BONDS WILL BE REDEEMED APPARENTLY AT A PRO\nRATED SHARE OF THIS. IT WOULD APPEAR THAT THE MARKET\nWOULD KNOW THE VALUE OF EACH BOND IN TERMS OF OIL DURING\nTHE COURSE OF THEIR LIFE.\n5. WE FIND THIS SCHEME COMPLCATED AND EXPECT MORE\nDETAILS TO BE AVAILABLE NEXT WEEK. PRIVATE BANKERS\nARE REPORTEDLY NOT ENTHUSIASTIC ABOUT HAVING TO SELL\nTHE BONDS BECAUSE THEY WILL COMPETE AGAINST THEIR OWN\nDEPOSITS.\n6. BOND ISSUE SHOULD BE WELL RECEIVED. GOM AUTHORITIES\nHOPE THAT IT MIGHT GENERATE SOME CAPITAL REFLOWS AND\nNEWSPAPER STORIES TO THE EFFECT THAT SUCH REFLOWS SHOULD\nSTRENGTHEN THE PESO IN THE NEXT SEVERAL WEEKS HAVE\nAPPEARED.\n7. THESE BONDS SEEM TO BE A VERY COSTLY WAY OF RAISING\nFUNDS AND WILL BE A HARD ACT TO FOLLOW. IN HIS\nDECEMBER 1, SPEECH, PRESIDENT ALSO MENTIONED BONDS\nLIMITED OFFICIAL US.\nDEPARTMENT OF STATE\nOF UNITED NAME AMERICA\nDepartment of State\nTELEGRAM\nSTATE\nLIMITED OFFICIAL USE\nPAGE 03\nMEXICO 02882 0900532\nTIEO TO SILVER, BUT WE HAVE HEARD NOTHING MORE ON THIS.\nIN THIS REGARD, THE 100 PESO SILVER COINS HAVE NOT YET\nBEEN ISSUED (SEE 76 MEXICO 15939) BUT WE HAVE HEARD\nTHEY SHOULD BE OUT WITHIN A MONTH OR so.\nTHOMPSON\nFORD & LIBRARY GERALD\nLIMITED OFFICIAL USE\nMarch 16, 1977\nTO:\nChairman Burns\nFROM: Ted Truman EMT\nAttached is the latest cable from Mexico.\nAttachment: Mexico 3227\ncc: Governor Wallich\nDefense classification of this document is due\nto the inclusion of U.S. Government information\nofficially classified under Executive Order 10501\nwhich provides that \"A document shall bear\nhighest classified component.\"\nclassification at least as high ES that of its a\nFORD LIBRARY i\nthe\nmexico\nSTATE\nUNITED\nDepartment of State\nTELEGRAM\nSTATES or\nLIMITED OFFICIAL USE\n4287\nEMT\nMEXICO 03227 160106Z\nss\nPAGE 01\nACTION ARA-10\nINFO OCT-01 ISO-00 AID-05 CIAE-00 COME-00 EB-08 FRB-03\nINR-07 NSAE-00 USIA-06 XMB-02 OPIC-03 SP-02 OMB-01\nAGRE-00 PA-01 PRS-01 SS-15 NSC-05 1070 W\n1601157 048972 173\nP 160023Z MAR 77\nFM AMEMBASSY MEXICO\nTO SECSTATE WASHDC PRIORITY 909\nINFO TREASURY WASHDC PRIORITY\n#\nINTERNATIONAL INFORMATION CENTER\nRETURN TO\nLIMITED OFFICIAL USE MEXICO 3227\nFO 11652 : N/A\nTAGS : EFIN MX\nSUBJ : REPORT ON MEXICAN BANKER'S CONVENTION\nREF : MEXICO 3051\n1. EMBASSY FINANCIAL ATTACHE ATTENDING ANNUAL MEXICAN\nBANKER'S CONVENTION IN ACAPULCO THIS WEEK REPORTS THAT\nATMOSPHERE OF CONVENTION GENERALLY GOOD AT LEAST IN COMPARISON\nWITH PREVIOUS CONVENTIONS UNDER ECHEVERRIA ADMINISTRATION. THERE\nWERE NO SURPRISES WITH FINANCE SECRETARY MOCTEZUMA CID'S ADDRESS\nFOLLOWING LINES REPORTED REFTEL. BANKERS WERE ENCOURAGED BY\nHIS SPEECH AND THAT OF ROMERO KOLBECK, DIRECTOR GENERAL\nOF BANK OF MEXICO. BANCO DE MEXICO TOOK UNUSUAL STEP OF\nPUBLISHING ENTIRE TEXT OF KOLBECK'S SPEECH IN MAJOR\nMETROPOLITAN NEWSPAPERS.\n2. MOCTEZUMA CID ANNOUNCED PACKAGE OF ECONOMIC MEASURES\nINCLUDING LOWER RESERVE REQUIREMENTS, THE PETRO-BOND\nISSUE, MORE \"FLEXIBLE\" INTEREST RATES, \"SIMPLIFIED\"\nSAVINGS INSTRUMENTS, AND MEASURES TO ENCOURAGE TRADE\nON MEXICAN STOCK EXCHANGE. NO DETAILS OR EXPLANATION\nOF HOW MEASURES WOULD BE IMPLEMENTED WERE GIVEN. HOWEVER,\nGERALD FORD LIBRARY\nLIMITED OFFICIAL USE\n0\nDEPARTMENT\nOF\nSTATE\nUNITED\nDepartment of State\n/\nTELEGRAM\nI\nof\nLIMITED OFFICIAL USE\nPAGE 02\nMEXICO 03227 160106Z\nHE STATED THAT REGULATIONS GOVERNING NEW SAVINGS\nINSTRUMENTS AND STOCK EXCHANGE WILL BE PUBLISHED WITHIN\nNEXT FEW DAYS.\n3. HE REVIEWED MEASURES ALREADY TAKEN BY JLP GOVERNMENT\nTO SET FINANCES ON SOUNDER FOOTING. HE ENDED BY SAYING\nTHAT COUNTRY'S GENERAL ECONOMIC SITUATION SEEMS TO HAVE\nIMPROVED AND THAT THE NATION BASED ITS SOLVENCY ON ITS\nNATURAL RESOURCES, PETROLEUM, COFFEE AND TOURISM.\n4. KOLBECK'S SPEECH WAS SHORT AND FACTUAL COMPARED TO\nMOCTEZUMA'S MORE ORTATORY TONE. HE CALLED ATTENTION TO\nFACT THAT DOMESTIC BANKS HAD SHOWN AN AVERAGE WEEKLY\nINCREASE IN ASSETS DURING THE LAST TWO MONTHS OF ABOUT\n1,500 MILLION PESOS, COMPARED TO 164 AND 244 MILLION IN\n1976 AND 1975 RESPECTIVELY; THE INCREASES IN EXPORTS\nWHICH SOME AGRICULTURAL AND PETROLEUM PRODUCTS HAD\nGENERATED, AND INCREASES IN PRODUCTIVE CAPACITY OF\nCERTAIN INDUSTRIAL SECTORS. HE ALSO STATED THAT THE\nFEBRUARY CPI INCREASED ONLY 2.2 PERCENT COMPARED TO AN\nAVERAGE OF 4.0 PERCENT MONTHLY DURING THE LAST FOUR\nMONTHS OF 1976. HE ALSO ANNOUNCED THAT THE BANK'S\nRESERVES AT THE END OF LAST WEEK HAD ATTAINED 1,517\nMILLION DOLLARS AFTER HAVING LIQUIDATED THE LOANS OF THE\nFEDERAL RESERVE AND U.S. TREASURY. HE WENT ON TO STATE\nTHAT ARRANGEMENTS WOULD BE MADE THROUGH ADJUSTMENTS IN\nRESERVE REQUIREMENTS TO FREE AN INITIAL 2,000 MILLION OF\nPESOS FOR ADDITIONAL CREDIT TO THE GOVERNMENT'S PROGRAMS\nOF BASTC ARTICLES AND ALLIANCE FOR PROGRESS.\n5. COMMENT: SPEECHES WERE GENERALLY WELL RECEIVED WITH\nPARTICULAR INTEREST SHOWN IN CHANGES IN RESERVE REQUIRE-\nMENTS AND INTEREST RATES, BUT THIS SOMEWHAT MODERATED BY\nLACK OF DETAIL. SPEECHES NOTABLE FOR FACTUAL CONTENT AND\nHONEST APPROACH TO MEXICAN DIFFICULTIES COMPARED TO THOSE\nOF PREVIOUS YEARS. PRIVATE SECTOR OBVIOUSLY FLATTERED\nBY GENERAL TONE OF \"LET'S ALL WORK TOGETHER\". THOMPSON\nLIMITED OFFICIAL USE\nDEPARTMENT OF STATE\nMEXICO C2o\nDepartment of State\nof STATES UNITED AMERICA\nTELEGRAM\nCONFIDENTIAL\nEMT\n7466\nSS\nPAGE 01\nMEXICO 03051 1118502\nACTION ARA-06\nINFO OCT-01 SS-14 IS0-00 ARAE-00 SSO-00 NSCE-00 EB-04\nOMB-01 INR-07 INRE-00 CIAE-00 NSC-05 SP-02 L-01 PRS-01\n/042 W\n1118577 128989 /46\n0 111811Z MAR 77 ZFF-4\nFM AMEMBASSY MEXICO\nTO SECSTATE WASHDC IMMEDIATE 0838\nINFO TREASURY WASHDC IMMEDIATE\nG 0 VEIDENTIAL MEXICO 3051\nLIMDIS\nPLEASE RETURN TO\nINTERNATIONAL INFORMATION CENTER\nE, 0. 11652: XGDS\nTAGS: FFIN MX\nSUBJECT: GOM READIES ECONOMIC FINANCIAL PACKAGE\n1 c FINANCE MINISTER MOCTEZUMA CID TOLD PRESS THAT HE WILL\nPRESENT A PACKAGE OF ECONOMIC AND FINANCIAL MEASURES AT\nTHE ANNUAL BANKERS' CONVENTION BEGINNING MARCH 14. HE\nDID NOT REVEAL CONTENTS OF PACKAGE, BUT SAID THAT MEASURES\nWOULD BE AIMED AT RESTORING CONFIDENCE AND SECURITY TO THE\nCOUNTRY AND REVITILIZING THE ECONOMY. FINATT OBTAINED\nOUTLINE OF FINANCIAL MEASURES FROM BANK OF MEXICO.\n2. FINANCIAL MEASURES WILL TOUCH ON LEGAL RESERVE REQUIREMENTS\nAND INTEREST RATES. REGARDING THE LEGAL RESERVE REQUIREMENTS\nTHE TWO PRESENT REQUIREMENTS WILL BE UNITED INTO ONE EQUAL\nTO THE EFFECTIVE RATE AT PRESENT. THUS, NO RESERVES WILL\nRE FREED BY THIS MEASURE WHICH IS TO BE EFFECTIVE MARCH 14.\nONE OF THE TWO PRESENT RESERVE REQUIREMENTS APPLIES TO\nDEPUSITS UP TO A CERTAIN DATE WHEREAS THE SECOND IS A\nMARGINAL RATE APPLICABLE TO THE INCREASE IN DEPOSITS AFTER\nTHIS DATE. THE NEW RATE WILL BE LOWER THAN THE\nMARGINAL RATE, THUS, WHILE THE MEASURE WILL HAVE NO\nDECLASSIFIED\nE.O. 12958, Sec. 3.5\nState Dept. Guidelines\nBy dal\n, NARA, Date 7/26/07\nGERALD FORD VIBRARY\nCONFIDENTIAL\nGRAWTHENT\nOF\nSTATE\nUNITED\n9)\nDepartment of State\nTELEGRAM\nSTATES\nOF\nCONFIDENTIAL\nPAGE 02\nMEXICO 03051 1118502\nIMMEDIATE IMPACT ON CREDIT AVAILABILITY, AS DEPOSITS\nINCREASE IN THE FUTURE, A LARGER PERCENTAGE OF THE\nINCREASE WILL BE AVAILABLE FOR CREDIT TO THE PRIVATE\nSECTOR. HOWEVER, OVER THE SHORT TERM? BANKS WILL BE\nFORCED TO USE PART OF THIS INCREASE IN LENDABLE FUNDS\nTO REPAY THE BANK OF MEXICO FOR THE LOANS EXTENDED\nTO THE PRIVATE BANKS FROM THE CENTRAL BANK DURING THE\nLAST FOUR MONTHS OF 1976, THE BANKS? LIABILITIES TO\nTHE CENTRAL BANK REACHED 20 BILLION PESOS AT END=75.\nTHERE ARE NOW SOMEWHAT OVER TEN BILLION PESOS. IN\nEFFECT, RATHER THAN LOWER RESERVE REQUIREMENTS DURING\nTHE RUN ON THE BANKS LAST YEAR THE BANK OF MEXICO\nOPENED UP ITS DISCOUNT WINDOW WHICH HAD BEEN USED\nONLY RARELY BEFORE.\n3. MULTI-BANKS, I.E., BANKS THAT CARRY ON A VARIETY\nOF BANKING FUNCTIONS SUCH AS COMMERCIAL INVESTMENT,\nMORTGAGE WILL BE SUBJECT TO A SINGLE RESERVE REQUIRE-\nMENT ON ALL DEPOSITS. THIS WILL BE 40 PERCENT WHICH\nIS THE AVERAGE RATE FOR THE BANKING SYSTEM PRESENT.\nTHUS, FOR THOSE INSTITUTIONS MADE POSSIBLE BY\nA CHANGE IN THE BANKING LAW IN 1975\nOF WHICH THERE ARE NOW TEN, THE SAME RESERVE REQUIRE-\nNENT WILL APPLY TO ALL TYPES OF DEPOSITS.\n4. THE FINANCE MINISTER WILL ANNOUNCE THE INTENTION\nTO FREE INTEREST RATES OVER A PERIOD OF TIME. THE\nOBJECTIVE WILL BE TO LET THE MARKET DETERMINE INTEREST\nRATES, BUT ONLY GRADUALLY. DETAILS OF THE INTEREST\nRATE REFORSM HAVE STILL TO BE WORKED OUT, BUT BANK OF\nMEXICO WANTS TO SEE FINANCIAL BONDS-WHICH ARE, IN\nEFFECT, INTEREST BEARING DEMAND DEPOSITS- ELIMINIATED.\nTHEY ARE THINKING OF PERMITTING NO NEW FINANCIAL BONDS\nTO BE TSSUED, AND TO GRADUALLY REPLACE THEM WITH SHORT\nTERM DEPOSIT INSTRUMENTS FOR THREE OR SEVEN DAYS THAT\nPAY INTEREST BELOW THE 9.39 PERCENT GROSS RATE PAID ON\nGERALD FORD LIBRARY\nCONFIDENTIAL\nDEPARTMENT OF STATE\nDepartment of State\nSTATE UNITED AMERICA\nTELEGRAM\nOF\nCONFIDENTIAL\nPAGE 03\nMEXICO 03051 111850Z\nFINANCIAL BONDS.\n5, IN THE PAST, THE BANK OF MEXICO TENDED TO INTRODUCE\nNEW TYPES OF SAVINGS INSTRUMENTS RATHER THAN CHANGE\nDEPOSIT RATES. NOW IT HOPES TO REDUCE THE NUMBER OF\nINSTRUMENTS AND CONCENTRATE ON CERTIFICATES OF DEPOSITS\nWITH MATURITIES RANGING FROM ONE MONTH TO ONE YEAR.\nTHE INTEREST RATE REFORMS WILL BEGIN TO TAKE EFFECT\nAPRIL 1.\n6. BANK OF MEXICO ALSO WANTS TO REDUCE RATES PAID ON\nDOLLAR DEPOSITS TO A LEVEL JUST SLIGHTLY ABOVE LONDON\nAND NEW YORK RATES. PRESENT RATES ON THREE MONTH\nDOLLAR DEPOSITS ARE 8.5 PERECENT FOR NON RESIDENTS AND\n7.5 PERCENT FOR RESIDENTS. BANK IS THINKING OF TYING\nRATE ON MEX DOLLARS TO LIBO PLUS ONE PERCENT.\n7, IT IS NOT CLEAR WHAT IF ANYTHING THE FINANCE\nMINISTER WILL SAY ABOUT THE BUDGET. THE BANK OF MEXICO\nHAS MADE A CASE TO THE PRESIDENT TO REDUCE SPENDING.\nTHERE ARE VARIOUS REPORTS THAT BUDGETS ARE BEING CUT,\nBUT WE HAVE NO CONFIRMATION FROM OFFICIALS OF THIS.\nB. FIRST TOLD BY BANK OF MEXICO OFFICIALS THAT NO\nCHANGES IN THE EXCHANGE SYSTEM WOULD BE ANNOUNCED.\nTHOMPSON\nFORD is LIBRARY GERALD\nCONFIDENTIAL\nCONFIDENTIAL\nMarch 22, 1977\nTO:\nChairman Burns\nFROM: Ted Truman EMT\nAttached is a cable from Mexico giving some back-\nground information on Mexico's economic and financial policies\nprior to the Finance Minister's address to the bankers' con-\nvention on March 14. (We were not on the original distri-\nbution list for this cable; this is the reason why it was\ndelayed in reaching us.)\nAttachment: Mexico 3051\nCC: Governor Wallich\nDefense classification of this document is due\nto the inclusion of U.S. Government information\nofficially classified under Executive Order 10501\nwhich provides that \"A document... shall bear a\nclassification at least as high 35 that of its\nhighest classified component.\"\nFORD & LIBRARY GENALD\nRESTRICTED\nRESTRICTED\nHANDLE THE ATTACHED DOCUMENT IN ACCORDANCE WITH INTERNAL\nINFORMATION SECURITY PROCEDURES FOR RESTRICTED INFORMATION\nFORD is LIBRARY\nRESTRICTED\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate March 23, 1977\nTo\nChairman Burns\nSubject:\nFrom Ted Truman EMT\nRESTRICTED\nAttached is an initial report by Mr. Maroni on the IMF\nmission that recently returned from Mexico and on the status of\nMexican negotiations with the Export=Import Bank. We will be\nfollowing up with the IMF staff on their discussions in Mexico.\nFor your information, we understand that Secretary Blumenthal will\nbe having lunch with Mr. Witteveen on Thursday, March 24. At that\ntime they are expected to discuss the Mexican economic situation.\nAttachment\ncc: Governor Wallich\nFORD & LIBRARY GERALD\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate March 23, 1977\nTo\nMr. Truman\nSubject: Update on Mexico\nFrom Yves Maroni Yn\nRESTRICTED\nQERALE FORD JBRARY\nThe IMF staff mission which visited Mexico earlier this month\nhas now returned and has given Mr. Witteveen a discouraging report.\nThe mission found a lack of current data and government inaction on the\nfiscal issue. The Mexican authorities made much of measures being taken\non interest rates and reserve requirements, but the mission considers\nthese to be in the nature of band-aids, when surgery is indicated.\nThe above information was given to me by the new Mexico desk\nofficer at Treasury, Mr. Don Niewiaroski. I asked Mr. Niewiaroski\nwhether he had any information regarding the progress being made toward\nestablishing an Eximbank line of credit for PEMEX. He replied that he\ndid not know of any progress being made. He advised me to verify this\nwith Eximbank. At Eximbank, the Mexico desk officer, Mr. Peter Gosnell,\ntold me that the Mexicans had not even initiated discussions about such\na line of credit. He said that he was present when Messrs. Moctezuma and\nRomero Kolbeck visited Eximbank officials in February and that the conver-\nsation was confined to pending minor issues and generalities. He assured\nme that he would know if the matter had been activated as it would have\nto go before the Eximbank Board of Directors and he would have to prepare\nthe background paper on Mexico. An Eximbank staff mission is scheduled\nto go to Mexico in April to discuss other matters, and Mr. Gosnell, who\nwill participate in this mission, speculated that the Mexicans might raise\nthe issue at that time.\nRESTRICTED\nMR95-1, 37\nICBH 4/12/96\nRESTRICTED\nTed Truman\n- 2 -\nIn this connection, Mr. Niewiaroski told me that the Mexicans\nwere still formulating their oil strategy and reviewing their needs.\nHe said that the major oil companies had approached the Mexicans with\nproposals covering exploration and production of oil and providing for\nthe retention of some of the oil by the companies in payment for their\nservices, but that the Mexicans had other ideas. The Mexicans would\nlike to get foreign companies to survey and assess their oil reserves\nand tell them where the oil is, after which the Mexicans would undertake,\nby themselves, to get the oil out of the ground. Eximbank has told the\nMexicans that they would be prepared to finance exploration and exploita-\ntion, but that the financing of any infrastructure projects associated\nwith oil development would have to be obtained from the international\ndevelopment lending institutions.\nIt is possible that the Mexicans have not yet initiated dis-\ncussions with Exim in part because their international reserve position\nis strong enough at the moment to remove any feeling of urgency they\nmight have had earlier. Mexico's international reserves totalled $1,452\nmillion on March 18 compared with $1,261 million at the end of 1976. In\nthis connection, at the annual meeting of the Mexican Bankers Association,\nheld last week, Mr. Romero Kolbeck announced that Mexico's international\nreserves rose to $1,615 million on March 11 from $1,412 million last\nDecember 31. However, these figures include holdings of silver and a\npaper gain resulting from the revaluation of gold holdings to market prices.\nRESTRICTED\nFORD & LIBRARY 03RALD\nRESTRICTED\nTed Truman\n- 3 -\nSS:1 119\nMr. Romero Kolbeck was quoted in the press as saying that the increase\nwas recorded after liquidating loans obtained from the Federal Reserve\nSystem and the U.S. Treasury during the emergency period last year.\nHowever, there have been no repayments to the Treasury in 1977 and the\n$150 million Mexico borrowed from the Treasury in November is still\noutstanding.\nThe Mexican measures affecting interest rates and reserve re-\nquirements involve a minor relaxation in credit restraints and an in-\ncreased degree of flexibility in interest rates. The two-tier system\nof reserve requirements, whereby one ratio applied to deposits on a base\ndate and another ratio to the increase in deposits since that date, is\nbeing replaced by a single ratio set at an intermediate level such that\nthe amount of reserves required to be held by the banks when the switch\ntakes place will not change. However, as deposits continue to rise, the\nadditional reserves required under the new arrangement will be smaller\nthan would have been the case under the previous system. The effect of\nthis relaxation will be delayed because, before the banks are able to\nincrease credit, they must repay their indebtedness to the Bank of Mexico,\ncontracted during the hectic weeks which followed the devaluation last\nSeptember. The specific details of the interest rate measure have not yet\nbecome available.\nRESTRICTED\nFORD i GERALD LIBRARY\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nassurt beT\n1977 MAR 23 PM 22\nsessiont add Jods gatve 88 22919 odd ni beloup BOW MoodloX отетой .TM\nRECEIVED\nevreash Isrobol sd3 most OFFICE OF THE CHAIRMAN bebroom asw\n.ISSY Jasi bottog odd galiub VIU8891T .2.0 9d3 bris modey?\nadd bas ггед nt VIDEROTT sd: od on used oved stade\nIlise si at TreaserT 913 шота beworfed octxoM noillin 0218\n-91 9VI9891 bas sodex gutdosite 89108590 пводхом adT\n-nt no bas Jibero at B eviovat\nmedays retd-owd adT at to 997806 beasero\nsand B no estaogeb 03 beliggs offer one ydorsdw 9VI9397 to\nat estab 1603 sonta atteoqeb at sessiont 9dd 03 offer Das stab\ndoue Isvel ns 38 Jea older signia B vd boosIqer guied\ndoctive 0513 naily adved edit vd blod ad 03 Dertuper 89VI9891 to Jauons add\n9dd essix 03 continue alteogob as .sgnado Job lltw easig assist\nad Miv was orio Teboo beztuper\nto sootle afT .modeva avoivery 9dd rebou 3880 grit used eved blrow neds\n03 olds SIB asked sdd excled seusoed beysieb ad Iltw notisxaler aldo\nto Road 9d3 of [ager Jaum yada Jibero seserent\nJasi notisulaveb add bewollot doldw alasw offend 9dd 301xub\n19V Jon sved BIST 18979301 9113 to allaseb officege edT\nCENNID\n3a\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nCONF IDENTIAL\n1977 MAR 28 AM 11: 42 March 28, 1977\nOFFICE OF RECEIVED THE CHAIRMAN\nTO:\nChairman Burns\nFROM: Ted Truman\nAttached are two recent telegrams from Mexico.\nThe first telegram (Mexico 3576) summarizes available\ninformation on Mexican external borrowing. Apparently, Mexico has\nalready borrowed or arranged to borrow $350 million for Pemex, about\n$40 million in a DM bond placement, and at least $75 million in\nprivate placements. Another $150 million Euro-credit is apparently\nin the works and Merrill Lynch may be underwriting a bond issue in\nthe U.S. market that should amount to less that $100 million.\nThe second telegram (Mexico 3581) reports on the Mexican\nBankers' Convention.\nAttachments\ncc: Governor Wallich\nDefense classification of this document is due\nto the inclusion of U.S. Government information\nofficially classified under Executive Order 10501\nwhich provides that \"A document... shall bear a\nclassification at least as high as that of its\nhighest classified component\"\nFORD is LIBRARY GERALD\nEmT\n4a\n-\nSTATE\nEMT\nDE\nDepartment of State\nSTATE UNITED AMERICA\nTELEGRAM\nOF\nCONFIDENTIAL 2712\nPAGE 01\nMEXICO 03576 241415Z\nACTION ARA-10\nINFO OCT-01 ISU-00 EB-08 AID-05 CIAE-00 COME-00 FRB-03\nINR-07 NSAE-00 USIA-06 XMB-02 OPIC-03 SP-02\nLAB-04 SIL-01 OMB-01 NSC-05 SS-15 STR-04 CEA-01\nIO-13 EUR-12 DODE-00 PA-01 PRS-01 L-03 /108 W\n250252Z 077070 /72-61\nR 241408Z MAR 77\nFM AMEMBASSY MEXICO\nTO SECSTATE WASHOC 1032\nINFO TREASURY WASHDC\nPlease return to\n6 0 N F I D E N I A MEXICO 03576\nInternational Information Center\nE.0.11652:GDS\nTAGS: EFIN MX\nSUBJECT: EXTERNAL BORROWING\n1. SUMMARY: WHILE FOREIGN BANKERS WERE LESS THAN\nENTHUSED WITH WHAT THEY HEARD AT THE MEXICAN BANKERS'\nCONVENTION, THEY DID INDICATE THAT A NUMBER OF FOREIGN\nBORROWINGS ARE TAKING PLACE. END SUMMARY.\n2. FOREIGN BANKERS ATTENDING THE CONFERENCE GRUMBLED A\nBIT ABOUT CONTINUING UNCERTAINTIES OVER THE DIRECTION THE\nMEXICAN ECONOMY IS TAKING, BUT THEY ARE CONTINUING TO\nLEND MEXICO MONEY, THOUGH THE GLOBAL AMOUNTS CANNOT\nBE QUANTIFIED,\n3. MEXICO HAS CONTRACTED ONLY TWO PUBLICIZED MEDIUM TERM\nEXTERNAL LOANS THUS FAR IN 1977, ONE IS THE $350 MILLION\nEURODOLLAR CREDIT FOR PEMEX SIGNED MARCH 21. ANOTHER IS\n100 MILLION D.M. MEDIUM TERM BONDS FOR NAFINSA, BEING\nUNDERWRITTEN BY THE DRESDENER BANK. WHILE THE PROCEEDS\nOF THESE LOANS ARE NOT YET AVAILABLE THERE HAVE BEEN AN\nUNQUANTIFIABLE NUMBER OF PRIVATELY PLACED MEDIUM TERM\nLOANS OF ONE KIND OR ANOTHER. REPRESENTATIVE OF A MEDIUM\nDECLASSIFIED\nE.O. 12958 SEC. 3.6\nMR07-117, #26; state ltr 2/22/08\nGERALD FORD LIBRARY\nBY doe NARA DATE 3/10/08\nCONF IDENTIAL\n0\nFORM\nSTATE\nDepartment of State\nUNITED\n/\nTELEGRAM\nSTATES\nOF\nCONFIDENTIAL\nPAGE 02\nMEXICO 03576 241415Z\nSIZED Usko MERCHANT BANK SAID HE HAD PUT TOGETHER $75\nMILLION IN NEW CREDITS SINCE JANUARY 1. NONE OF WHICH\nWERE PUBLICIZED, SEVERAL BANKERS HAVE TOLD FINATT ABOUT\nMEDIUM TERM SUPPLIER CREDITS TO PUBLIC SECTOR ENTERPRISES\nWITH GOM GUARANTEES. APPARENTLY A GOM-OWNED ENTERPRISE\nWILL GO TO A U.S. SUPPLIER AND ASK THE SUPPLIER TO\nOBTAIN A MEDIUM TERM CREDIT FROM HIS U.S. BANKERS. CREDIT\nIS THEN GUARANTEED BY GOM ENTITY SUCH AS NACIONAL\nFINANCIERA. IN SOME CASES THESE SOUND LIKE RESTRUCTURING\nOF DEBT. ONE U.S. BANKER TOLD FINATT THAT WHILE HE WAS\nUNHAPPY RE THESE LOANS, THE BANK LENDING OFFICER FOR THE\nU.S. CORPORATION WANTED TO HELP HIS CLIENT AND THE GOM\nGUARANTEE MADE THE PAPER LOOK GOOD. THERE HAS ALSO\nBEEN A LOT OF SHORT TERM LOAN SYNDICATION.\n4. GOM IS ANXIOUS TO GET AN UNDERWRITING GROUP FOR ITS\nNEXT PUBLIC EURODOLLAR ISSUE AND THIS IS LIKELY TO BE\nROUGHLY $150 MILLION FOR THE PUBLIC WORKS BANK. THERE\nIS ALSO A BOND ISSUE FOR THE UNITED MEXICAN STATES THAT IS\nABOUT READY TO BE FLOATED IN THE U.S. THE UNDERWRITER IS\nMERRILL LYNCH AND THIS MAY BE AN ISSUE THAT WAS ALMOST\nREADY TO GO TO MARKET WHEN THE INITIAL DEVALUATION WAS\nANNOUNCED. WE ARE NOT SURE OF THE AMOUNT, BUT DOUBT IF\nIT EXCEEDS $100 MILLION.\n5. DURING THE BANKERS CONVENTION, NAFINSA'S DIRECTOR\nTOLD PRESS THAT MEXICO'S PUBLIC SECTOR WOULD BORROW ABOUT\n$3 BILLION IN 1977 AS THIS WAS THE LIMIT IMPOSED BY\nTHE IMF. HE WAS ALSO REPORTED AS SAYING THAT IT WOULD\nBORROW ANOTHER $3 BILLION, TO COVER INTEREST AND AMORTIZA-\nTION PAYMENTS PLUS SOME FUNDING OF SHORT TERM DEBT.\n6. REGARDING THE AGREEMENT WITH THE FUND, MOCTEZUMA\nMENTIONED THIS IN HIS SPEECH AS ONE OF THE ACCOMPLISHMENTS\nOF THE NEW ADMINISTRATION, ROMERO KOLBECK TOLD\nTHE PRESS THIS WAS STRICTLY A FINANCIAL AGREEMENT THAT IT\nCONFIDENTIAL\nFORM\nDS-1652\nSTATE\n*\nUNITED AMERICA\nDepartment of State\nTELEGRAM\nSTATES OF\nCONFIDENTIAL\nPAGE 03\nMEXICO 03576 241415Z\nIN NO WAY INFLUENCES THE COUNTRY'S POLICY. IF THIS WERE\nPERMITTED, HE IS REPORTED AS SAYING, IT WOULD BE TANTA-\nMOUNT TO LOSING MEXICO'S SOVEREIGNTY. THOMPSON\nFORD & 9ERALD LIBRARY\nCONFIDENTIAL\nFORM\nde STATE\nEMT\nDepartment of State\nUNITED AMERICA\nTELEGRAM\nSTATES OF\nCONFIDENTIAL\n1659\nPAGE 01\nMEXICO 03581 01 OF 02 241703Z\nACTION ARA-10\nINFO OCT-01 ISO-00 SP-02 USIA-06 AID-05 EB-08 NSC-05\nSS-15 STR-04 OMB-01 CEA-01 L-03 H=01 PA-01 PRS-01\nCIAE-00 COME-00 FRB-03 INR=07 NSAE-00 XMB-02\nOPIC-03 LAB-04 SIL-01 AGRE-00 1084 W\n241757Z 081025 /53\nR 241652Z MAR 77 24\nFM AMEMBASSY MEXICO\nTO SECSTATE WASHDC 1033\nINFO TREASURY WASHDC\n/A zatt.\nN\nF\nI\n0\nE\nN\nI\nA\nSECTION 01 OF 02 MEXICO 03581\ndal 7/26/07\nE.O. 11652:GDS\nTAGS:EFIN MX\nPlease return to\nSUBJECT: MEXICAN BANKERS CONVENTION\nInternational Information Center\nREF\" (A) MEXICO 3051; (B) MEXICO 3227\n1. SUMMARY: PRIOR TO BANKERS CONVENTION MEXICAN PRESS\nWAS FORECASTING THAT A MAJOR ECONOMIC PROGRAM WOULD BE\nANNOUNCED. WHILE MEASURES MENTIONED IN FINANCE MINISTER'S\nSPEECH REPRESENT SOME DEGREE OF PROGRESS IN COPING WITH\nMEXICO'S ECONOMIC PROBLEMS, NO NEW BUDGETARY POLICIES WERE\nANNOUNCED, NOR DID GOM SPOKESMEN PROVIDE ANY FURTHER\nGUIDANCE ON WHY THE PESO MUST FLOAT AND WHERE IT MIGHT GO.\nEND SUMMARY.\n2. MEXICAN BANKERS CONVENTION IS PROBABLY THE MOST\nSIGNIFICANT FINANCIAL GATHERING IN MEXICO. THIS YEAR'S\nCONVENTION WAS SAID TO HAVE ATTRACTED A RECORD NUMBER\nOF FOREIGN AND DOMESTIC BANKERS. THE PRESS WAS FORE\nCASTING A MAJOR PACKAGE OF ECONOMIC AND FINANCIAL\nMEASURES. WHILE FINANCE MINISTER MOCTEZUMA ANNOUNCED A\nSIX MEASURE PACKAGE, HE DID NOT SAY ANYTHING THAT COULD\nBE INTERPRETED AS CHANGING BUDGETARY POLICY, NOR DID HE\nFORD & LIBRARY GERALD\nGONF IDENTIAL\n0\nFORM\nOF STATE\nUNITED\nDepartment of State\nTELEGRAM\nSTATES\nOF\nCONFIDENTIAL\nPAGE 02\nMEXICO 03581 01 OF 02 241703Z\nOR THE BANK OF MEXICO DIRECTOR GENERAL PROVIDE ANY FURTHER\nGUIDANCE ON EXCHANGE RATE POLICY. WAGE POLICY WAS NOT\nDISCUSSED.\n3. THE SIX MEASURES ANNOUNCED BY MOCTEZUMA WERE: (A)\nPERMIT PESO INTEREST RATES TO BE FIXED BY MARKET\nCONDITIONS AND TIE INTEREST RATES ON MEX DOLLARS MORE\nCLOSELY TO INTERNATIONAL RATES: (B) REFORM LEGAL RESERVE\nREQUIREMENTS IN ORDER TO PERMIT BANKS TO USE A LARGER\nPORTION OF NEW DEPOSITS FOR CREDIT TO THE PRIVATE SECTOR,\n\"PREFERABLY FOR ACTIVITIES WITHIN THE ALLIANCE FOR\nPROGRESS; (C) TIGHTEN RESTRICTIONS ON LOANS TO ONE\nBORROWER AND DEPOSITS FROM ONE LENDER IN ORDER TO AVOID\nEXCESSIVE DEPENDENCE BY A BANK ON ONE LENDER OR BORROWER'\n(D) DEFINE MORE CLEARLY WHICH SECURITIES SOLD TO THE\nPUBLIC THROUGH THE STOCK EXCHANGE BENEFIT FROM CERTAIN TAX\nADVANTAGES AND MAKE GREATER RESOURCES AVAILABLE TO\nSECURITY HOUSES FROM BANKS; (E) SILVER COINS WILL SOON BE\nPUT INTO CIRCUMSTATION. (SEE 76 MEXICO 15939) 1\n(F) PETROBONDS WILL BE ISSUED AT END-APRIL AND WILL,\nCONTRARY TO PREVIOUS INFORMATION, HAVE A THREE YEAR\nMATURITY. (SEE MEXICO 2882). ROMERO KOLBECK ADDED A\nSEVENTH MEASURE, A TWO BILLION PESO CREDIT FACILITY TO\nFACILITATE THE PRODUCTION OF THE 90 BASIC PRODUCTS (SEE\nMEXICO 1018). HE DID NOT ELABORATE ON WHAT FORM THIS\nWOULD TAKE.\n4. WHILE MOCTEZUMA SAID THAT ONE OF THE BASIC ASPECTS OF\nTHE GOM'S ECONOMIC POLICY WAS THE \"CONTROL OF INFLATION,\nAS MUCH TO AVOID ITS ACCELERATION AS TO ACHIEVE, IN\nGRADUAL FORM, A REDUCTION.\" FOLLOWING THE ABOVE STATEMENT,\nHE SAID, \"THE PUBLIC SECTOR IS READY TO MEET ITS\nRESPONSIBILITY IN THIS FIGHT, FUNDAMENTALLY THROUGH THE\nRECONSTITUTION OF PUBLIC SAVING IN ORDER TO FINANCE IN A\nHEALTHY FORM INVESTMENT AND THE GENERATION OF JOBS. FOR\nTHIS, ONE OF THE FUNDAMENTAL MEANS CONSISTS IN REDUCING\nCONFIDENTIAL\nFORM\nDEPAR on STATE\nDepartment of State\nSTATE AMERICA UNITED MAMES\nTELEGRAM\nOF\nCONF IDENTIAL\nPAGE 03\nMEXICO 03581 01 OF 02 241703Z\nTHE PROPORTION OF ITS GLOBAL DEFICIT, TO PUT EMPHASIS ON\nTHE CONTROL OF CURRENT SPENDING AND TO PROVIDE TO THE\nSTATE REAL RESOURCES THROUGH A SUITABLE PUBLIC INCOME\nPOLICY.\" THERE WAS NO MENTION OF REDUCING SPENDING IN\nHIS SPEECH, BUT THE FINANCE MINISTER WAS ASKED AT A\nSUBSEQUENT PRESS CONFERENCE IF THIS MIGHT NOT BE NECESSARY.\nHE REPORTEDLY RESPONDED THAT WHILE THE BUDGET MAY APPEAR\nHIGH, IT WAS NOT REALLY, ADDING THAT IT IS AIMED AT\nSUPPORTING BASIC ACTIVITIES AND AVOIDS ANY SUPERFLUOUS\nSPENDING.\n5. ANOTHER SUBJECT THAT WAS NOTABLE FOR THE LACK OF\nSPECIFICS WAS THE EXCHANGE SYSTEM. BOTH MOCTEZUMA AND\nROMERO KOLBECK SAID THAT THE PESO WOULD CONTINUE TO FLOAT\nAND THAT FREE CONVERTIBILITY WOULD BE MAINTAINED. THEY\nNEVER ADDRESSED THE REASONS FOR THE FLOAT, NOR DID THEY\nINDICATE WHAT FACTORS MIGHT INFLUENCE THE RATE OVER THE\nFUTURE. ROMERO KOLBECK SAID ONLY THAT THE FLOATING RATE\n\"TENDS TO REFLECT WITH GREATER REALITY OUR POSITION\nRELATIVE TO THE EXTERIOR.' HE ALSO NOTED THAT AN\n\"INCIPIENT AND VERY LIMITED\" FUTURES MARKET HAD BEGUN,\nBUT ANNOUNCED NO GOVERNMENT MEASURES TO FOSTER SUCH A\nMARKET. MOCTEZUMA SAID THE PESO WOULD CONTINUE TO FLOAT.\nHE TOLD A REPORTER THAT \"CURRENTLY, ALL THE WORLD'S\nCURRENCIES ARE SUBJECT TO VARIATION THEREFORE MEXICO\nCANNOT WITHDRAW FROM THESE PARAMETERS, AS MUCH FOR\nINTERNAL AS EXTERNAL REASONS.\" HE ADDED THAT \"WE COULD\nNOT MAKE A DETAILED EXAMINATION OF THE ADVANTAGES OR\nDISADVANTAGES OF A FLOATING PESO OR A FIXED PARITY. IT IS\nENOUGH TO SAY THAT WE WOULD GO COUNTER TO THE WORLD\nFORD is LIBRARY GERALD\nCONFIDENTIAL\nDEPARTMENT or STATE\nDepartment of State\nUNITED STATES OF\nTELEGRAM\nCONFIDENTIAL 1658\nPAGE 01\nMEXICO 03581 02 OF 02 241721Z\nACTION ARA-10\nINFO OCT-01 ISU-00 SP-02 USIA-06 AID-05 EB-08 NSC-05\nSS=15 STR-04 OMB-01 CEA-01 L-03 H-01 PA=01 PRS-01\nCIAE-00 COME-00 FRB-03 INR-07 NSAE-00 XMB-02\nOPIC-03 LAB-04 SIL-01 AGRE-00 1084 W\n2417572 081588 /53\nR 241652Z MAR 77\nFM AMEMBASSY MEXICO\nTO SECSTATE WASHDC 1034\nINFO TREASURY WASHDC\nCONFIDENTIAL SECTION 02 OF 02 MEXICO 03581\nSITUATION IF WE TRIED TO FIX THE PARITY.\"\n6, PERHAPS THE MOST INTERESTING SPEECH WAS THAT OF\nEUGENIO ERANA, THE INCOMING PRESIDENT OF THE BANKERS\nASSOCIATION, HE MADE A VERY STRONG ANTI INFLATION\nSTATEMENT WITH PARTICULAR EMPHASIS ON THE IMPACT OF\nINFLATION ON ECONOMIC GROWTH AND POLITICAL STABILITY.\nHE ALSO SPOKE OUT AGAINST PRICE CONTROLS NOTING THAT THEY\nDO NOT REDUCE INFLATIONARY PRESSURES. HIS SPEECH, MADE\nAT THE CLOSING SESSION, WAS WARMLY APPLAUDED.\n7. THE GOM RELEASES A CURRENT RESERVE FIGURE ONLY TWICE\nA YEAR, AT THE BANKERS CONVENTION AND IN THE PRESIDENT'S\nSEPTEMBER 1 STATE OF THE UNION ADDRESS. ROMERO SAID\nRESERVES AS OF MARCH 11, WERE $1,617 MILLION, \"AFTER\nHAVING LIQUIDATED LOANS FROM THE FEDERAL RESERVE AND\nU.S. TREASURY.\"\n8. TWO THEMES PREVAILING IN THE SPEECHES OF FINANCE\nMINISTERS AND BANK OF MEXICO DIRECTOR WERE THE NEED TO\nGENERATE INTERNAL SAVINGS AND NEW JOBS. ROMERO CRITICIZED\nTHE OLD \"GROWTH WITH STABILITY\" POLICIES AS HAVING\nGENERATED EXCESSIVE FOREIGN INDEBTEDNESS AND TOO FEW JOBS.\nFORD is LIBRARY GERALD\nCONFIDENTIAL\nOF\nSTATE\nUNITED\nDepartment of State\nTELEGRAM\nSTATES\nOF\nCONFIDENTIAL\nPAGE 02\nMEXICO 03581 02 OF 02 241721Z\nTHE IMPACT OF THE MEASURES ANNOUNCED LAST WEEK WOULD\nAPPEAR TO BE LIMITED, AT LEAST DURING THE CURRENT YEAR.\nTHE LOWERING OF INTEREST RATES ON MEX DOLLAR DEPOSITS\nMIGHT DISCOURAGE SAVINGS IN THIS FORM. LIKEWISE THE\nREDUCTION IN INTEREST RATES ON \"FINANCIAL BONDS\" COULD\nPOSSIBLY DISCOURAGE SAVINGS IN THIS INSTRUMENT. WHETHER\nTHE MONEY WOULD SWITCH TO A LONGER TERM PESO INSTRUMENT\nOR TO DOLLARS IS UNKNOWN, BUT THE MEXICANS DO SEEM TO BE\nRUNNING SOME RISKS IN THEIR INTEREST RATE REFORM, PARTICU-\nLARLY IF THEY MOVE SLOWLY IN INCREASING INTEREST RATES ON\nPESO TERM INSTRUMENTS.\n9. THE LEGAL RESERVE REQUIREMENT CHANGES MIGHT COMPLICATE\nFINANCING OF THE PUBLIC SECTOR DEFICIT AS THESE REQUIRE-\nMENTS PROVIDE MUCH OF THE DOMESTIC FINANCING. ON THE\nOTHER HAND, THE GOM IS GOING DIRECTLY TO THE PUBLIC FOR\nFUNDS IN THE FORM OF PETRO BONDS AND TREASURY UNDER\nSECRETARY DE LA MADRID INDICATED THAT PUBLIC SECTOR MAY GO\nDIRECTLY TO THE CAPITAL MARKET FOR FUNDS.\n10. THE LACK OF ANYTHING NEW ON BUDGET POLICY IS\nDISAPPOINTING. WHILE ONE HEARS STORIES OF CURRENT\nSPENDING CUTBACKS THERE IS NO PUBLIC STATEMENT TO THIS\nEFFECT AND MOCTEZUMA'S STATEMENTS ON THIS SUBJECT WERE\nVERY BLAND. THE SIZE OF THE BUDGET DEFICIT HAS BEEN ONE\nOF THE MAJOR CONCERNS OF FOREIGN BANKERS.\n11. ALSO DISAPPOINTING WAS THE LACK OF A MORE DETAILED\nEXPLANATION FOR THE REASONS THAT THE PESO IS FLOATING\nAND THE DIRECTION IT MIGHT TAKE. THIS IS NOT WELL\nUNDERSTOOD BY MANY LOCAL AND FOREIGN BUSINESSMEN AND IS\nOFTEN CITED AS A HINDRANCE TO INCREASED FOREIGN PRIVATE\nINVESTMENT. AS IS OFTEN THE CASE IN MEXICO, THE NEED TO\nCONTINUE TO FLOAT IS ATTRIBUTED TO FOREIGN MORE THAN\nDOMESTIC FACTORS.\nCONFIDENTIAL\nof STATE\nDepartment of State\nUNITED AMERICA NAME\nTELEGRAM\nSTATES OF\nCONFIDENTIAL\nPAGE 03\nMEXICO 03581 02 OF 02 241721Z\n12. A NUMBER OF ATTENDEES COMMENTED THAT THE ATMOSPHERE\nAT THIS YEAR'S CONVENTION WAS MUCH BETTER THAN IN THE PAST\nSEVERAL YEARS UNDER ECHEVERRIA. LOPEZ PORTILLO WAS WARMLY\nRECEIVED BY THE CONVENTION AND THERE WAS A sense THAT\nTHE COUNTRY WAS MOVING IN THE RIGHT DIRECTION EVEN IF\nECONOMIC POLICIES WERE NOT COMPLETELY TO THE SATISFAC=\nTION OF ALL THE ATTENDEES. THOMPSON\nFORD & LIBRARY GENALD\nin\nCONFIDENTIAL\nRESTRICTED\nApril 1, 1977\nTO:\nChairman Burns\nFROM:\nTed Truman EMT\nSUBJECT: Visit by Messrs. Romero Kolbeck and Alfredo Phillips\nWe have learned from the U.S. financial attache in Mexico\nvia the Treasury Department that the main purpose of the visit by\nMr. Romero Kolbeck (accompanied by Mr. Alfredo Phillips) to Washington\non Tuesday is to see you. (They will also see Mr. Solomon but only\nbecause they will be here seeing you.)\nWe understand that the reason for the visit is the Mexicans'\nconcern about your public statements on bank lending to developing\ncountries. The Mexicans apparently think that these statements have\nbeen, or will be, damaging to their ability to raise funds from abroad\nthat they want or need to raise.\nAccording to the U.S. financial attache's conversation with\nMexican officials and with U.S. bankers in Mexico City, Mexican foreign\nborrowings have been at a slower rate than had been expected during\nthe first quarter of 1977. The slower rate of new borrowing has been\nattributed to Mexican reluctance to pay higher spreads over LIBOR\n(the London inter-bank offer rate) that banks are now demanding. There\nis apparently little other evidence of reluctance on the part of banks\nto extend new loans to Mexico at this time. There have been no reported\nproblems with the rolling over of short-term bank claims.\nRESTRICTED\nMR 95-1,#38\nKBH 4/12/96\nFORD LIBRARY is QERALD\nGRACO\nChairman Burns\n-2-\n20\nRESTRICTED\nJAR3037\nWe will be sending you up-dated background material on\nMexico external borrowing and on the Mexican economic and financial\nsituation on Monday afternoon.\nRESTRICTED\nFORD i LIBRARY GERALD\nFEDERAL RESERVE SYSTEM\nBOARD GOVERNO\nBUTUB\n1977 APR -1 \\ PM 4:05 05\nOFFICE OF THE CHAIRMAN beinb-qu sW\nbns almonoos gniworzed Immedixe opixeM\nno\n-\n5\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate April 4, 1977\nTo\nChairman Burns\nSubject: Possible Multilateral Official\nFrom Ted Truman\nEMT\nStand-by Credit for Mexico\nRESTRICTED MR95-1,#39 KBH4/12/96\nIntroduction\n1. As you know, preliminary discussions were initiated about\nten days ago about a possible large, multilateral official stand-by\ncredit facility for Mexico. A figure of $1.5 billion for up to one\nyear has been mentioned. The participants might be the United States\n(through the ESF and the Federal Reserve), Germany, Switzerland,\nVenezuela, Japan and, possibly, the BIS and some of the smaller\nEuropean countries.\n2. The Treasury plans to explore this matter further with\nMr. Romero Kolbeck when he visits Under Secretary Solomon on Tuesday\nmorning. They plan to discuss the matter first with you at your\nbreakfast with Solomon and Secretary Blumenthal on Tuesday.\n3. Two questions arise: (1) how far to go in discussions with\nthe Mexicans at this time, (2) what to say to them.\nSummary Analysis\n1. The arguments in favor of this type of arrangement appear to\nbe the following.\nA. If Mexico were to face a severe external financing crisis\n-- a possibility that cannot be ruled out -- it is likely that Mexico\nwould turn to the United States and the U.S. government would feel\ncompelled to do something to save the situation. In this context,\nFORD & 076970 LIBRARY\n- 2 -\nRESTRICTED\na contingency plan would be desirable, and a plan that involved countries\nin addition to the United States would have certain attractions.\nB. In principle, the credit arrangement could be designed to\nreinforce the conditions on Mexico's economic policies that have been\nand will be established by the IMF. For example, this objective might\nbe accomplished by requiring that (1) the IMF certify Mexico's compliance\nwith the IMF conditions before agreement is finalized with the potential\ncreditors and (2) that the IMF certify Mexico's compliance with IMF\nconditions before any actual drawings are made.\n2. The arguments against this type of arrangement appear to\nbe the following.\nA. The evidence we and the IMF have indicates that Mexico\nis probably not now in full compliance with the terms of its program\nunder the IMF Extended Fund Facility. However, the data to substantiate\nthis suspicion, or to determine how serious the lack of compliance is,\nare not now available. We understand that it is unlikely that they\nwill be available before mid-May. In this context, the danger exists\nthat the multilateral stand-by credit package will be established and\nused by Mexico at a time when it later turns out that Mexico is in\nviolation of the IMF agreement.\nB. At present, the participants in the multilateral stand-by\ncredit package would have no assurance of a take out either from the\nIMF (since the super-tranche proposal has not yet been approved or even\nwidely discussed) or from any other source. This suggests that Mexico\nshould be asked to wait until the new IMF financial arrangements are\nin place.\nFORD i LIBRARY GERALD\n- 3 -\nRESTRICTED\nC. Even if a firm role for IMF conditionality were agreed,\nthe Federal Reserve might be reluctant formally to subjugate the use\nof its swap lines to the IMF's authority.\nD. Such an arrangement might be viewed as providing a\nbail-out for the banks \"with taxpayers' money.\"\nE. Such an arrangement might also be viewed as a precedent\nencouraging large borrowers in private capital marketsto turn to\nofficial sources other than the IMF for financial support.\nSummary of the Treasury View of a Possible Approach\n1. The Treasury wants to proceed slowly in this matter. On the\nother hand, consideration has been given to the possibility of presenting\nMr. Romero Kolbeck on Tuesday with a document that would summarize the\nconditions that the United States would insist upon with regard to such\nan arrangement. The idea is to prevent the Mexicans from believing\nthat agreement has been reached in principle on terms that we could\nnot accept.\n2. Treasury would like to postpone formal agreement on such an\narrangement until after the Interim Committee has met and, presumably,\nreached agreement on the general terms of new IMF borrowing and how\nit might be used. Such a delay would provide a greater assurance of\na take-out.\nFORD is LIBRARY GERALD\n3. Treasury has discussed this matter with Mr. Witteveen. He is\nreported to be enthusiastic about the idea because it would strengthen\n/ The suggested size of the Federal Reserve's participation implies\nthat under normal procedures the FOMC should be consulted.\n- 4 -\nRESTRICTED\nthe IMF's hand. As noted above, before any general agreement was reached\nit is envisaged that the IMF would have to declare that Mexico was in full\ncompliance with IMF's conditions on Mexican economic policies. In addition,\nthe IMF would have to give a similar certification before any request to\nuse the multilateral, stand-by credit facility was approved. (Comment.\nAs noted above, this approach might look good on paper and work somewhat\nless well in practice.)\n4. Treasury recognizes that problems could arise in defining of\nthe kind of emergency in which Mexico would have access to the multilateral,\nstand-by credit facility and in implementing agreed procedures in such an\nemergency.\n5. Treasury's preliminary thinking is that the multilateral,\nstand-by credit facility might amount to $1.5 billion. Of this amount,\n$660 million would come from the United States ($360 million under the\nexisting Federal Reserve swap arrangement, $150 million that has already\nbeen drawn from the ESF, and another $150 million from the ESF). The\nBundesbank might contribute $400 million. The Swiss National Bank\nmight contribute $200 million. The remaining $240 million might come\nfrom Japan, Venezuela, the BIS and some of the smaller European countries.\n6. Drawings would be for three months with a maximum of three\nrollovers.\n7. Treasury has given little thought to the question of whether\ndrawings would be pari passu or to the question of how decisions on\nactivation would actually be made. (Comment. This raises again the\npossibility that the Mexicans might seek to manipulate the arrangements\nto their own short-run advantage.)\nFORD is LIBRARY GERALD\nApril 4, 1977\nTO: Chairman Burns\nFROM: Ted Truman\nYou asked me to write down for you the three main points\nyou stressed in your meeting with President Lopez Portillo of Mexico\nin February.\n1. Mexico must abide by the IMF conditions on its economic\npolicies.\n2. Mexico must bring its inflation rate under control and\nestablish a productivity plan while at the same time following prudent\ndemand management policies.\n3. Mexico should develop contingency plans in case, as may\nwell be likely, Mexico is unable to borrow as much as it now plans to\nborrow abroad in 1977.\nFORD & GERALD LIBRARY\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nApril 5,\n1977 1977 APR-5 AM 9: 05\nRECEIVED\nOFFICE OF THE CHAIRMAN\nTO:\nChairman Burns\nFROM: Ted Truman\nAttached are three recent cables from Mexico.\nAttachments: Mexico 4214\nMexico 4313\nMexico 4375\ncc: Governor Wallich\nDefense classification of this document is dus\nto the inclusion of U.S. Government information\nofficially classified under Exacutive Order 10501\nwhich provides that 'A document... shall bear a\nclassification at least as high 25 that of its\nhighest classified compenent\"\nGERALD R. FORD LIBRARA\nFINILED\nDESICIVE\nDEPARTMENT OF STATE\nMEXICO\nDepartment of State\nof STATE ASLINA AMERICA\nTELEGRAM\nLIMITED OFFICIAL USE\n8219\nEXIT\nPAGE 01\nMEXICO 04214 3123392\nACTION ARA-10\nINFO OCT-01 ISO-00 AID-05 CIAE-00 COME-00 EB-08 FRB-03\nINR-07 NSAE-00 USIA-06 XMB-02 OPIC-03 SP-02\nLAB-04 SIL-01 OMB-01 NSC-05 SS-15 STR-04 CEA-01\nL-03 H-01 PA-01 PRS-01 /084 W\n31\n012028Z 112628 /50\nR 312336Z MAR 77\nFM AMEMBASSY MEXICO\nTO SECSTATE WASHDC 1239\nINFO TREASURY WASHDC\nA\nLIMITED OFFICIAL USE MEXICO 04214\nE011652:N/A\nTAGS: EFIN MX\nSUBJECT: PETRO-BONDS\nREF: MEXICO 2882\n1. GOM IS NOW ORGANIZING A SYNDICATE OF PRIVATE AND\nGOVERNMENT-OWNED CREDIT INSTITUTIONS TO UNDERWRITE AND\nMARKET TWO BILLION PESO ISSUE OF PETROBONDS. PROSPECTUS\nFOR ISSUE IS IN FINAL STAGES OF PREPARATION.\n2. CONTRARY TO REF, BONDS WILL HAVE THREE YEAR MATURITY.\nALSO, PRINCIPAL REPAYMENT WILL BE MADE NET OF INTEREST\nPAYMENTS OVER THE THREE YEAR PERIOD. THAT IS, IF\nPRINCIPAL OF BOND RISES FROM 100 TO 150 BECAUSE OF\nINCREASES IN DOLLAR PRICE FOR CRUDE AND/OR BECAUSE OF\nDEPRECIATION OF PESO IN TERMS OF DOLLARS, BOND HOLDER\nWILL RECEIVE 129 PESOS, 150 PESOS MINUS THREE YEARS OF\nINTEREST AT 7 PERCENT. THIS PROVISION WILL MAKE BONDS\nLESS ATTRACTIVE THAN WE HAD EARLIER BELIEVED: IT WILL\nALSO REDUCE COST TO GOVERNMENT.\nLIBRARY GERALD R. FORD\nLIMITED OFFICIAL USE\no\nUh\nOF STATE\nUNITED AMERICA\nDepartment of State TELEGRAM\nSTATE\nOF\nLIMITED OFFICIAL USE\nPAGE 02\nMEXICO 04214 312339Z\n3. THE PROCEEDS FROM THIS ISSUE WILL BE FOR GENERAL\nREVENUE PURPOSES. PEMEX IS NEITHER THE BORROWER NOR THE\nGUARANTOR. THOMPSON\nWX\nLIMITED OFFICIAL USE\nDEPARTMENT\nOF\nSTATE\nMEXICO\nUNITED\nDepartment of State\nTELEGRAM\nSTATES\nOF\nUNCLASSIFIED 8661\nEMT\nPAGE 01\nMEXICO 04313 012350Z\nACTION ARA-10\nINFO OCT-01 ISU-00 ITC-01 SP-02 AID-05 EB-08 NSC-05\nTRSE-00 SS-15 STR-04 OMB-01 CEA-01 CIAE-00\nCOME-00 FRB-01 INR-07 NSAE-00 XMB-04 OPIC-06\nLAB=04 SIL-01 PA-02 PRS-01 SSO-00 NSCE-00 INRE-00\nUSIE-00 1079 W\n020001Z 019923 173\n0 0123032 APR 77\nFM AMEMBASSY MEXICO\nTO SECSTATE WASHUC IMMEDIATE 1269\nUNCLAS MEXICO 04313\nPASS USDOC\nPASS USTREASURY\nE.O. 11652: N/A\nTAGS: EINV, ETRD, MX\nSUBJECT: MINISTER OF COMMERCE SOLANA'S VIEWS ON\nU.S.=MEXICAN TRADE AND INVESTMENT\n1. EMBASSY UNDERSTANDS THAT MEXICAN MINISTER OF COMMERCE,\nFERNANDO SOLANA, HAS APPOINTMENTS TO SEE UNDERSECRETARIES\nCOOPER AND SOLOMON OF STATE AND TREASURY RESPECTIVELY\nAPRIL A AND SECRETARY KREPS APRIL 5.\n2. SOLANA GAVE SPEECH BEFORE AMERICAN CHAMBER OF COMMERCE\nMARCH 31 MAKING FOLLOWING POINTS. MEXICO MUST EXPORT MORE\nMANUFACTURED GOODS AND INDUSTRIALIZED COUNTRIES SHOULD NOT\nGIVE IN TO TEMPTATION OF PROTECTIONISM. BY END OF 1977\nMEXICAN MERCHANDIZE DEFICIT CAN POSSIBLY BE HALVED. THERE\nWILL BE A GRADUAL REPLACEMENT OF IMPORT LICENSES BY\nTARIFFS BUT IT WILL NOT BE POSSIBLE TO ELIMINATE ALL\nIMPORT LICENSES. FOREIGN INVESTMENT WAS COMPLEMENTARY\nAND NECESSARY CONTRIBUTION TO RATIONALIZATION OF MEXICAN\nGERALD FORD LIBRARY\nUNCLASSIFIED\nOF STATE\nASLINA AMERICA\nDepartment of State TELEGRAM\nSTATES OF\nUNCLASSIFIED\nPAGE 02\nMEXICO 04313 012350Z\nINDUSTRIAL AND CUMMERCIAL STRUCTURE AND THERE WOULD BE\nEQUAL AND JUST APPLICATION OF THE INVESTMENT LAWS, U.S.\nINVESTORS AND ENTREPRENEURS SHOULD ADAPT THEIR\nTECHNOLOGY IN MEXICO TO USE MORE LABOR. IN DEVELOPING THE\nECONOMY OF MEXICO, THEY WERE HELPING A NEIGHBOR WHO HAS\nBEEN ONE OF THE U.S. BEST CUSTOMERS FOR DECADES.\nTHOMPSON\nFORD i LIBRARY 976839\nUNCLASSIFIED\nOF STATE\nMEXICO\nDepartment of State\nUNITED\n,\nTELEGRAM\nSTATES OF\nLIMITED OFFICIAL USE\n1186\nEmT\nPAGE 01\nMEXICO 04375 021948Z\nACTION ARA-10\nINFO OCT-01 ISO-00 SP-02 USIA-06 AID-05 EB-08 NSC-05\nSS-15 STR-04 OMB-01 CEA-01 PA-01 PRS-01 CIAE-00\nCOME-00 FRB-03 INR-07 NSAE-00 XMB-02 OPIC-03\nLAB-04 SIL-01 1080 W\n2\n0300592 038206 170\nR 021920Z APR 77\nFM AMEMBASSY MEXICO\nTO SECSTATE WASHDC 1278\nINFO TREASURY WASHDC\nAMCONSUL MONTERREY BY POUCH\nLIMITED OFFICIAL USE MEXICO 04375\nEO 11652: N/A\nTAGS: EFIN MX\nSUBJECT: INVESTMENT CLIMATE\n1. SUMMARY: WHILE LOPEZ-PORTILLO HAS CLEARED AWAY MANY\nOF THE BAD FEELINGS TOWARD GOVERNMENT ON THE PART OF\nMEXICO/S PRIVATE SECTOR, BUSINESSMEN ARE RELUCTANT\nTO UNDERTAKE NEW INVESTMENTS, WAITING FOR MORE SPECIFIC\nGOVERNMENT MEASURES. END SUMMARY.\n2. IN HIS FIRST FOUR MONTHS IN OFFICE, LOPEZ PORTILLO\nHAS MANAGED TO ELIMINATE MUCH OF THE TENSION THAT\nDEVELOPED BETWEEN THE GOVERNMENT AND THE PRIVATE SECTOR\nUNDER ECHEVERRIA. BUSINESSMEN LIKE JLPPS STYLE\nAND FIND THE GOVERNMENT MORE ACCESSIBLE. ON MARCH 28,\nJLP VISITED MONTERREY FOR A VIRTUAL LOVE FEAST WITH THE\nMONTERREY BUSINESS GROUP. AMCONSULATE GENERAL MONTERREY\nREPORTS THAT PRESIDENT SPENT MINIMUM AMOUNT OF TIME\nWITH LOCAL GOVERNMENT OFFICIALS AND MAXIMUM AMOUNT OF\nTIME WITH PRIVATE BUSINESSMEN. BERNARDO GARZA SADA,\nLEADER OF THE MONTERREY BUSINESS COMMUNITY, WAS LAUDATORY\nGERALD FORD NERARY\nLIMITED OFFICIAL USE\n0\nOF\nSTATE\nDepartment of State\nOF AMERICA UNITED\nTELEGRAM\nLIMITED OFFICIAL USE\nPAGE 02\nMEXICO 04375 021948Z\nTO LOPEZ-PORTILLO WHO RECIPROCATED, SAYING \"HOW BEAUTIFUL\nTHAT YOUR FIRST PARTICIPATION IN PUBLIC HAS BEEN THIS\nEXEMPLARY SPEECH, FULL OF SOCIAL EMOTION, FULL OF\nPATRIOTIC SOLIDARITY, FULL OF THAT WHICH THE ANCIENT\nROMANS CALLED THE SENTIMENT OF A GOOD FATHER OF FAMILY.\n3. PURPOSE OF MONTERREY MEETING WAS TO SIGN AN AGREEMENT\nWITH MONTERREY BUSINESS GROUPS CALLING FOR INVESTMENTS OF\n100 BILLION PESOS OVER THE NEXT SIX YEARS, WITH THE\nINVESTMENTS TO BE MADE THROUGHOUT THE COUNTRY. THIS IS\nANOTHER IN THE SERIES OF PUBLIC SECTOR-PRIVATE SECTOR\nAGREEMENTS THAT HAVE BEEN NEGOTIATED. MONTERREY GROUP\nVIEWS THE AGREEMENT AS LARGELY SYMBOLIC WHICH IS THE SAME\nATTITUDE EXPRESSED BY MEXICO CITY BUSINESSMEN TOWARD THE\nTEN PUBLIC-PRIVATE SECTOR AGREEMENTS SIGNED LAST DECEMBER.\n4, WHILE RELATIONS HAVE IMPROVED, THE PRIVATE SECTOR\nREMAINS RELUCTANT TO UNDERTAKE NEW INVESTMENTS, WAITING\nTO SEE MORE CONCRETE MEASURES BY THE GOVERNMENT.\nMONTERREY BUSINESSMEN SAID THAT ONLY POSITIVE MEASURE TO\nDATE HAD BEEN LIMITATION OF MINIMUM WAGE INCREASE TO 10\nPERCENT. BUSINESSMEN DISLIKE SEVERAL JLP MEASURES, IN\nPARTICULAR THE EXCESS PROFITS TAX AND THE SO-CALLED BASIC\nPRODUCTS PROGRAM. THEY ALSO CONTINUE TO COMPLAIN ABOUT\nPRICE CONTROLS AND THE GOVERNMENT'S RELUCTANCE TO LOOSEN\nTHESE, THE GOM SEEMS TO BE RESPONDING TO BUSINESS CONCERNS\nON THE EXCESS PROFITS TAX, BUT REMAINS VERY RELUCTANT TO\nLOOSEN PRICE CONTROLS BECAUSE OF THE IMPACT HIGHER PRICES\nCOULD HAVE ON WAGE SETTLEMENTS.\n5. BUSINESSMEN ALSO ARE CONFUSED REGARDING EXCHANGE RATE\nPOLICY. WITH A WIDESPREAD BELIEF THAT THE PESO WILL\nDEPRECIATE TO ABOUT 30:L BY YEAR END, THEY ARE RELUCTANT\nTO TAKE ON ADDITIONAL DOLLAR DEBT. THEY ALSO HESITATE\nTO REPATRIATE CAPITAL. PESO CREDIT REMAINS LARGELY\nUNAVAILABLE.\nLIMITED OFFICIAL USE\nof STATE\nDepartment of State\nOF I AMERICA UNITED\nTELEGRAM\nLIMITED OFFICIAL USE\nPAGE 03\nMEXICO 04375 021948Z\n6. AS BEST WE CAN DETERMINE THERE HAS BEEN NO INCREASE IN\nPRIVATE SECTOR INVESTMENT NOR IS AN INCREASE LIKELY IN\nTHE NEAR FUTURE.\n7. FOREIGN DIRECT INVESTMENT SEEMS TO BE AFFECTED BY THE\nSAME FACTORS, PLUS THE GENERAL RESTRICTIONS EMBODIED IN\nMEXICAN LAWS. THERE HAS BEEN NO INDICATION OF A SHIFT IN\nGOM POLICIES RE FOREIGN DIRECT INVESTMENT, THOUGH SENIOR\nGOM OFFICIALS HAVE SPOKEN PUBLICLY ABOUT NEGOTIATING\nSPECIAL CONDITIONS FOR INVESTMENT PACKAGES CONSIDERED\nPARTICULARLY DESIREABLE.\n8. GOM FEELS FRUSTRATED BY PRIVATE SECTOR'S CAUTIOUS\nATTITUDE AND PROBABLY VIEWS QUADRIPARTITE COMMITTEE AS\nANOTHER MEANS TO STRENGTHEN THE AURA OF GOOD RELATIONS\nBETWEEN PUBLIC AND PRIVATE SECTORS AND, HOPEFULLY, TO\nACHIEVE CONCRETE RESULTS WHICH HAVE NOT YET EMERGED FROM\nTHEIR OTHER EFFORTS. THOMPSON\nFORD & GERALD LIBRARY\nLIMITED OFFICIAL USE\nRESTRICTED\nApril 7, 1977\nTO:\nChairman Burns\nFROM:\nTed Truman\nEn)\nSUBJECT: Treasury Paper on Possible Multilateral Swap Arrangements for\nMexico\nGovernor Wallich and I have discussed the Treasury paper on\npossible multilateral swap arrangements for Mexico. We have the\nfollowing comments and questions.\n1. At the present time, there appears to be no need for such\narrangements. Why, therefore, are we pursuing the matter?\n2. If Mexico has a need, how large is it? Where did the\nfigure of $1.5-$1.9 billion come from?\n3. Is this a temporary arrangement? How long would it be in\nGERALD\nFORD LIBRARY &\nplace?\n4. The paper does not mention how long the drawings might be\nexpected to be outstanding. What is expected?\n5. Such an arrangement not only creates a precedent for other\ncountries to come to the United States and the other participants for\nsimilar arrangements, it also might encourage private lenders to insist\non similar \"collateral arrangements\" before they lend further to other\ndeveloping countries, e.g., Brazil.\n6. The paper envisages Mexican drawings only in an emergency and\nafter IMF certification of Mexican adherence to the IMF conditions under\nthe Extended Fund Facility. What happens in the case when the last IMF\nmission to Mexico was two months before the request for a drawing and\nit brought back data that are now five months old? If Mexico truely has\nRESTRICTED\nMR95-1,#41\nKBH 4/12/96\nRESTRICTED\n-2-\na financial emergency, won't a decision on action have to be made in\na matter of hours?\n7. In this connection, the essential missing ingredient in\nour knowledge about Mexico -- aside from fiscal data -- is that they\nhave not provided precise information on their external financing needs\nand how they plan to meet them. Shouldn't such information be a pre-\nrequisite for such an arrangement?\n8. Consideration should be given to the proper relationship\nbetween five sources of external financing for Mexico: private lending,\nIMF lending under the Extended Fund Facility, Treasury lending to pre-\nfinance drawings on the Extended Fund Facility, the proposed multilateral\nswap arrangement, and the IMF super tranche.\n9. The numbers suggested in the Treasury paper look high. It\nis unlikely that Belgium and the Netherlands would each contribute $100\nmillion when they contributed only $150 million to the sterling balances\narrangement. It is unlikely that Japan would give as much as $250 million,\nor that Canada can contribute at all. Are we in danger of falsely raising\nthe Mexican's hopes? What about participation by Venezuela?\n10. Why should the Federal Reserve put in more than the\nTreasury? What kind of a firm take-out provision is available to the\nFederal Reserve if Mexico cannot repay within a year?\n11. Shouldn't Mexico be explicitly encouraged to repay any\ndrawings through borrowing either from the IMF or from the market?\ncc: Governor Wallich\nFORD i GERALD LIBRARY\nRESTRICTED\n[c.4-77]\nCONFIDENTIAL\nMultilateral Standby Swap Arrangements for Mexico\nI. Overall structure of a Multilateral Standby Swap Arrangement\nMexico is seeking establishment of a multilateral swap\narrangement. The Germans and Swiss have indicated substantial\ninterest. This section examines several questions related to\nthe overall structure of a multilateral swap arrangement for\nMexico:\n1. Institutional framework;\n2. Conditionality prior to setting up such an\narrangement;\n3. Size and composition;\n4. Conditions for activation of the arrangement\nincluding veto power by the contributors; and\n5. Provisions for repayment including possible \"take out\".\nOur thinking on the above considerations is as follows:\n1. Institutional framework. The Federal Reserve Bank of\nNew York could serve as the fiscal agent for all the participants\nin the facility. Mexico would make requests to the New York Fed\nfor drawings on the facility, with the Fed notifying participants.\nIt is preferable to have the Fed act in the capacity rather\nthan the BIS largely because it is essential for determinations\nby the IMF to be binding on all participants. The BIS manage-\nment, in the Sterling Balance Facility, for example, was\nreluctant to be bound be determinations of the IMF Managing\nDirector even when the BIS acted as agent for member central\nDECLASSIFIED\nbanks.\nE.O. 12958 Sec. 3.6\nMR 95-2, #42; Treasury Hr. 3/7/96\nCONF IDENTIAL\nFORD & LIBRARY GERALD\nBy let NARA, Date 5/3/96\nCONFIDENTIAL\n- 2 -\nMoreover, unlike the Sterling Balance Facility, 1) there is\nno precedent for locating a Mexican swap facility in the BIS;\n2) unlike the Bank of England the Bank of Mexico is not a\nmember of the BIS.\n2. Prerequisite. A letter or statement from the IMF\nthat Mexico was fulfilling the conditions of the Extended Fund\nestablishing\na multilateral swap facility. This would require\nthe Mexicans to implement economic policies which are needed to\nmeet the EFF targets and which have not been forthcoming to date.\nThe requirement of a prior letter from the Fund would also\ndemonstrate our support of the IMF and make it clear to the\nMexicans that we feel adherence to the stabilization program is\nessential for multilateral financial support. (In a telephone\nconversation Witteveen and Solomon discussed this issue.\nWitteveen expressed support for the idea, and felt that the\nvery\narrangement itself would be/useful. In addition, he felt that\nconditionality based on the IMF program would provide additional\nleverage in urging the Mexicans to meet the EFF program targets.)\n3. Size and Composition. Our initial thinking indicates that\na facility of $1.5 to $1.9 billion could be arranged, composed of\ncontributions of the following amounts, with drawings and\nrepayments being pari passu and proportionate among the\nparticipating countries.\nFORD i LIBRARY GERALD\n- 3 -\nHypothetical contributions to multilateral fac ity.\nShare with\nShare with\nMillions of $\n6 participants\n8 participants\nU.S.\n$660*\n(44% )\n35%\nGermany\n$340\n(23.5%)\n18%\nJapan\n$250\n13%\nSwitzerland\n$200\n(13% )\n11%\nCanada\n$150\n8%\nBIS\n$100\n( 6.5%)\n5%\nNetherlands\n$100\n( 6.5%)\n5%\nBelgium\n$100\n( 6.5%)\n5%\n*The suggested U.S. contribution of $660 million combines\nthe present $300 million ESF swap arrangement and the $360\nmillion Federal Reserve swap line. The ESF would turn $150\nmillion of\"window dressing\" into drawable credit and would\nextend the entire line on the terms of the multilateral facility.\nThis does not require a much greater U.S. commitment than already\nexists and avoids a completely bilateral U.S. commitment to the\nMexicans.\n4. Conditions for Activation. Upon a Mexican request to\ndraw from the facility, there would be a consultation among the\nparticipating countries to determine whether the request met\ntwo criteria, both of which would be required for the drawing\nto be approved.\na. There is a genuing \"emergency\" need to draw.\nFORD i LIBRARY GERALD\nWhat \"emergency\" would lead to activation of the swap?\nThis is more difficult to define in advance in that\nin many cases it may become a qualitiative rather than\nquantitative assessment of a situation. Accordingly,\nit may be preferable to develop a more general language\nso that drawings could be made only, for example, to\nmeet \"an mergency in Mexico's reser position or\nexchange market situation which cannot be dealt with\nby other means and which would have serious consequences\nfor the stability of the international monetary system.\nb. That Mexico is meeting the EFF targets.\nThe IMF would be requested to certify whether or\nnot the EFF targets were being attained. Attainment\nof the EFF targets would thus become a prerequisite\nfor each drawing as well as for the initial establish-\nment of the standby. This would necessitate the IMF\nbeing fully informed on a continuing basis on the\ncurrent economic situation in Mexico.\nC. Provisions for Repayment. Unlike similar arrangements pro-\nvided for the UK in mid-1976, in the Mexican case there\nwould be no provisions directly linking repayment to\nIMF drawings. If Witteveen's \"super tranche\" facility\nis in place, activation of the swaps would be linked\nto Fund resources, e.g., one additional factor in\nallowing drawings will be whether Mexico is eligible\nto draw like amounts within 3-6 months from the\nFORD LIBRARY & GERALD\nIMF. (The current availability of IMF credit to\nMexico is limited -- only 100 million SDRs are\navailable through the remainder of 1977.) At this\npoint there are no concrete assurances that the new\nFund facility will be in place, therefore the multilateral\nswap cannot be explicitly tied to future Fund drawing.\n/Note: Where the provisions of (a) above have been\nmet and IMF management certifies that Mexico would\nbe eligible to draw the requested amount from the\nFund within 3 months, there would be a strong presump-\ntion in favor of activation of the swap to that extent./\n- 5 -\nII. Advantages and sadvantages of Establishing Such a Facility.\n1. Advantages. The obvious advantage which the Mexicans\nare fully aware of is that such a multilateral standby\ncould be used as \"collateral\" for private financing.\nThis may add a confidence factor to the Mexican\nsituation and enhance Mexico's ability to borrow\nfrom the private market. However, current indications\nare that Mexico is not experiencing difficulty in rolling\nover short term debt nor are we aware of any difficulties\nthey may be having in floating new issues -- although\nthe magnitude of these new issues has not been significant.\n2. The conditionality, linked to the EFF program, offers\nseveral positive elements:\n1. Offers greater incentives for meeting the\nperformance targets set forth in the IMF\nagreement.\n2. Provides greater leverage for those Mexican\nofficials, particularly in the Bank of Mexico\nand Finance Ministry, who have been urging\nadditional cuts in public expenditure. These\nFORD i LIBRARY GERALD\nofficials have been meeting strong resistance\nfrom Carlos Tello (Minister of Planning and\nBudget) who has inside access to President Lopez\nPortillo and has been pushing for even greater\nexpenditure than has been budgeted in FY 77.\n3. By establishing a multilateral arrangement, should a\ncrisis occur, the U.S. would not stand alone in providing\nfinancial assistance to Mexico. A positive U.S. effort\nin supporting and leading such an arrangement would\nexhibit our desire and willingness to assist Mexico\nthrough their current economic difficulties.\nCONFIDENTIAL\n6\nDisadvantages\n1. There is no clear indication that such a facility\nis really needed and could conceivable generate a\nnegative market reaction if the private community\ninterprets the action as \"the Governments know something\nthat we do not know.\"\n2. It may raise a slight problem in explaining to the\nPortuguese why such a facility could be arranged\nfor Mexico given the obvious difficulties that we\nhave encountered on the Portuguese consortium loan.\n(The main difference is that the Mexican situation is a\nshort-term rather than a medium-term problem, plus\nthe peso is a convertible currency while the escudo\nFORD & LIBRARY CERALD\nis not and so is not considered an appropriate asset\nfor central banks.)\n3. Establishment of such an arrangement for Mexico may\nlead others to seek similar arrangements.\nIII. Recommendations:\n1. That we clearly indicate to the Mexicans that formal\ndiscussions on establishing the facility will not proceed\nuntil after the IMF mission returns from Mexico (scheduled\nfor sometime in May) and reports on the economic situation,\nwith the explicit presumption that the EFF targets are being\nattained.\n2. That we indicate to the Mexicans our willingness to\nproceed with informal discussions on the establishment of a\nmultilateral swap arrangement and emphasize that this facility\ncould not be used to undermine or lessen IMF conditionality in\nanv wav.\nCONFIDENTIAL\n- 7 -\n3. That we discuss with other potential participating\ncountries the magnitude of the facility and their potential\ncontribution.\n4. That we make a careful examination of the likelihood\nthat if established, drawings would be made against the swap\narrangement.\n5. That we ascertain what provisions (if any) can be made\nto assure payback in the event of emergency situation.\n6. Above all, that we proceed slowly in order to better\nevaluate the likelihood that the Witteveen facility will be\nestablished which would enable linking any swap drawings to\npossible takeout from this facility.\nGERALD R. FORD\nGONFIDENTIAL\nApril 14, 1977\nTO:\nFROM: Ted Truman\nChairman Burns EMT\nAttached is the latest cable from Mexico. It is consistent\nwith most of the information in Mr. Maroni's briefing last Friday. You\nmight be interested to note paragraph 8 in which it is reported that\nthe IMF is becoming the \"whipping boy\" for the president, privately, and\nfor some private economists writing in the press.\ncc: Governor Wallich\nDefense classification of this document is due\nto the inclusion of U.S. Government information\nofficially classified under Executive Order 10501\nwhich provides that \"A document shall bear a\nclassification at least as high as that of its\nhighest classified component.\"\nDECLASSIFIED\nE.O. 18958 Sec. 3.6\nMR95-1,# 43 Fed.Res Hr. 4/13/96\nBy 143H NARA, Date 4/12/96\nGERALD R. FORD LIBRARY\nTHE\nTHE\nMESSAGE\nMexico\n10b\nTHE\nRECEIVED AT\n1789\nSP\nMAIN TREASURY TELECOMMUNIC/ TION CENTER\nFOR INFORMATION AND SERVICE - 8114\nFOR RETRIEVAL AND COPIES - 2051\n\"JK\nceyM\nEMT\nCONF IDENT IAL\nT RB955\n55\nPAGE 01\nMEXICO 04844 01 OF 02 080145Z\nACTION ARA-06\nCONFIDENTIAL\nINFO OCT-01 SS-14 ISO-00 EB-04 CIAE-00 NSC-05 NSCE-00\nSSO-00 INR-05 INRE-00 TRSE-00 ABF-01 CMB-01 PRS-01\nSIL-01 /039 W\n8\n080212Z 113281\n0 0801292 APR 77\nFM AMEMBASSY MEXICO\nTO SECSTATE WASHDC IMMEDIATE 1427 Seczattoched\nCONFIDENTIAL SECT ION 01 OF 02 MEXICO 04844\nBRANCH\nLIMDIS\nINTERNATIONAL INFORMATION Consto\nIMMEDIATE\nAPR 7. 9 28 PH 'If\nTREASURY\ndal 7/24/07\nLIMDIS\nE.O. 11652: GDS\nSHOULY\nTAGS: EFIN, MX\nSUBJECT: CURRENT ECONOMIC SIT LAT ION\nC.F.\n1. SUMMARY: MEXICO ECONOMY, ACCORDING TO MOST ACCOUNTS,\nSpr\nIS STAGNANT, WITH NO SIGNS OF AN OVERALL RECOVERY.\nECONOMIC POL ICIES CONT INUE TO BE HOTLY DEBATED WITHIN GOM.\nPelihar\nIMF IS BECOMING A TARGET OF CRIT ICISM AND LABOR IS SHOWING\nSIGNS OF RESTLESSNESS. END SUMMARY.\nBettne\nNewne\n2. SLOWDOWN IN INDUSTRIAL ACTIVITY THAT BE GAN IN MID-76\nAND WAS AGGRAVATED BY SEPTEMBER 1 DEVALUATION DOES NOT\nMun\nAPPEAR TO HAVE BEEN REVERSED THOUGH IT MAY HAVE REACHED\nBOTTOM. AS THERE ARE NO DATA ON INDUSTRIAL ACTIVITY IN\nNie\nTHE FIRST QUARTER, OUR REMARKS ARE QUAL IVE. PRIVATE\ngront\nSECTOR INVESTMENT, WHICH DROPPED IN LAST QUARTER OF\n1976 DOES NOT APPEAR TO HAVE REVIVED. PUBLIC SECTOR\nshiff\nSPENDING, ON BOT H CURRENT AND CAPITAL ACCOUNTS, IS SAID\nTO BE RUNNING BEL OW BUDGETED LEVELS DUE IN PART TO DELAYS\nPora\nDUE TO THE ADMINISTRAT IVE REFORM AND IN PART TO THE NORMAL\nIsule\nDELAYS IN SPENDING ASSOCIATED WITH A NEW ADMINISTRAT ION.\nINCREASED ACTIVITY IN THE PETROLEUM AND RELATEDNDUSTRIES\nS.Cro\nIS THE ONL Y BRIGHT SPOT.\nCONFIDENT IAL\n13\nCONFIDENTIAL\nCERALD FORD LIBRARE\nTTATE\nTHE\nTHE\nMESSAGE RECEIVED AT\n1789\nMAIN TREASURY TELECOMMUNIC/ TION CENTER\nFOR INFORMATION AND SERVICE - 8114\nFOR RETRIEVAL AND COPIES - 2061\nCONFIDENT IAL\nCONFIDENTH\nPAGE 02\nMEXICO 04844 01 OF 02 080145Z\n3. GOM OFFICIALS MAINTAIN THEY HAVE ATTAINED IMF FIRST\nQUARTER TARGETS FOR MONEY SUPPLY AND BUDGET DEFICIT.\n4. MEXICO CURRENT ACCOUNT DEFICIT IS SAID TO BE RUNNING\nBELOW PREVIOUS YEAR LEVELS, AND THE FIRST QUARTER DEFICIT\nIS LIKELY TO BE ABOUT $400 MILLION, THIS IMPROVEMENT IS\nDUE TO OWDOWN IN DOMEST IC ECONOMIC ACT IVITY AND AN\nINCREASE IN PET ROLEUM AND COFFEE EXPORTS, THE LATTER\nBENEFITING FROM HIGHER WORLD PRICES.\n5. EXCHANGE RATE HAS REMAINED BETWEEN 22.50 AND 23.00\nPESOS SINCE LATTER PART OF JANUARY. THE MARGIN BETWEEN\nBUYING AND SELLING RATES HAS NARROWED WHICH WOULD SEEM TO\nINDICATE A MORE EFFICIENT MARKET. WHILE BANK OF MEXICO\nCONTINUES TO MAINTAIN IT IS LARGELY OUT OF THE MARKET,\nIT IS IN A POSITION TO INFLUENCE THE RATE BY CONT ROLLING\nTO SOME DEGREE THE FOREIGN EXCHANGE ACTIVITIES OF PUBL IC\nSECTOR ENTITIES. CAPITAL FL IGHT APPEARS TO BE NEGLIGIBLE,\nOWING AS MUCH TO A LACK OF DOMESTIC LIQUIDITY AS TO or HER\nFACT ORS; CAPITAL REFLOWS, WHILE PROBABLY GREATER, ARE N OT\nSIGNIFICANT SIGNIF ICANT AS BEST WE CAN FIGURE. THEY SEEM TO BE TAKING\nTHE FORM OF REPATRIATION OF DOLLAR CURRENCY MORE THAN\nINTER-BANK FL OWS. THESE NET REFLOWS PLUS RELAT IVEL Y SMALL\nNET INFLOWS FROM PUBLIC SECT OR EXTERNAL BORROWING APPEAR\nTO BE THE BASIS FOR THE STABLE EXCHANGE RATE AS BANK OF\nMEXICO RESERVES ARE REPORTEDLY STABLE.\n6. PRESIDENT SEEMS PERPLEXED BY COUNTRY'S PRESENT\nECONOMIC SITUATION. GOM REALIZES THE INADEQUACIES OF ITS\nFORMER DEVELOPMENT MODEL, BUT IT HAS YET TO DEVISE A NEW\nSTRATEGY. LIKEWISE, II REAL THE NEED FOR FINANCIAL\nSTABILITY, BUT IT IS RELUCTANT TO RUN THE POLITICAL RISKS\nINVOLVED IN TAKING THE STEPS USUALLY ASSOCIATED WITH\nACHIEVING THIS STABIL II Y. IN PARTICULAR, GOM IS PREOC-\nCUPIED BY RISK OF LABOR DISSAT ISFACT ION WITH 10 PER-\nCENT LID ON NE GOT IATED WAGE SETTLEMENTS. THIS IS RESULTING\nCONFIDENT IAL\nCONFIDENTIAL\nGERALD, FORD LIBRARY\nOF\nTHE\nRECEIVED AT\nMAIN TRE SURY TELECOMM UNICATION CENTER\nFOR INFORMATION AND SERVICE - 8114\nFOR RETIRIEVAL AND COPIES - 2051\nCONFIDENT IAL\nPAGE 03\nMEXICO 04844 01 OF 02 080145Z\nCONFIDENTIAL\nIN REPRESSED INFLATION AS THE GOVERNMENT IS RELUCTANT TO\nAPPROVE PRICE INCREASES FOR MANUFACTURED PRODUCTS SUBJECT\nTO PRICE CONTROLS AND FOR PUBL IC SECT OR ENTITIES' PRICES.\n7. NUMEROUS IDEAS ON A LONGER TERM DEVELOPMENT STRATEGY\nEXIST. THESE EMPHASIZE THE NEED TO ABANDON MEXICO'S\nPROTECTIONIST POLICIES AND CREATE THE BASIS FOR EXPORT-\nOR IE NT ED GROWTH. HERE AGAIN GOM IS RELUCT ANT TO ACT\nBECAUSE OF OPPOSITION FROM DOMESTIC INDUSTRY IN MONOPO-\nLISTIC POSITIONS AND THE SHORT-TERM IMPACT SUCH POLICIES\nMIGHT HAVE ON THE BALANCE OF PAYMENTS AND EMPLOYMENT.\n8. AS USUAL IN MEXICO, THE COUNTRY'S ECONOMIC PROBLEMS\nARE BEING BLAMED ON EXTERNAL FACT ORS. IMF IS BECOMINGA\nWHIPPING BOY, BY THE PRESIDENT PRIVATELY AND, IN THE LAST\nFEW DAYS, BY PRIVATE ECONOMISTS VIA THE MEXICAN PRESS.\nPRESIDENT, IN SPITE OF HIS EXPERIENCE AS FINANCE MINISTER,\nIS RELUCTANT TO TAKE STRONG STABILIZATION MEASURES AND\nAPPEARS CONFUSED BY, OR UNDECIDED BECAUSE OF CONFL ICT ING\nADVICE FROM HIS CABINET. AS BEST WE CAN DETERMINE, THE\nCENTRAL BANK AND TREASURY ARE URGING ST RONGER MEASURES,\nPARTICULARLY AS REGARDS PUBLIC SECT OR SPENDING, WHEREAS\nTHE BUDGET AND PLANNING MINISTRY IS RECOMMENDING THAT ONLY\nTHROUGH INCREASED PUBLIC SECTOR INVESTMENT SPENDING CAN\nBOITLENECKS TO INCREASED OUTPUT BE REMOVED AND INFLATIONARY\nPRESSURES DAMPENED OVER THE MEDIUM TERM.\n9. INFLATION IS A MAJOR POLITICAL AND ECONOMIC CONCERN OF\nTHE GOVERNMENT AT THE MOMENT. BANK OF MEXICO ISSUED ITS\nFORD & LIBRARY 938870\nCONF IDENT IAL\nCONFIDENTIAL!\nTHE\nISSIML\nMES SAGE\nTHE\n<<\nRECEIVED AT\n1789\nMAIN TREASURY TELECOM! ICATION CENTER\nFOR INFORMATION AND SERVICE - 8114\nFOR RETIRIEVAL AND COPIES 2061\nCONFIDENTIAL\nTRA804\nCONFIDENTIAL\nPAGE 01\nMEXICO 04844 02 OF 02 080148Z\nACTION ARA-06\nINFO OCT-01 SS-14 ISO-00 EB-04 CIAE-00 NSC-05 NSCE-00\nSSO-00 INR-05 INRE-00 TRSE-00 ABF-01 OMB-01 PRS-01\nSIL-01 /039 W\n080212Z 113389\n0 080129Z APR 77\nFM AMEMBASSY MEXICO\nLIMDIS\nTO SECSTATE WASHDC IMMEDIATE 1428\nC 0 N I D E N I A t SECTION 02 OF 02 MEXICO 04844\nLIMDIS\nIMMEDIATE\nMI BLOOD\nunity\nPRICE INDICES FOR MARCH WHICH SHOWED A SLOWDOWN IN INCREASES\nIN MEXICO CITY'S CPI, THE MONTH TO MONTH INCREASE FOR\nMARCH WAS 1.5 PERCENT COMPARED TO 2.5 PERCENT IN\nFEBRUARY. THE NATIONAL CPI HAS BEEN INCREASING AT A\nSL IGHTLY FASTER RATE THAN THAT FOR MEXICO CITY, PROBABLY\nBECAUSE PRICE CONTROL ENFORCEMENT EFFORTS ARE MORE EFFEC-\nTIVE IN THE CAPITAL THAN IN THE MAJOR PROVINCIAL CITIES.\n10. GOM HAS MOVED SLOWLY TO IMPLEMENT ECONOMIC POLICIES.\nSOME PUBLIC SECTOR PRICES ARE BEING RAISED, BUT ONLY\nPIECEMEAL. INTEREST RATES ARE TO BE DETERMINED BY MARKET\nCONDITIONS, BUT BANK OF MEXICO WILL PROBABLY MOVE ONLY\nGRADUALLY TOWARD MARKET-DETERMINED INTEREST RATES. LEGAL\nRESERVE REQUIREMENTS FOR BANKS HAVE BEEN MODIFIED, BUT GOM\nOFFICIALS MAINTAIN THAT THIS WILL NOT, IN NEAR FUTURE,\nRESULT IN INCREASED CREDIT AVAILABILITIES FOR PRIVATE\nSECTOR. SOME IMPORT-LICENSING REQUIREMENTS HAVE BEEN\nDROPPED, BUT THIS APPEARS TO BE A MEASURE TO REDUCE PAPER\nWORK MORE THAN A TRADE-LIBERALIZATION MEASURE. EXPORT\nREBATES HAVE BEEN RE-INTRODUCED, BUT THIS SEEMS TO INDICATE\nFAILURE OF THEIR EXCHANGE RATE CHANGE TO MAKE MEXICO'S\nMANUFACTURED EXPORTS COMPETITIVE AS THE REBATES WERE\nDROPPED AT THE TIME OF THE DEVALUATION. THERE HAVE BEEN\nCONFIDENTIAL\nCONFIDENTIAL)\nGERALD R.FORD LIBRARY\nSTATEMENT\nTHE\nMESSAGE\nTHE\nRECEIVED AT\n17 F\nMAIN TREASURY TELECOMMU CATION CENTER\nFOR INFORMATION AND SERVICE - 8114\nFOR RETRIEVAL AND COPIES - 2051\nCONFIDENTIAL\nCONFIDENTIAL\nPAGE 02\nMEXICO 04844 02 OF 02 080148Z\nNO PUBLIC STATEMENTS ON THE BUDGET SINCE IT WAS INTRODUCED\nLAST DECEMBER, THOUGH VARIOUS GOM OFFICIALS HAVE SAID\nPRIVATELY THAT THEIR CURRENT EXPENDITURE BUDGETS ARE BEING\nCUT.\n11. AFTER 22 YEARS OF RELATIVE ECONOMIC STABILITY, MEXICO\nAND MORE SPECIFICALLY ITS PRESIDENT ARE ON THE HORNS OF A\nDILEMMA. THE OBVIOUS ECONOMIC SOLUTIONS RUN POLITICAL\nRISKS. THE CURRENT ECONOMIC PROBLEMS - INFLATION, STAGNATION\nAND INCREASING UNEMPLOYMENT - HAVE POLITICAL RISKS.\nTHOMPSON\nCONFIDENTIAL\nCONFIDENTIAL\nFORDO if LIBRARY\nRESTRICTED\nApril 22, 1977\nTO:\nFROM:\nTed Truman\nChairman Burns EMT\nSUBJECT: Visit by Mexican Officials\nIn connection with your meeting on Monday with Mr. Moctezuma,\nMr. Romero Kolbeck, and Mr. Alfredo Phillips, Mr. Maroni has prepared\nthe attached background material.\na. Mr. Maroni's Board Briefing, April 8, 1977.\nb. Update on Mexico, April 13, 1977.\nc. Recent Fiscal Policy and Wage Policy Trends in\nMexico, April 22, 1977.\nd. Recent Economic and Financial Indicators.\nWe understand from the notes (extra copy attached) on\nMr. Solomon's trip to Mexico that at least one of the purposes of the\nMexican officials' visit with you is to discuss your views on bank\nlending to developing countries in general and Mexico in particular.\nThey apparently believe that they have been experiencing some resistance to\ntheir borrowings in the market because of your remarks.\nWe also understand that when these officials visit the IMF\nthey may for the first time suggest an adjustment in the Extended Fund\nFacility program with the IMF. In particular, they may ask to raise the\nceiling on the budget deficit from 90 billion (and 6 per cent of GNP) to\n105 billion pesos, about 6.5 per cent of estimated 1977 GNP. It is clear\nfrom the Solomon notes that there is still a policy struggle in Mexico\non this and related issues. The notes also mention that after May 1\n&\nFORD\nRESTRICTED\nMR 95-1,#4\nKBA #S lts. 2/13/96\nGERALD\nLIBRARY\nRESTRICTED\n-2-\nPresident Lopez-Portillo is planning to give a major economic policy\naddress; this speech has been planned for three months.\nWith respect to the possible multilateral stand-by swap\narrangement, Mr. Solomon apparently emphasized that the following con-\nditions would have to be met. (a) Mexico must be abiding by the IMF\nconditions at the time the arrangement is formalized. (b) Mexico must\nbe abiding by the IMF conditions at the time of any drawing. (c) The\ndrawing must be associated with an emergency, or a genuine financing,\nneed. (d) Participants can opt out if necessary. (e) The private market\nmust know of the conditions. (f) Drawings are to be for three months\nwith a maximum of three rollovers. (g) Mexico must commit itself to\nusing the IMF super tranche as a take out if such an arrangement exists.\nIt is a little unclear to me exactly how matters are proceed-\ning with respect to Mexican thinking on this subject. I was disturbed\nby the report that Lopez-Portillo does not yet know about this proposal.\nMy concern is that the plans could become so far advanced that, by the\ntime Lopez-Portillo hears about them, political forces might lead to\ntheir implementation without the needed conditionality.\nAccording to Solomon's report, the Mexicans are prepared to\nmove slowly on this matter, probably talking to the Canadians and Japanese\nduring the meetings in Washington next week. On the other hand, I have\nsince heard that the Mexicans may be pushing to move ahead more rapidly.\ncc: Governor Wallich\nFORD i LIBRARY 076838\nRESTRICTED.\n6\n[4-22-77]\nRESTRICTED\nChairman Burns\nRESTRICTED\nHANDLE THE ATTACHED DOCUMENT IN ACCORDANCE WITH INTERNAL\nINFORMATION SECURITY PROCEDURES FOR RESTRICTED INFORMATION\nFORD & LIBRARY GERALD\nRESTRICTED\nCONF IDENTIAL\nMexico's Current Economic Situation\nand Prospects - Under-Secretary Solomon's\nTrip to Mexico April 12-15, 1977\n1. Summary: There is qualified optimism regarding economic\nprospects and the GOM's ability to meet the percentage\ntargets in the Fund-GOM agreement. Inflation is a major\npolitical as well as economic concern. The President is\ngoing to address the nation on economic subjects shortly.\n2. The Fund and the Budget\nMuch of Mr. Solomon's discussions focused on the Fund\ntargets and the Budget deficit. The President made a strong\npitch that the Fund should adopt a more flexible attitude\ntoward Mexico. He argued that Mexico could not afford to\ntighten its belt to the same degree that the U.K. or Italy\nmight do because of a lack of social welfare programs. He\nalso stressed that too stringent stabilization measures could\nmean political risks that could result in a \"fascist\" political\nsolution as in southern South America.\nLater, Lic. Izquierdo said by \"flexibility\" the President\nprobably meant not only a small increase in the public sector\ndeficit to 100-105 billion pesos, but also a loosening of the\nmoney supply targets if it was necessary to resort to money\ncreation to finance a part of this deficit. Lic. Solis, and\nothers, maintained that it should be possible to meet all the\nFund targets except the 90 billion peso target; that is, the\nmoney supply target, the percentage targets such as the 6%\npublic sector deficit target, and the $3 billion limit on\nthe increase in the public sector external debt.\nThe 6% of GDP target for the public sector deficit\nwas said to be attainable by the President but Izquierdo\nand Escobedo said it may be 7%. The attached table outlines\nwhat might happen to the deficit. Lic. Izquierdo said that\nBill Dale had given the President a letter on December 1,\nof last year stating that the percent targets were more\nimportant than the specific monetary targets. Several officials\nmade the point that the economic situation had changed so\nsignificantly in the three months following the negotiations\nof the Fund Agreement (Oct.-Dec.), that the specific targets,\nin particular the 90 billion peso deficit, were recognized\nas unattainable, by the Fund as well as GOM officials.\nDECLASSIFIED\nCONF IDENTIAL\nE.O. 12958 Sec. 3.6\n#45, Treasury Hr. 3/7/96\nFORD i LIBRARY GERALD\nBy let NARA, Date 5/3/96\nCONFIDENTIAL\n- 2 -\nThe absolute size of the prospective deficit is also\ndisputed. The figures mentioned ran from 100 to 110 billion\npesos. The size depends in part on the impact of revenue\nmeasures to be announced after May 1. This is the local\nLabor Day and the GOM does not believe it can boost public\nsector prices before as labor would blame the government for\naggravating inflation. Among the measures under consideration\nare higher prices for gasoline and some other oil products\nbut not diesel fuel as this would impact on public trans-\nportation costs. The GOM hopes to raise about 20 billion\npesos additional revenue through its revenue measures.\nEscobedo said that the measures already taken on prices for\nsugar, telephones and fertilizer will add 10 billion pesos to\nthe original revenue estimate. Raising the price of gasoline\none peso per liter brings in 10 billion pesos additional\nincome annually.\nRegarding financing of the deficit, there was general\nagreement that about 50 billion pesos would be financed\nfrom domestic sources, and about 60 billion pesos would\ncome from foreign borrowing. Most of the 50 billion would\ncome from the domestic banking system via the reserve\nrequirements. As noted above, there was some doubt as to\nwhether the increase in bank deposits would be adequate to\nfinance this volume of credit without resorting to money\ncreation. While the GOM will receive some funds from direct\ndomestic borrowing, these will not be significant. Escobedo\nsaid he thought $2.6 billion in foreign borrowing would raise\n59 billion pesos. He also mentioned that the GOM-owned\nfinancial institutions might borrow 20 billion pesos externally,\nin addition to the public sector deficit. He said that the\nGOM might let private bankers handle some of this borrowing.\n(Note: 20 billion pesos net foreign borrowing by the GOM-\nowned financing intermediaries, in addition to their lending\nto the public sector, would put the increase in the net new\nGOM external debt over the $3 billion ceiling. This may be\nwhy they would try to, switch some of this borrowing to the\nprivate sector.)\nEscobedo also thought the drawdowns of Fund credit were\noutside the $3 billion ceiling.\nThe Bank of Mexico noted the Government still had a\nslight surplus in its account; that is, the Bank could still\nadvance funds to the government based on the increase in\ndomestic liabilities of the Bank. This, it was noted, was\nunusual this far into the year.\nFORD\n&\nCONFIDENTIAL\nGERALD\nLIBRARY\nCONFIDENTIAL\n- 3 -\nRegarding expenditures, officials noted there were no\nplans to reduce spending below budgeted levels. They\nmaintained that current spending would not increase in real\nterms whereas investment spending would increase about 4%.\nThey maintain there will be no increase in federal employment.\nApparently the President held a series of meetings last\nweek on economic policy and the budget, in particular. Nobody\ngave much information on what transpired, but Izquierdo noted\nthat the President recognized the need to reduce consumption\nand increase savings. Apparently, the revenue measures were\ndecided at these meetings as well as a decision not to reduce\nspending.\n2. The Exchange System\nRomero Kolbeck said that the Bank of Mexico was controlling\nforeign exchange transactions by public sector entities in order\nthat these would not upset the market. This meant that certain\npurchases or sales were postponed until they could be matched.\nRegarding the exchange rate, Romero said it would probably\ndepreciate further and mentioned the figure 25:1 by year-end\nas a very hypothetical possibility. Solis noted that the\nFund might be concerned at the lack of any significant move-\nment in the rate since January 30.\nRomero said that the BIS experts had advised against\na major attempt to create a forward market until some degree\nof stabilization is attained. Romero did state some very\nlimited forward transactions were taking place.\n3. The Balance of Payments\nEvery official noted with pleasure the improvement in\nthe current account deficit. Izquierdo said that he would\nbe concerned over a deficit for the year below two billion\ndollars as this would imply a very low level of economic\nactivity. Solis maintained manufactured exports were increasing.\nIzquierdo said the reintroduction of CEDIS (rebates to\nexporters of manufactures for indirect taxes) should be viewed\nas a signal that the GOM wanted to direct manufacturers'\nattention to export markets.\nCONFIDENTIAL\nFORD is LIBRARY GERALD\nCONF IDENTIAL\n- 4 -\nEscobedo said that net oil exports in 1977 should be\n$750 million, increasing to $1.1 billion in 1978 and $1.5\nbillion in 1979. (The 1976 net petroleum exports were about\n$265 million).\n4. Inflation and Wages\nInflation was recognized as Mexico's most urgent economic\nproblem, with political overtones. Izquierdo noted that no\nimportant group in Mexico could live with inflation. He also\nsaid that wage pressures constituted the major inflationary\npressure at the moment since aggregate demand is flat at best.\nAll officials noted that the monthly rate of inflation had\nbeen declining, but that the year to year rate of inflation\n(GDP price deflator) was unlikely to be less than 30%.\nMay 1 Labor Day was cited as very important. Izquierdo\nsaid the slogan of the day was likely to be \"Lower Prices\"\nrather than 'Higher Wages.\" He said the. 10% ceiling on wage\nincreases was being maintained and that he was hopeful it\ncould be held another three to four months. Izquierdo said\nthat the 90 basic consumption goods should be ready for\ndistribution by May 1, and emphasized that production and\ndistribution of these products would be important in\ncontinuing labor-acquiescence toward the 10% ceiling.\nAlso, price increases for manufacturers' other goods would\nbe contingent on their producing these goods. (Note: It\nwould appear that the rate of inflation may spurt in June\nand/or July following the prices increase ).\nSolis noted that labor also opposed any depreciation\nin the exchange rate.\n5. Presidential Speech\nThe President is planning to give a major economic\naddress shortly, though no firm date is fixed. He will\nbe emphasizing the need for austerity and sacrifice, and\nlaying out the government's economic program in some detail,\nbut probably not mentioning specific numbers. Izquierdo\nnoted that this was the speech that has been in the making\nfor three months.\ni\nFORD\nCONF IDENT\nGERALD\nLIBRARY\nCONFIDENTIAL\n- 5 -\n6. General Economic Situation\nIzquierdo noted that demand was flat and that\nretailers were complaining. He presumed the economy\nwas not growing at the moment, and said he did not\nanticipate a growth rate over 2% for the year. Regarding\nprivate investment, he said the larger businesses were\ngoing ahead with investment plans, but that small and\nmedium sized firms were holding back. He noted the lack\nof credit and expressed some concern that this was hindering\nany recovery in output. Mancera said no decision had yet\nbeen made on interest rates on peso deposits. He also said\nliabilities of the banking system in dollars had increased\nas fast, or faster, than peso liabilities.\nGERALD FORD LIBRARY\n7. External Borrowing\nEscobedo maintained that he did not anticipate any\nproblems in external borrowing this year. He said they\nhoped to borrow $1.8-2.0 billion from private financial\nmarkets and about $600 million from official sources. He\nsaid the Pemex issue was well received and that Bankers\nTrust and Orion were underwriting a $150-$200 million credit\nfor BANOBRAS. He also said the United Mexican States were\ngoing to float a 50 million 5-year bond issue in the U.S.\nshortly. Net borrowing to date was about $300 million, gross\nabout $700 million.\nIzquierdo maintained the foreign bankers were happy\nwith what Moctezuma said at the Bankers Convention; that is,\nno debt renegotiation, will repay on schedule and can do so\nbecause of the oil reserves. Izquierdo maintained that\nbankers worried only about repayment and not the general\neconomic situation.\n8. PEMEX/EXIM\nPemex's reluctance to move ahead with a line-of-credit\nfrom Exim was due to bureaucratic delays according to some\nofficials. Izquierdo said he didn't know why there was a\ndelay, but hinted at other than mere bureaucratic delays.\n9. Chairman Burns Statement\nLic. Romero said that besides being critical of U.S.\nbank lending to LDCs, Chairman Burns had apparently made\nsome reference to Mexico as being in serious problems. This\nwas hurting Mexico's ability to borrow and was the subject\nthat Romero had wanted to discuss with Burns last week.\nCONFIDENTIAL\nCONF IDENTIAL\n- 6 -\nMr. Solomon indicated that Dr. Burns had made a more\ncomprehensive statement on the question of bank lending\non April 12.\n10: The Witteveen Letter\nIzquierdo said that the President was infuriated at the\nreference in Witteveen's letter to a restoration of financial\nstability as in the 50's and 60's. Izquierdo reported the\nPresident as saying that this was impossible even for the\nU.S.\nCLASSIFIND BY anthony dification m Alemen\nPurmet\n11652\n5(b)(3)\nExerpt\n02 Imposible\nto determine\nCONF IDENTIAL\nFORD & LIBRARY GERALD\nCONF IDENTIAL\nAttachment:\nMexico's GDP in 1976\n(billions of pesos)\n1215\n+ 2% real growth\n24.3\n+ 30% price deflator\n371.8\n= 1977 GDP\n1611.1\n6% of 1977 GDP\n96.7\n7% of 1977 GDP\n112.8\n110 billion pesos equals 6% of 1833.3.\nThis is 50.8% greater than the 1976 GDP.\n105 billion pesos is 6% of 1750, which is\n44% above the 1976 GDP.\nFORD & LIBRARY 939870\nCONF IDENTIAL\nCONFIDENTIAL\nApril 14, 1977\nMEMORANDUM OF CONVERSATION\nParticipants: Bank of Mexico\nLic. Gustavo Romero Kolbeck - Director General\nLic. Jorge Espinosa de los Reyes - Sub-Director\nGeneral\nLic. Leopoldo Solis - Sub-Director General\nLic. Francisco Suarez - Gerente\nUnited States\nUnder Secretary Solomon\nLlewellyn P. Pascoe, Financial Attache; Mexico City\nTime and Place:\n10 a.m., April 13, Bank of Mexico\nSubject: Multilateral Swap Facility\nUnder-Secretary Solomon said he had discussed the possibility\nof a multilateral swap facility with Messrs. Emminger and Leutwiler\nand Chairman Burns, following Alfredo Phillips' call to him from\nGermany. He noted these officials had made several points regarding\nthe facility. One was the size of the Mexican request. Another\nwas the timing; that is, it could be negotiated only after the Fund\nMission in May. There also should be a provision whereby a central\nbank could decline to participate in any drawing. Another was\nthe possibility of some kind of a \"take-out\" via the \"super-tranche\"\nshould it be available. Mr. Solomon also noted that Chairman\nBurns thought it necessary to let private banks know the conditionality\naspect of the swap and what these conditions were.\nLic. Romero did not object to these points, nor did he react\nstrongly to a figure of $1 to 1.25 billion. Under-Secretary Solomon\nsaid this could include the elimination of the $150 million \"window-\ndressing\" element of the ESF swap. Romero noted that the Europeans\nmentioned that such a facility is usually 50% U.S. money and 50%\nfrom others.\nUnder-Secretary Solomon asked why Mexico wanted such a facility\nin that they shouldn't need it if they met the Fund targets. Lic.\nRomero replied that it would serve a political purpose. Presently,\nthe IMF is associated with \"U.S. imperialism.\" A multilateral swap\nwould spread the blame for having to meet IMF-imposed targets.\nDECLASSIFIED\nE.O. 12958 Sec. 3.6\nCONF IDENTIAL\nMR 95-2, 46; Treasury Hr 3/7/96\nFORD & LIBRARY GERALD\nBy let NARA, Date 5/3/96\nCONF IDENT\n- 2 -\nUnder-Secretary Solomon asked whether the President might\nnot object to the conditionality for political reasons. Lic.\nRomero said that when talks reached a stage where serious\nnegotiations were possible, he would present the idea, with its\npolitical aspects, to the President for approval. At the moment,\nonly Hacienda and the Bank of Mexico were involved. He did\nnot anticipate a problem.\nLic. Romero called the facility \"window-dressing\" on several\noccasions which Mr. Solomon advised against. Romero said Hauge\nof Manufacturers Hanover had also suggested they not call it\n\"window-dressing.\"\nLic. Romero then outlined his strategy. He said he wanted\nto discuss the idea with Canadian and Japanese officials. He\nsaid he intended to discuss the idea with the Japanese Finance\nMinistry in late May when he would be in Tokyo. It was agreed\nthat Mr. Solomon would not raise the matter with the Japanese\nprior to Romero's talks.\nUnder-Secretary Solomon warned Lic. Romero that a multilateral\nswap might be counter-productive in that it could be viewed as a\nsign that Meixco's position was more serious than it otherwise\nappeared. He said the Mexicans should seriously consider whether\nor not he should carry this idea any further. Romero said the\nMexicans would take this under, consideration; also, that he\nwould continue to take direct soundings with private bankers\nwithout mentioning that he had had conversations with government\nofficials. He said he would get back to Under-Secretary Solomon\nsubsequently.\nCLASSIFIED BY Macification\nInsurpt\n11032\n5(t)131\nFROM\nImportemble\nto determine\nFORD & LIBRARY GERALD\nCONF IDENTIAL\nCONF IDENTIAL\nApril 14, 1977\nMEMORANDUM OF CONVERSATION\nParticipants: Mexico -\nJose Lopez-Portillo, President of Mexico\nLic. Gustavo Romero Kolbeck-Director General\nof Bank of Mexico\nUnited States -\nAnthony M. Solomon - Under-Secretary for\nMonetary Affairs, Treasury\nHerbert B. Thompson, Charge d'Affaires\nLlewellyn P. Pascoe - Financial Attache\nFORD & GERALD LIBRARY\nTime and Place: 12 Noon, April 13, Palacio Nacional\nSubject: Courtesy Call; The Fund Program\nThe President said he would like U.S. financial officials to\nappreciate his views regarding the Fund targets. He said that\nhe thought Mexico could attain the Fund percentage targets, but\nthat it might be difficult to meet the 90 billion peso budget\ndeficit. He emphasized the need for greater flexibility on the\npart of the Fund and perhaps some relaxation of the timing\nrequirements.\nThe President noted that he would be making a speech on the\neconomy within a few days that would call for sacrifice from\neverybody. He maintained that Mexico was different from the U.K.\nor Italy in that these countries had greater reserves than Mexico\nand various social welfare programs to ease the impact of\nstabilization measures. In the case of Mexico, belt-tightening\ncan go only so far because there is nothing to tighten a belt\nagainst, or even a belt for Mexico's poor. He said that too strong\nmeasures could risk social unrest and turn Mexico into a fascist\nstate like Brazil or Chile. In this connection he discussed the\nprice of corn and how difficult it is to raise the price of\ntortillas.\nUnder-Secretary Solomon said the President sounded very\nsimilar to the Prime Minister of England and expressed the same\nconcerns, yet England had taken effective measures and quickly\nimproved their position. He noted that while these measures were\ndifficult to take, they could improve the situation. A discussion\nensued in which Mr. Solomon pointed out the substantive economic\nadvantages of following the Fund recommendations particularly in\nthe long run even though there were short-term political DECLASSIFIED risks\nE.O. 12958 Sec. 3.6\nCONFIDENTIAL\n295-2,*46; Treasury 3/7/96\nBy let NARA, Date 5/3/96\nCONF IDENTIAL\n- 2 -\nMr. Solomon and the President agreed there was very little\nroom for maneuver in any direction without serious consequences\nand the President remarked that he was walking a thin wire.\nMr. Solomon spoke warmly of the U.S. Ambassador-Designate to\nMexico based on a long personal friendship.\nCLASSIFIED BY anthony Ressification m Solemon\nExcept from\nconcrol\nDE\nOrder 11652\nSchedul\nExcept (\nclassified on disposible\n(t)(3) (t) (3)\nAutomaticully\nto determine\nFORD i GERALD LIBRARY\nCONF IDENTIAL\nUp-date on Mexico\nExternal Debt\nWe now estimate Mexico's total external debt at the end of\n1976 at about $26 billion, about $1 billion more than in our report of\nFebruary 8, 1977, (see attached table). On the other hand, we have\nlowered our estimate of interest payments on the external debt during\n1976, from about $2 billion to about $1-3/4 billion. At this level,\ninterest payments represented 25 per cent of the gross earnings from\ngoods and services. This is a revision from the 28 per cent figure\ncited in the earlier report.\nThe claims on Mexico reported by U.S. banks and their foreign\nbranches at the end of 1976 totalled $13 billion. This is an increase\nof $900 million since the end of September. In view of this increase,\nwe now estimate that the total claims on Mexico of all G-10 banks re-\nporting to the BIS were $17.9 billion at the end of December, $200\nmillion more than previously estimated.\nCurrent Economic and Financial Situation\nThe prospects for the current account of Mexico's balance of\npayments in 1977 look somewhat brighter now than they did two months\nago. The previously known favorable factors (the economic recovery in\nthe United States and the sluggishness of the Mexican economy) are\nbeing complemented by three new developments: (a) the rise in world\ncoffee prices, (b) a favorable cotton harvest, and (c) the severe winter\nIncluding $1,261 million in claims of branches and agencies of\nforeign banks operating in the U.S.\nGERALD FORD LIBRARY\n- 2 -\nweather in the United States which made possible increased shipments\nof Mexican fruits and vegetables as well as of crude oil and natural\ngas. A new copper mine is scheduled to go into production later this\nyear, and should make a further significant contribution. Increased\nproduction of crude oil may also raise oil export earnings to about\n$800 million, up from about $600 million in 1976.\nFor these reasons, the current account deficit in 1977 may be\nsomewhat lower than the $2-3/4 billion figure estimated in our report\nof February 8, 1977. This may make it possible for Mexico to get\nthrough the year with less financing than the $3 billion which it is\npermitted to borrow from external sources under its agreement with the\nIMF. However, the authorities may choose to borrow more than is\nactually needed and add the rest to the Bank of Mexico's international\nreserves. During the first quarter, these reserves rose by about $190\nmillion. At the same time, external borrowings so far this year are\nreported to be smaller than had been anticipated.\nThe approach of Easter is traditionally the occasion for the\nMexicans, who remember the 1954 devaluation of the peso over the Easter\nweek-end, to transfer funds abroad in fear of another devaluation.\nHowever, this year, there has been no evidence of any significant\noutflow of funds. Available banking data suggest that some reflow of\nMexican capital may have taken place since the Lopez Portillo administra-\ntion took office last December.\nFORD & LIBRARY GERALD\n- 3 -\nOn the fiscal side, it does not appear that Mexico has yet\ntaken sufficient steps to cut down the prospective deficit of the\npublic sector to the level specified in the agreement with the IMF.\nThere are good reasons to believe that expenditures are lagging and\nthat this may help ensure compliance with the IMF agreement in the\nshort run. But, once rates of expenditures are normalized, as they\neventually will be, the deficit is likely to rise above permissible\nlevels.\nMeanwhile, the upward movement of prices has slowed down\nsomewhat. Wholesale prices rose 2.3 per cent in January and 1.7 per\ncent in February, after rising at an average rate of about 7 per cent\nper month in the previous four months. Consumer prices rose 3.2 per\ncent in January, 2.2 per cent in February, and 2.1 per cent in March,\nafter rising at an average rate of 4 per cent per month in the previous\nfour months.\nOne factor contributing to the slowdown in the upward movement\nof prices is what appears to be a restrained attitude by organized\nlabor in collective bargaining negotiations so far this year. Recently\ncompleted negotiations have involved wage increases reported to average 8\nto 10 per cent. However, organized labor may seek a reward for this\nrestraint later on in the year: the Government has followed the practice,\nin the last four years, of decreeing an across-the-board wage increase\nin September to compensate for the effects of inflation, and it may\nFORD is 07VN39 LIBRARY\n- 4 -\nwell be under pressure to continue the practice this year. Its\ndecision in this respect will have an important impact on the prospects\nfor reducing the rate of inflation in the last half of the year and in\n1978.\nPrepared by Yves Maroni\nApril 13, 1977\nFORD i LIBRARY 07VR39\nMexico's External Debt\n(in millions of dollars)\nEnd of\nEnd of\n1975\n1976\nPublic Sector\n14,449\n19,600\nMedium and Long Term\n(11,612)\n(15,923)\nShort Term\n( 2,837)\n( 3,677)\n/\n/\nPrivate Sector\n5,551\n6,400\n/\n/\nTotal\n20,000\n26,000\nOf which, due to:\n/\nG-10 banks\n13,465\nU.S. banks 1/\n17,900\n( 9,895)\nOther banks\n( 3,570)\n(13,031) ( 4,869) /\nU.S. and International\nInstitutions\n2,141\n3,168\nIBRD and IDB\n( 1,689)\n( 1,895)\nIMF\n-\n( 478)\nU.S. Treasury\n-\n( 150)\nFederal Reserve\n-\n( 150)\nEximbank\n( 452)\n( 495)\nOther Governments\n290\nn.a.\nSuppliers\n459\nn.a.\nOther Private Creditors\n1,770\nn.a.\n/\nUnallocated\n1,875\nn.a.\n1/ Including agencies and branches of foreign banks in the United States\n($866 million in 1975 and $1,261 million in 1976).\ne/ Estimated.\nFORD & LIBRARY\nRecent Fiscal Policy and Wage Policy Trends in Mexico\nThere is a sharp divergence of opinion between the IMF staff and\nthe responsible Mexican officials about the probable magnitude of the deficit\nof Mexico's public sector in 1977. The Mexican officials speak of a deficit\nranging from 100 to 110 billion pesos, while the lowest estimate mentioned\nby the IMF staff is 130 billion pesos.\nA part of the discrepancy appears to reflect a conceptual difference,\nbut there is also disagreement about the revenue and expenditure estimates.\nThe IMF staff believes that some of the Mexican revenue estimates are over-\nstated and that some of the economies for which the Mexicans take credit\nwill not be fully realized. In particular, the IMF staff is unwilling to\ntake into account measures which the Mexican have mentioned, but which they\nhave not yet implemented. Increases in gasoline prices and, perhaps, in\nelectricity rates are said to be in the offing, but the Mexican authorities\nare reported to be waiting until after the traditional Labor Day, on May 1,\nbefore announcing them, so as not to generate social unrest.\nOrganized labor has agreed to accept wage increases of not more\nthan 10 percent this year on the understanding that prices would be held\ndown. Since December, however, the consumer price index has risen nearly\n8 percent. To get labor's agreement on the 10 percent wage ceiling, the\nGovernment has undertaken to secure the production and distribution of\n90 basic consumption articles at controlled prices. Producers will be allowed\nto increase prices on the remainder of their production line only if they\nproduce the basic products and sell them at the controlled prices.\nFORD i LIBRARY GERALD\n- 2 -\nThe higher gasoline prices and electricity rates, if and when\nthey are implemented, will of course, be reflected in the consumer price\nindex. The Mexican authorities may be tempted to hold these increases\ndown so as to enhance the likelihood that labor will continue to adhere\nto the 10 percent wage ceiling. It will be a delicate matter to reconcile\nthis objective with the need to reduce the public sector fiscal deficit.\nIn recent years, real wages appear to have increased significantly\nin Mexico. Minimum wages, which greatly influence other wage settlements,\ndoubled over the period January 1973-January 1976, compared to a 64 percent\nincrease in the consumer price index in this period. This represents a\n22 percent increase in minimum wages in real terms. No systematic information\nexists regarding contractual wages, but. apart from being influenced by the\nminimum wage rates, they have included, beginning in 1973, general increases\nrecommended by a Wage Commission headed by the Secretary of Labor. These\namounted to 18 percent in September 1973, 22 percent in September 1974,\nand 16 percent in September 1975. or an increase of 67 percent in the three-\nyear period. The IMF staff reports that Government employee pay followed\nthe Commission recommendations and that, according to available evidence,\ncontractual wages in the private sector increased in all three years by\nat least the rates applied to Government employee pay.\nSince January 1976, there has been an across the board increase\nof 23 percent in September 1976 and an increase in minimum wages of 10 percent\non January 1, 1977. From the fourth quarter of 1975 to the fourth quarter\nFORD is LIBRARY 07V839\n- 3 -\nof 1976, contractual wages in the private sector are estimated to have\nincreased by about 36 percent, compared to an increase of 24 percent in\nthe consumer price index.\nThis record suggests that, while organized labor undoubtedly\nwill want to preserve these gains, there is some room to reduce real wages\nwithout returning to the position of 1973. How long labor's patience will\nlast cannot be predicted, but it is significant that another Government\nemployee pay review will take place in September, and pressures may mount\nbefore then to apply a pay increase across the board, as last year,\nespecially if the monthly increases in the consumer price index do not\ndiminish markedly soon.\nPrepared by Yves Maroni\nApril 22, 1977\nFORD is LIBRARY GERMLD\nRESTRICTED-CONTROLLED\nC.9b\nFINANCIAL INDICATORS -- MEXICO\n(dollar amounts in millions)\n1975\n1976\n1977\nWeek ended\nAPR 1-\nYEAR\nQI\nQII\nQIII\nQIV\nJAN\nFEB\nMAR\n20\nMAR 23\nMAR 30\nAPR 6\nAPR 13\nApr.\n20\nEXCHANGE RATE (CENTS PER PESO, END OF PERIOD)\n8.00\n8.00\n8.00\n5.03\n4.98\n4.55\n4.41\n4.40\n4.42\n4.40\n4.40\n4.39\n4.40\n4.42\nSDR VALUE OF PESO\n.06842\n.06924\n.06985\n.04364\n.04297\n.03960\n.03833\n.03802\n03809\n.03807\n.03802\n.03797\n.03794\n.03809\nSHORT TERM INTEREST RATE (E.O.P.)\n12.94\n13.11\n13.11\n14.36\n14.36\n14.36\n14.36\n14.36\n14.36\n14.36\n14.36\n14.36\n14.36\n14.36\nLONG TERM INTEREST RATE (E.O.P.)\n13.02\n12.86\n14.17\n15.09\n14.29\n14.29\nn.a.\nn.a.\nn.a.\nn.a.\nn.a.\nn.a.\nn.a.\nn.a.\nRESERVES (IFS, E.O.P.)\n1,533\n1,501\n1,585\n870\n1,251\n1,513\n1,449\n1,442\nAVAILABLE IMF CREDIT TRANCHES (E.O.P.)\n433\n620\n615\n621\n596\n596\n481\n481*\nINTERVENTION, PURCHASES (+) OR SALES (-)\nOF DOLLARS\n24.3\n95.2\n-102.4\n10.1\n2.5\n-49.5\n-42.4\n-0.5\n13.0\n(OF OTHER CURRENCIES, EQUIVALENT)\nSWAP ACTIVITY (SWAP LINE -- 360)\nDRAWINGS\n360\n360\n150\n--\nREPAYMENTS\n-360\n-360\n-150\nGERALD\nLIBRARY\n*Available under three-year Extended Fund\nFacility program starting January 1, 1977.\nRESTRICTED-CONTROLLED\nApril 21, 1977\nPrepared by Financial Markets\nSection\nMEXICU: ECONOMIC INDICATORS\nC.9a\nApril 21, 1977\n1974\n1975\n1976\n1975\n1976\n1976\n1976\n1976\n1977\n1976\n1976\n1976\n1976\n1977\n1977\n1977\nIV\nI\nII\nIII\nIV\nI\nSEPT\nOCT\nNUV\nDEC\nJAN\nFEB\nMAR\nREAL GDP,1970=100\n126.4\n131.8\n134.4\nN.A.\nN.A.\nN.A.\nN.A.\nN.A.\nN.A.\nN.A.\nN.A.\nN.A.\nN.A.\nN.A.\nN.A.\nN.A,\nREAL GDP, PER CENT\nCHANGE (1)\n5.9\n4.2\n2.0\nN.4.\nN.A.\nN.A.\nN.A.\nN.A.\nN.A.\nN.A, N.A. N.A. N.A. N.A. N.A. N.A.\nINDUSTRIAL PRODUCTION\n1970=100\n132.8\n139.0\n142.3\n140.8\n144.0\n144.6\n142.6\n138.0\nN.A.\n138.9 141.1 138.1 134.8 N.A. N.A. N.A.\nINDUSTRIAL PRODUCTION\nPER CENT CHANGE (1)\n7.3\n4.7\nN.A.\n0.8\n2.2\n0.4\n-1.4\nN.A.\nN.A,\n-3.3 1.6 -2.1 N.A. N.A. N.A. N.A,\nWHULESALE PRICES\nPER CENT CHANGE (1) 22.4 10.5 22.3\n2.3\n5.6\n3.2\n5.6\n21.0\nN.A.\n6.2 8.4 8.2 5.3 2.5 1.7 N.A,\nCONSUMER PRICES\nPER CENT CHANGE (1) 23.8 15.0 15.8\n2.0 4.4 2.6 3.2 12.5 8.7\n3.4 5.6 4.5 2.5 3.2 2.2 2.1\nMONEY STOCK (M1) (SA)\nPER CENT CHANGE (1)\n20.9\n22.3\n22.9\n5.8\n3.9\n4.7\n5.8\n13.1\nN.A.\n8.2 1.9 7.1 3.2 -0.4 N.A. N.A.\nPUBLIC SECTOR DEF. (-)\nAS PER CENT OF GDP\n-7.8\n-9.3\n-10.2\nN.A.\nN.A.\nN.A.\nN.A.\nN.A.\nN.A.\nN.A. N.A. N.A. N.A. N.A. N.A. N.A.\nCENTRAL GOVT. DEF.(-)\nAS PER CENT OF GDP\n-3,8\n-4.3\n-4.7\nN.A.\nN.A.\nN.A.\nN.A.\nN.A.\nN.A.\nN.A. N.A. N.A. N.A. N.A. N.A. N.A.\nEXPORTS (2)\n($ BILLION)\n3.5\n3.5\n4.0\n0.9 0.9 1.0 0.8 1.1 1.3\n0.2\n0.2\n0.3.\n0.4\n0.5\nN.A.\nN.A.\nIMPORTS ($ BILLION)\n6.1\n6.6\n6,0\n1.9\n1.4\n1.7\n1.5\n1.4\nN.A.\n0.4\n0.4\n0.4\n0.6\n0.3\nN.A.\nN.A\nTRADE BALANCE (2)\n($ BILLION)\n-2.6\n-3.1\n-2.1\n-1.0 -0.5 -0.6 -0.7 -0.3 N.A.\n-0.1\n-0.2\n-0.1\n-0.2\n-0.1\nN.A.\nN.A.\nBALANCE ON GOODS AND\nSERVICES ($ BILLIUN) -2.6 -3.8 -3.0\n-1.1 -0.7 -0.9 -1.0 -0.5 N.A.\nN.A. N.A. N.A. N,A, N.A. N.A. N.A.\n(1) PER CENT CHANGE FROM PREVIOUS PERIOD. QUARTERLY CHANGES\nAT QUARTERLY RATES, MONTHLY CHANGES AT MONTHLY RATES.\nP..\nFORD\n(2) MONTHLY DATA EXCLUDE EXPORTS OF BORDER ASSEMALY PLANTS AND OF SILVER\nAND ARE NUT CONSISTENT WITH QUARTERLY OR ANNUAL DATA.\nGERALD\nLIBRARY\nRESTRICTED\nBoard Briefing\nGERALD FORD LIBRAST\nYves Maroni\nApril 8, 1977\nThis morning, I will report on Mexico's economic situation\nand in particular what we know about Mexico's compliance with the\nprovisions of its agreement with the International Monetary Fund. Under\nthe agreement, Mexico is required to observe, at the end of each calen-\ndar quarter, specific levels of performance regarding four monetary and\nfinancial variables, and failure to meet the specific targets on these\ndates would lead to an interruption in Mexico's eligibility to draw\non successive tranches under the Extended Fund Facility agreement. Our\nbest judgment is that for the year as a whole, the outlook remains dis-\ncouraging, but there is a good chance that the first quarter targets may\nhave been met largely because of short-term and technical factors.\nThe first performance target is that the overall deficit of\nthe public sector in the first quarter must not exceed 25 billion pesos.\nOn this score, it is reported that revenues are coming in at about the\nanticipated rates while expenditures are lagging, and that the Government\nhas not had net recourse to the Central Bank for financing so far this\nyear. These reports appear to be corroborated by partial data shown to\nus by a Mexican Ministry of Finance official who visited here last\nMonday. We have no independent way to verify the information on revenues,\nbut we do have grounds to believe that expenditures are in fact lagging.\nWe know that a sweeping government reorganization took place at the be-\nginning of the year and that the new administration of President Lopez\nDECLASSIFIED E.O. 12958 Sec. 3.6\nPortillo has been going through a shake-down period. A lag in spending,\nWith PORTIONS EXEMPTED\nRESTRICTED\nE.O. Federal 12958 Reserve Restrictions See. 1.5\nMR95-1, # 48 Fed. Res Ur. 2/13/96\nBy KBH NARA, Date 4/19/96\nRESTRICTED\n- 2 -\nparticularly for capital investment projects, would therefore not be\nsurprising. Moreover, for projects which are being implemented, the\nalternative exists of delaying the payment of bills. In fact, the\nMexican official who visited us on Monday made it clear that the\nbalance of unpaid bills was increasing. Since unpaid bills will be\nexcluded from the calculation when judging performance, it is likely\nthat, technically speaking at least, the fiscal deficit target for\nMarch 31 will be found to have been observed.\nThe second performance target is that the external borrowings\nof the public sector in the January-March period must not exceed $1.2\nbillion. We lack data to verify compliance in this area, but two ob-\nservations may be made. First, the current account of the Mexican\nbalance of payments is likely to have continued to improve in the\nfirst quarter. This is suggested by the January trade and tourism data,\nand by developments affecting subsequent months, including the continuing\nsluggishness of the Mexican economy, the economic recovery in the United\nStates, and such special factors as the rise in world coffee prices, a\nfavorable cotton harvest, and the severe winter weather in the United\nStates which made possible increased shipments of Mexican fruits and\nvegetables, as well as crude oil and natural gas. Secondly, the evidence\nfrom banking data suggests that some reflow of capital to Mexico has\nbeen taking place.\nThese two factors point toward a reduced need for external\ncredits. In fact, reports from the Financial Attache of the U.S.\nRESTRICTED\nBERAI\nRESTRICTED\n- 3 -\nEmbassy in Mexico City indicate that Mexican external borrowings so\nfar this year are smaller than had been anticipated. The press\nFORD\nand other sources have reported announcements of new borrowings of\nGERALD\nabout $500 million in the first quarter. Our best judgment is that\nthe external borrowings target for March has most probably been ob-\nserved.\nThe third performance target is that the increase in the\nBank of Mexico's net international reserves must exceed the increase\nin its currency issue. During the January-March 1977 period, gross\ninternational reserves rose by\nand net reserves by about\nWe do not yet have data on the currency issue at the end\nof March. However, in the first two months of the year, the currency\nissue declined by nearly 11 per cent, owing to seasonal factors, which\nare to be disregarded for the purposes of this target. This decline\nleft a large unused margin for a possible expansion in March. The cur-\nrency issue would have had to have increased by more than 18 per cent\nfrom its February level to place Mexico in violation of this target\nat the end of March. An increase at such a rate is quite unlikely to\nhave occurred.\nThe fourth performance target is that the increase in the\nBank of Mexico's net domestic assets must not exceed the increase in\nits liabilities to banks and public sector entities. In fact, this\ntarget is the complement of the third target dealing with the relation-\nship between the increase in net international reserves and the increase\nin the currency issue. It would appear that, barring some accounting\nRESTRICTED\nRESTRICTED\n- 4 -\npeculiarities of which we are not aware, compliance with the third\ntarget would entail compliance with the fourth one as well.\nThe data needed to verify Mexican performance in the first\nquarter against these targets will not be available until mid-May,\nat the earliest, but the signs point toward Mexico being in compliance,\nat least technically. For the rest of the year, the prospects are more\nguarded, particularly because the Mexican authorities have apparently\nnot yet taken steps to reduce the fiscal deficit for the year as a whole\nto the level of 90 billion pesos specified in the IMF agreement. Once\nexpenditure rates are normalized, as they eventually will be, the deficit\nis likely to rise above the permissible levels.\nThe IMF staff believes that the Mexican revenue estimates are\noverstated and that the expenditure estimates are understated. As a\nresult, they forecast a deficit of about 130 billion pesos for the entire\npublic sector for the year as a whole, about 25 billion pesos more than\nthe Mexican authorities presently estimate. Our Mexican visitor of last\nMonday said that the authorities were about to increase gasoline prices\nand electricity rates and he estimated that this would further reduce\nthe deficit by 7 to 8 billion pesos, the exact amount depending on the\ndate when these measures take effect. He added that other expenditure\ncuts are under active consideration.\nIn the final analysis, much will depend on the outcome of the\neconomic policy debate now going on in Mexico. One group within the\nRESTRICTED\nFORD is CERALO LIBRARY\nRESTRICTED\n- 5 -\nadministration is advocating measures to stimulate production, rely-\ning on the eventual appearance of enlarged supplies to help fight\ninflation. Another group is pushing for an attack on inflation through\nfurther cuts in public spending to hold down aggregate demand. It is\nnot yet clear which side will win this debate.\nFORD i GERALD LIBRARY\nRESTRICTED\nBOARD OF GOVERNORS OF FEDERAL RESERVE SYSTEM\nRESTRICTED\nApril 26, 1977\nTO:\nChairman Burns\nFROM: Ted Truman\nAttached for your information are\nmy notes on your meeting yesterday with the\nMexican officials.\nRESTRICTED\nFORD is LIBRARY 07V830\nRESTRICTED\nE.M. Truman\nApril 26, 1977\nNotes on Meeting with Mexican Officials\nParticipants: Mr. Moctezuma (Secretary of Finance), Mr. Romero Kolbeck\n(Director General of the Bank of Mexico), Mr. Solis (Bank of\nMexico), Mr. Tello (Secretary of Programming and Budget), Mr. Diaz\n(Director General of Pemex), Chairman Burns, Governor Wallich,\nTed Truman.\nbegan the discussions by noting that on the previous\nvisit he and.\nhad mentioned the need for an additional $1 billion\nin net external borrowing in 1977 over the $3 billion ceiling in the\nIMF agreement. This was needed for the development of Pemex.\ninterrupted to say that the group had met with\nMr. Witteveen on the problems that they were having following up and\nexecuting the Extended Fund Facility agreement. He pointed to three\nproblems. (1) The 90 billion peso figure for the 1977 public sector\ndeficit agreed upon in September was no longer realistic. It was neces-\nsary to start over and compute what deficit would be consistent with\na target of 6 per cent of GDP. (2) The limit on currency issue was too\ntight; they needed more leeway especially to permit some seasonal\nvariation. (3) There was the special case of the need to borrow for\nPemex.\nexplained the program of Pemex. He said it was fixed\nby two parameters: the needs of the country and the size of Mexico's\noil reserves. The reserves, based on recent geological information,\nappear now to be very large. This was not realized when the discoveries\nwere first made in 1973. In 1975, Mr. Moctezuma had helped to begin a\nDECLASSIFIED F.O. 12958 Sco. 3.6\nRESTRICTED\nWith PORTIONS EXEMPTED\nE.O. 12958 Swc. 1.6\nFed. Res. Restrictions\nMR 95-1, #50 Fed. Res. Hr. 2/13/96\nBy KBH NARA, Date 4/19/96\nRESTRICTED\n-2-\nstudy of the matter. That study was completed in December and it\nindicated that Mexican proven oil reserves were 11 billion barrels.\n(Note:\nhas said elsewhere that potential reserves may be on\nthe order of 60 billion barrels. A new study, by a U.S. firm, is now\nunder way.)\nPemex has adopted a program to raise production to 2-1/4\nmillion barrels per day (mbd) in 1982 with exports of 1.1 mbd. For\n1977 they had expected production of 955 thousand barrels per day and\nexports of 153 thousand barrels per day, but production was now running\nat 1,050 thousand barrels a day and exports at 174 thousand barrels a\nday. In December they had expected to be able to produce in 1977 an\naverage of 1000 cu. ft. of gas per barrel of oil; now the figure is\ncloser to 7000 CU. ft. per barrel. Moreover, they had made a dry gas\ndiscovery near the Texas border.\nPemex was switching to a strategy of exploiting its gas reserves\nalong with its oil reserves. To do this an extensive 48 inch pipeline\nhas to be built which had not been planned in December. The cost would\nbe $1.5 billion. U.S. firms wanted to build it just to have right of\nfirst refusal to the gas; banks were willing to finance the project.\nBurns asked why the project could not be implemented.\nand\nreplied that the $3 billion in net new\nforeign borrowing had already been earmarked for other projects.\nBurns asked why adjustments could not be made to previous plans.\nRESTRICTED\nRESTRICTED\n-3-\nsaid that the public investment program was very tight\nfor 1977 involving a reduction in real terms. Other projects would have\nto be cut back; this was work in progress.\nBurns asked why these projects could not be stretched out.\nsaid this would not solve Mexico's balance of payments\nproblems. To solve these problems they needed exports and to provide\nexports production must increase.\nBurns noted that this would also probably accelerate inflation.\nresponded that the addition from the Pemex project would\nbe in the form of real imports.\nargued that Mexico was forced to take this approach\nbecause of the nature of the geological formations. Pemex was now flaring\nthe gas which was a crime! He noted that Mexican oil and gas production\nwas only 40 hours from the United States compared with 40 days from\nMiddle East sources.\nWallich asked if the entire $1 billion was to cover added\nforeign exchange costs.\nanswered that the direct import content was 30 per cent.\nsaid that the average for the six-year project was 30-\n32 per cent.\nnoted that it takes too long to get pipe from Mexico;\ntherefore, they would import it, which would raise the import content.\nBurns noted again that this would appear to accelerate economic\nactivity.\nRESTRICTED\nRESTRICTED\n-4-\nargued that economic activity had been low for two\nyears.\nBurns noted that the inflation rate in Mexico was also too\nhigh.\nnoted that it was necessary to balance the short run and\nthe long run.\nBurns asked about the implications for the IMF program.\ncommented that there were ways to get around\nthe problem. The equipment could be acquired through lend lease or the\ncontractors might receive private financing. He noted that the price of\ngasoline would be raised to reduce the fiscal deficit. But that the\nrate of economic expansion would also increase.\nargued that the cost of not embarking on this program\nwas reduced exports and production.\nBurns noted again that the cost could be an acceleration of\ninflation.\nsaid that the short-run benefits could add a net of $5-6\nbillion to the balance of payments over six years.\nBurns asked what the impact would be in 1977. He went on to\nsay that he was not an expert on Mexico, but he felt Mexico had gotten\ninto trouble by trying to move too fast. Maybe this would happen again.\nnoted that this time the investment was directly\nrelated to exports, but it was true that there was a timing problem.\nWallich asked about the status of the stand-by conditions.\nRESTRICTED\nRESTRICTED\n-5-\nCERALS FORD LIBRARA\nsaid they were under the limits for the first\nthree months.\nsaid that when the IMF mission comes to Mexico next\nweek it will be necessary to look at the entire program. The program\nhad been based on preliminary data in September; now complete date were\navailable.\nWallich noted that indeed the inflation rate was higher.\nsaid yes the implicit IMF forecast was 18 per cent--year\nover year.\nnoted that the inflation rate was declining,\nreaching 1.5 per cent in March. (Note: This refers to Mexico City only.\nThe national CPI rose 2.0 per cent in March.) The 1977 current account\ndeficit would be $2 billion or less. The Treasury had not borrowed\ndirectly from the central bank. The banking system was recuperating.\nReserves had increased $800 million since the end of December and the\nFederal Reserve and the Treasury had been repaid. (Note: The reported\nfigures show a $230 million increase through March 20 on the IMF basis\nand $257 million on the Mexican basis; they have also repaid $300 million\nin borrowing from the Federal Reserve and Treasury.)\nWallich asked about their borrowing plans.\nsaid that in 1977 they planned to borrow $3 billion\nnet and $8 billion gross, of which $4-1/2 billion would be short term and\n$1-1/2 billion would be for five years or more. (This would leave $2\nbillion of medium-term borrowing. Note, however, that the earlier figure\non gross borrowing was $9 billion.) Net borrowing so far had been $400\nmillion and about $900 million gross. The early period had been slow\nRESTRICTED\nRESTRICTED\n-6-\nbut March was more active. (There was a passing reference to the swap\nproposal.) The target was to come as close as possible to $3 billion,\nbut it may not be needed.\nWallich noted that in that case there would be room for the\nnew Pemex program.\nBurns asked if they could raise $3 billion.\nsaid that no U.S. or European bank had reacted\nadversely so far. He said that they had been travelling in Europe\ntalking with various bankers and central bankers. They had heard no\ndoubts so far. Up to the present they have borrowed more than they need\nand had received advance offers of loans. Their policy was to have only\none quasi-government agency in the market at one time.\nAt this point the visit was terminated because the group had\nan appointment with the Exim Bank.\nRESTRICTED\nFORD FIBRARY"
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