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Mexico, 4/76-10/77 (10)
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Mexico, 4/76-10/77 (10)
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Arthur F. Burns Papers
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The original documents are located in Box B80, folder "Mexico 4/76 - 10/77 (10)" of the
Arthur F. Burns Papers at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
May 2, 1977
TO:
Chairman Burns
FROM: Ted Truman
The attached cable from Mexico reports
on an interview with President Lopez Portillo
in which he appears to endorse a solution to
Mexico's problems through increase domestic
production.
cc: Governor Wallich
A this document is due
to the usion of U.S. Government information
officially classified under Executive Order 10501
which provides that "A document shall bear a
classification at least as high as that of its
highest classified component."
GERALD FORD LIBRARY
UNCLASSIFIED
INCOMING
arm
Department of State
TELEGRAM
UJK
usp
Mexico
PAGE 01
MEXICO 06235 280003Z
6568
ACTION ARA-10.
INFO OCT-01 ISO-00 AID-05 CIAE-00 COME-00 EB-08 FRB-01
EMT
INR-07 NSAE-00 USIA-15 TRSE-00 XMB-04 OPIC-06
SP-02 LAB-04 SIL-01 OMB-01 DODE-00 PA-02 PRS-01
/068 W
280336Z 020179 /73
R 272358Z APR 77
FM AMEMBASSY MEXICO
TO SECSTATE WASHDC 1796
UNCLAS MEXICO 06235
PLEASE RETURN TO
INTERNATIONAL INFORMATION CENTER
EO 11652: N/A
TAGS: EINV, ETRD, MX
SUBJECT: PRESIDENT LOPEZ PORTILLO COMMENTS ON MEXICAN
ECONOMY
1. IN AN INTERVIEW WITH A CORRESPONDENT OF A SPANISH
PERIODICAL ON APRIL 26, PRESIDENT LOPEZ PORTILLO
COMMENTED ON THE MEXICAN ECONOMY. HE STATED THAT
INFLATION COULD BE ATTACKED TWO WAYS, FROM THE SIDE OF
DEMAND OR THAT OF SUPPLY. MONETARY MEASURES GENERALLY
WORKED ON DEMAND. MEXICO HAD so MANY UNSATISFIED NEEDS
THAT MEASURES TO REDUCE DEMAND WOULD RISK INJUSTICE
AND SOCIAL PROBLEMS. HENCE, MEXICO WOULD ACT UPON
SUPPLY AND FOLLOW POLICIES TO AUGMENT PRODUCTION,
GIVING AS AN EXAMPLE THE TEMPORARY MODERATION OF SALARY
DEMANDS BY ORGANIZED LABOR.
2. JLP WENT ON TO POINT OUT THAT DURING ECHEVERRIA' S
ADMINISTRATION LABOR HAD RECEIVED SUBSTANTIAL WAGE
INCREASES, HENCE HOLDING DOWN WAGES NOW WAS NOT UNJUST.
INFLATION ATTACKED THE POOREST HARDEST AND THEY DID NOT
HAVE THE ADVANTAGE OF BEING ABLE TO ORGANIZE THEMSELVES.
3. WHEN ASKED IF THE PRIVATE SECTOR HAD NOT FULFILLED
ITS PROMISES, JLP REPLIED, "YES, OF COURSE. GIVING
AS AN EXAMPLE THAT IMPORTANT BUSINESS GROUPS HAD
ESTABLISHED PROGRAMS TO HELP SOLVE THE BIG
PROBLEMS, INFLATION AND LACK OF JOBS.
4. JLP SAID THAT THE GREAT FOREIGN INDEBTEDNESS WAS
DUE TO MEXICO'S DEFECTIVE SYSTEM OF FINANCING DEVELOP-
MENT WHICH HAD TO BE CORRECTED. THE DEBT WOULD BE
REDUCED; MEXICO HAD THE ABILITY TO PAY IT. MEXICO WAS
PREPARING A BETTER SCHEME FOR FINANCING DEVELOPMENT
WHICH WOULD HAVE TO TAKE ACCOUNT OF REDISTRIBUTION OF
INCOME, PRICE-SALARY RELATIONSHIPS, FISCAL MEASURES,
PROFITS, AND THE PROFITABILITY OF STATE ENTERPRISES.
THOMPSON
FORD i LIBRARY GERALD
UNCLASSIFIED
CONFIDENTIAL
May 16, 1977
TO:
Chairman Burns
FROM: Ted Truman
Attached is a cable on recent economic devel-
opments in Mexico.
CC: Governor Wallich
Defense classification of this document is due
to the inclusion of U.S. Government information
officially classified under Executive Order 10301
which provides that A document shall bear a
classification at least as high as that of its
highest classified component."
FORD & LIBRARY 939470
UJK.SP
CONFIDENTIAL
INCOMING
la
ecym
Department of State
TELEGRAM
Mexico
PAGE 01
MEXICO 073.05 01 OF 03 1222222
5044
MEXICO 073.05 01 OF 03 122222Z
ACTION ARA-06
(PUBLIC WORKS BANK) IS NOT FARING VERY WELL. BANKERS HAVE
EMT
INFO OCT-01 IS0-00 EB-03 SS-14 INR-05 NSC-05 NSCE-00
VOLUNTEERED DIFFERENT REASONS FOR THIS; ONE HAS SAID THAT
PRS-01 PA-01 H-01 FRB-03 OMB-01 CIAE-00 /041 W
GOM PICKED A WEAK UNDERWRITING GROUP. ANOTHER SAID THE
11C
122256Z 075969 /13
POOR RECEPTION IS DUE TO BANKS ALREADY HOLDING T00 MUCH
R 1221552 MAY 77
BANOBRAS PAPER. A THIRD HAS SAID THAT THE POOR REACTION
FM AMEMBASSY MEXICO
IS DUE TO CONCERNS RE MEXICAN PAPER. WE ALSO UNDERSTAND
TO SECSTATE WASHDC 2086
THAT A $60 MILLION UNITED MEXICAN STATES BOND ISSUE FOR
INFO TREASURY WASHDC
SECZ+3ATT
FIVE YEARS AT 9 PERCENT HAS JUST BEEN FLOATED IN NEW YORK.
THIS ISSUE HAS BEEN IN THE WORKS SINCE BEFORE THE DEVALUA-
SECTION 01 OF 03 MEXICO 07305
TION. PEMEX IS REPORTEDLY NEGOTIATING A EURO-CURRENCY
BOND ISSUE, AND THE RURAL BANK IS PLANNING A DM BOND ISSUE.
LIMDIS PASS FEDERAL RESERVE
1. RE BORROWING FROM COMMERCIAL BANKS, RECENT DISCUSSIONS
WITH OFFICIALS OF THE THREE LARGEST U.S. BANKS INDICATE A
E0 11652: GDS
RELUCTANCE TO INCREASE THEIR EXPOSURE IN MEXICO AS FAST AS
TAGS: EFIN MX
IN THE LAST TWO YEARS. ONE OFFICIAL TOLD US HIS BANK DID
SUBJECT: RECENT ECONOMIC DEVELOPMENTS
NOT INTEND TO INCREASE EXPOSURE FASTER THAN ITS CAPITAL
WOULD GROW; I.E., L0 PERCENT THIS YEAR. ANOTHER KEPT
1. SUMMARY: PARTIAL DATA PLUS PUBLIC AND PRIVATE COMMENTS
EXPRESSING THE VIEW THAT THE IFI'S SHOULD PLAY A LARGER
BY GOM OFFICIALS INDICATE THAT MEXICO IS MEETING THE FUND
ROLE IN FINANCING MEXICO'S CURRENT ACCOUNT DEFICIT. THESE
PROGRAM TARGETS. ECONOMY CONTINUES TO STAGNATE, CURRENT
VIEWS PROBABLY REFLECT THOSE OF SENIOR MANAGEMENT. WE
ACCOUNT DEFICIT DECLINES, PRICE INCREASES CONTINUE AT
HAVE NOT HEARD ANY BANKERS SAY THEY INTEND TO FURTHER REDUCE
HIGH RATE. END SUMMARY.
THEIR MEXICAN PORTFOLIO; SOME INDICATE THEY ARE WILLING
TO INCREASE IT JUDICIOUSLY, OTHERS SAY THEY ONLY INTEND
BALANCE OF PAYMENTS.
TO MAINTAIN THEIR END-76 EXPOSURE BY REPLACING MATURING
DEBTS.
2. CURRENT ACCOUNT. BANK OF MEXICO DIRECTOR GENERAL HAS
PUBLICLY STATED THAT FIRST QUARTER TRADE DEFICIT WAS ABOUT
8. DOMESTIC ECONOMIC ACTIVITY. INDUSTRIAL OUTPUT REMAINS
$100 MILLION AND CURRENT ACCOUNT DEFICIT WAS $3.00 MILLION.
AT FOURTH QUARTER LEVELS AND IS BELOW YEAR EARLIER LEVELS.
THIS REPRESENTS A DRAMATIC IMPROVEMENT OVER FIRST QUARTER
1976, WHEN TRADE DEFICIT WAS $672 MILLION AND CURRENT
ACCOUNT DEFICIT WAS $666 MILLION. ACCORDING TO PRELIMINARY
AND UNPUBLISHED DATA OBTAINED ON A CONFIDENTIAL BASIS,
EXPORTS WERE UP 33 PERCENT IN VALUE AND IMPORTS WERE DOWN
25 PERCENT. COFFEE ACCOUNTS FOR 30 PERCENT OF THE IN-
INTERNATIONAL INFORMATION TO CENTER
RETURN
CREASED EXPORT EARNINGS, PETROLEUM AND MANUFACTURES
(MOSTLY AUTO PARTS) F.O.R 26 PERCENT EACH. THE DECLINE IN
CAPITAL GOODS IMPORTS ACCOUNTED FOR OVER HALF OF THE DROP
IN IMPORTS.
3. SERVICES, WHICH WERE ROUGHLY IN BALANCE IN FIRST
QUARTER L977, MUST HAVE REGISTERED A DEFICIT. OF ABOUT
$2.00 MILLION IN FIRST QUARTER 1976. POSITIVE BALANCE ON
FRONTIER TRANSACTIONS AND TOURISM WAS $278.3 MILLION IN
JANUARY-FEBRUARY L977, $22 MILLION BELOW YEAR EARLIER
SURPLUS. HIGHER INTEREST PAYMENTS PROBABLY WERE MAIN
FACTOR IN SERVICES DEFICIT.
4. CAPITAL ACCOUNT. DATA IS NOT YET AVAILABLE ON THE
CAPITAL ACCOUNT. BUT WE WOULD ESTIMATE NET CAPITAL INFLOWS
AT NO MORE THAN $300 MILLION. PRESUMABLY NET PRIVATE SECTOR
BORROWING HAS BEEN NIL, THOUGH AT LEAST ONE PRIVATE EXTER-
NAL BOND ISSUE HAS BEEN FLOATED. PUBLIC SECTOR NET BORROW-
ING IN THE FIRST QUARTER COULD NOT HAVE BEEN VERY LARGE.
WE ARE AWARE OF ONLY FOUR PUBLICIZED ISSUES FOR A TOTAL OF
$440 MILLION. THERE'WERE, HOWEVER, NUMEROUS UNPUBLICIZED
SHORT AND MEDIUM TERM CREDITS AS WELL. NET PUBLIC SECTOR
BORROWING WAS PROBABLY NO MORE THAN $250 MILLION IN FIRST
QUARTER. PROCEEDS OF $350 MILLION PEMEX ISSUE WERE NOT
DRAWN DOWN UNTIL APRIL.
5. IT WOULD APPEAR THAT THE "ERRORS AND OMISSIONS" ENTRY
WAS POSITIVE IN FIRST QUARTER. WHILE SOME CAPITAL FLIGHT
CONTINUES, REFLOWS WERE GREATER, ACCORDING TO MOST REPORTS.
AS BEST WE CAN DETERMINE, REFLOWS TOOK THE FORM OF SALES
OF DOLLAR CURRENCY BEING HELD IN MEXICO RATHER THAN INTER-
BANK FLOWS. THERE IS NO SIGNIFICANT REPATRIATION OF
CAPITAL HELD ABROAD, ACCORDING TO U.S. AND MEXICAN BANKERS.
GERALD FORD LIBRARY
GROSS RESERVES INCREASED $2.05 MILLION FROM END-DECEMBER TO
MARCH 11.
6. RE PUBLIC SECTOR EXTERNAL BORROWING PROGRAM, WE UNDER-
STAND THAT THE 150 MILLION EURO-DOLLAR CREDIT FOR BANOBRAS
CONF IDENT
dal 7/26/07
CONF IDENT
INCOMING
Department of State
TELEGRAM
PAGE 01
MEXICO 07305 02 OF 03 1222312
5043
MEXICO 07305 02 OF 03 122231Z
ACTION ARA-06
MENT SPENDING WAS FROZEN PENDING A MORE THOROUGH REVIEW
INFO OCT-01 IS0-00 EB-03 SS-14 INR-05 NSC-05 NSCE-00
WHICH RECENTLY CONCLUDED WITH DECISION THAT 1977 SPENDING
PRS-01 PA-01 H-01 FRB-03 OMB-01 CIAE-00 /041 W
SHOULD NOT EXCEED ORIGINAL BUDGET.
122256Z 076176 /13
R 122155Z MAY 77
14. THE AGREEMENT WITH THE FUND IS BEGINNING TO SURFACE
FM AMEMBASSY MEXICO
AS A POLITICAL PROBLEM. A DEPUTY HAS SUGGESTED THAT THE
TO SECSTATE WASHDC 2087
CONGRESS SHOULD HAVE A LOOK AT AND DISCUSSION OF THE
INFO TREASURY WASHDC
PROGRAM AS AGREED WITH THE FUND. THE GOM HAS RESPONDED,
INDIRECTLY, THROUGH FINANCE MINISTER MOCTEZUMA WHO HAS
SECTION 02 OF 03 MEXICO 073.05
DEFENDED THE FUND AGREEMENT AS A PROPER EXERCISE OF
MEXICO'S SOVEREIGNTY AND, ACCORDING TO MEXICAN NEWSPAPERS,
INSISTED IN THE IMF INTERIM COMMITTEE THAT THE FUND NOT
LIMDIS - PASS FEDERAL RESERVE
VIOLATE THE "SOVEREIGNTY" OF ITS MEMBERS.
THERE HAS BEEN NO GENERAL REVIVAL OF PRIVATE INVESTMENT,
15. WHILE GOM OFFICIALS POINT OUT A REDUCTION IN THE RATE
AS BEST WE CAN DISCERN. WHILE THE PRIVATE BUSINESS COM-
OF INFLATION SINCE THE LAST FOUR MONTHS OF 1976, INFLA-
MUNITY HAS WARM FEELINGS TOWARD LOPEZ-PORTILLO, THEY
TIONARY PRESSURES REMAIN STRONG. THE WPI INCREASED 2.9
REMAIN RELUCTANT TO COMMIT FUNDS. THIS REFLECTS LINGERING
PERCENT IN APRIL AND THE NATIONAL CPI WAS UP 1.5 PERCENT
DOUBTS OVER WHAT THE GOVERNMENT'S POLICIES WILL BE, A
LEAVING THESE INDICES 49.8 PERCENT AND 27.3 PERCENT ABOVE
RELUCTANCE TO CONVERT DOLLARS INTO PESOS, GENERALLY TIGHT
YEAR EARLIER LEVELS. THERE IS STILL CONSIDERABLE REPRESS-
CREDIT, AND STAGNANT DOMESTIC DEMAND' THE LACK OF A
ED INFLATION. THIS CERTAINLY EXISTS IN THE PUBLIC SECTOR,
CLEARLY STATED SHORT AND LONG-TERM ECONOMIC STRATEGY IS A
BUT MANY PRIVATE BUSINESSMEN COMPLAIN ABOUT THE NEED TO
COMMON COMPLAINT AMONG BUSINESSMEN AND BANKERS. THE
RAISE PRICES OF GOODS SUBJECT TO PRICE CONTROLS. SEVERAL
JANUARY INDUSTRIAL PRODUCTION INDEX WAS 3.6 PERCENT BELOW
HAVE TOLD US THAT THEY HAVE CUT OFF PRODUCTION LINES
THE YEAR-EARLIER FIGURE, AND ALSO SLIGHTLY BELOW DECEMBER
RATHER THAN RUN THEM AT A LOSS. THE PRESUMPTION IS THAT
INDEX, CONTRARY TO USUAL SEASONAL JUMP. A LARGE MEXICAN
ONCE THE 90 BASIC COMMODITIES PROGRAM IS EFFECTIVE,
PRIVATE BANK ESTIMATES INDUSTRIAL PRODUCTION IN FIRST
APPROVALS FOR PRICE INCREASES WILL BE GRANTED. (THIS
QUARTER L977 WAS 4 PERCENT BELOW THAT OF ONE YEAR EARLIER.
PROGRAM IS PROGRESSING VERY SLOWLY. AGREEMENTS HAVE BEEN
REACHED ON MORE THAN HALF THE PRODUCTS WHEREAS IT HAD BEEN
9. MONEY SUPPLY IS GROWING ON A YEAR TO YEAR BASIS AT
HOPED AGREEMENTS ON ALL 90 WOULD BE SIGNED BY MAY 1.)
OVER 30 PERCENT. CURRENCY IN CIRCULATION OUTSIDE THE
IT IS ALSO WIDELY ASSUMED THAT CERTAIN PUBLIC SECTOR PRICES
BANK OF MEXICO AS OF END-MARCH WAS 45 PERCENT ABOVE YEAR
EARLIER FIGURE. AS OF END-FEBRUARY, TOTAL MONEY SUPPLY
WAS 33 PERCENT ABOVE YEAR EARLIER FIGURE, AND 1.2 PERCENT
ABOVE END-JANURJANUARY FIGURE. CURRENCY IN CIRCULATION
OUTSIDE THE BANK OF MEXICO WAS 70.3 BILLION PESOS AT END-
MARCH, NINE BILLION BEPESOS BELOW THE END-1976 FIGURE.
THUS, BANK IS WELL WITHIN FUND AGREEMENT PROVISION CALLING
FOR THE CURRENCY ISSUE GROWTH NOT TO EXCEED THE CHANGE IN
INTERNATIONAL RESERVES.
10. BANK OF MEXICO OFFICIAL TOLD US THAT NET CENTRAL BANK
LENDING TO FEDERAL GOVERNMENT IN FIRST QUARTER WAS ABOUT
3 BILLION PESOS, SOMEWHAT BELOW YEAR EARLIER FIGURE.
THERE IS NOT ANY DATA YET AVAILABLE FOR LENDING TO PUBLIC
SECTOR, BUT THIS IS GENERALLY LESS THAN THE FEDERAL GOVERN
MENT'S BORROWING. IT WOULD APPEAR THAT THE PUBLIC SECTOR
DEFICIT IN FIRST QUARTER IS WELL WITHIN THAT CALLED FOR IN
FUND AGREEMENT.
11. INSOFAR AS NON-MONETARY LIABILITIES OF PRIVATE BANKS
INCREASED 20 BILLION PESOS IN FIRST QUARTER ACCORDING TO
THE BANK/S DIRECTOR GENERAL, BANK OF MEXICO NET FINANCING
TO FEDERAL GOVERNMENT SHOULD HAVE BEEN MANAGED WITHOUT ANY
IMPACT ON MONEY SUPPLY. (RESERVE REQUIREMENTS WOULD HAVE
CHANNELED 10 BILLION OR MORE OF THIS INCREAST TO CENTRAL
BANK.) BANK OFFICIALS HAVE CONFIRMED THIS IN PRIVATE
CONVERSATIONS.
12. INTEREST RATE REFORM CONTINUES TO BE POSTPONED.
APPARENTLY BECAUSE OF OPPOSITION FROM BANKERS AS GOVERN-
MENT OFFICIALS HAVE AGREED TO NEED FOR REFORM. REFORM,
WHEN IT COMES, STILL PLANNED TO RESEMBLE PACKAGE OUTLINED
IN MEXICO 3051.
13. THE PUBLIC SECTOR BUDGET REMAINS A MYSTERY IN PART
BECAUSE THERE IS NO DATA FOR THE FIRST QUARTER AND IN PART
BECAUSE OF CONTRADICTORY STATEMENTS. NUMEROUS GOM OFFI-
BERALD FORD LIBRARY
CIALS HAVE COMPLAINED TO EMBOFFS OF A LACK OF INVESTMENT
FUNDS AND FROZEN OR REDUCED BUDGETS. PUBLICLY, BUDGET
SECRETARY TELLO HAS MAINTAINED THAT SPENDING IS RUNNING
AT BUDGETED LEVELS. OUR BEST GUESS IS THAT SOME INVEST-
CONF DENT
CONF IDENT LAI
INCOMING
TELEGRAM
Department of State
PAGE 01
MEXICO 07305 03 OF 03 122233Z
5038
ACTION ARA-06
INFO OCT-01 ISO-00 EB-03 SS-14 INR-05 NSC-05 NSCE-00
PRS-01 PA-01 H-01 FRB-03 OMB-01 CIAE-00 /041 W
122253Z 076400 /13
R 122155Z MAY 77
FM AMEMBASSY MEXICO
PLEASE RETURN TO
TO SECSTATE WASHDC 2088
INTERNATIONAL INFORMATION CENTER
INFO TREASURY WASHDC
G
0
N
D
E
N
A-L
SECTION 03 OF 03 MEXICO 07305
LIMDIS - PASS FEDERAL RESERVE
WILL BE RAISED. THUS, IT IS POSSIBLE THAT THE RATE OF
INFLATION WILL SPURT IN JUNE. THE GOM MAY, HOWEVER, RESIST
PRESSURES TO INCREASE CONTROLLED PRICES BECAUSE OF THE
IMPACT THIS MIGHT HAVE ON THE EFFORT TO MAINTAIN A 10 PER-
CENT CEILING ON WAGE INCREASES.
16. THE APRIL NATIONAL CPI WAS 8.9 PERCENT ABOVE THE
DECEMBER LEVEL. ASSUMING ANOTHER 1.4 PERCENT INCREASE IN
MAY, THE NATIONAL CPI WILL BE 10.4 PERCENT ABOVE THE DECEM-
BER LEVEL. THIS WILL MAKE THE GOVERNMENT'S 10 PERCENT
CEILING ON WAGE INCREASES MUCH MORE DIFFICULT TO ENFORCE.
WHILE THE SPIRIT OF THIS CEILING IS BEING MAINTAINED, SOME
SETTLEMENTS ARE MORE COSTLY TO EMPLOYERS BECAUSE OF NEW
OR ADDITIONAL FRINGE BENEFITS THAT RAISE THE ACTUAL INCREASE
IN EMPLOYEE COSTS ABOVE 10 PERCENT. THOMPSON
GERALD FORD LIBRARY
CONF IDENT IAL
May 23, 1977
TO:
Chairman Burns
FROM: Ted Truman
Attached is a report on economic trends in Mexico during
1976 and the first quarter of 1977. It does not contain any infor-
mation that has not already been presented to the Board.
Attachment: Mexico A-71
cc: Governor Wallich
FORD & LIBRARY GERALD
Com
AIRGRAM Mexico
/R
REP
AF
ARA
Original to be Filed in
WJKISP
Decentralized Files. 49
FILE DESIGNATION
IR
FE
NEA
CU
4VM
UNCLASSIFIED
A 71
R
EB
P
10
HANDLING INDICATOR
NO.
TO
: DEPARTMENT OF STATE
FBO
AID
IGA
EMT
INFO : ALL CONSULATES IN MEXICO
MYMOLR
AMEMBASSY GUATEMALA
AMEMBASSY BRASILIA
PLEASE RETURN TO
E.O. 11652: N/A
INTERNATIONAL INFORMATION CENTER
TAGS:
ECRP MX
R
COM
FRB
INT
FROM
: AMEMBASSY MEXICO
DATE: 6 MAY 1977
B
TAR
TR
XMB
SUBJECT : ECONOMIC TRENDS REPORT-MEXICO-CERP 0004
IR
ARMY
NAVY
OSD
REF
. : STATE A-3476 of July 13, 1976.
IA
NSA
CIA
The Embassy encloses herewith the Economic Trends
Report for Mexico in accordance with the CERP reporting
GGESTED DISTRIBUTION
schedule. As Washington is aware, the Embassy did not
CON-4 AMB DCM
submit an Economic Trends Report in October, 1976. We
377 MAY 17 PM 2 42
OL EOML USIS
are proposing that the attached report be considered as
R USTC SCI SA
both the October and April Report.
HRON 14
OUCH
23
THOMPSON
POST ROUTING
):
Action
Info.
Initials
WAST
"
EPARTMENT OF STATE
1 MAY 11 AM 9:08
is
ADRC
/DA
WC
FORD is LIBRARY 03RALO
Enclosure: Economic Trends Report, April 28, 1977.
E
on Taken:
:
UNCLASSIFIED
FORM
For Department Use Only
als:
10-64 DS-323
In
Out
fted by:
Drafting Date:
Phone No.:
FINATT:LPPascoe:cdm
5/2/77
715
Contents and Classification WAS Approved by:
MIN: WAHayne
arances: ECON: JOzzello; POL: JHamilton;
AGATT: RSWelton (all in draft
E/C: NMBouton
PREPARED
AMERICAN EMPASSY
A
APPIL 28 1977
MEXICO CITY
FREQUENCY: SEMI-ANNUAL
SUPERSEDES: IT-70-000
RECEIVED TM WASHINGTON:
MEXICO
TABLE OF CONTENTS
PAGE
KEY ECONOMIC INDICATORS
SUMMARY
CURRENT SITUATION AND ECONOMIC TRNNDS
MEXICO FLOATS THE PESO
CONFUSION AND RUMORS, SEPTEMBER-NOVEMBER
A NEWIPRESIDENT ASSUMES OFFICE
NEW ADMINISTRATION WILL FACE MANY PROBLEMS
IMPLICATIONS FOR THE UNITED STATES
FORD & GERALD LIBRARY
SUMMARY:
GERALD FORD LIBRARY
The Mexican economy is going through its most
difficult period since 1945. A series of economic
distortions developed over the past five years that
will have to be eliminated before a high rate of
economic growth can be renewed. Among these distortions
were an over-valued currency, and excessively large
deficits in the balance of payments on current account
and the public sector budget. The decision to devalue
and float the peso reflected the need to deal with these
distortions. At the same time, it sparked confusion
among the public. After years of assurances that the
peso would not be devalued, the Mexican public was uncer-
tain as to what to expect next. Unfounded rumors swept
the country, causing several very serious runs on banks.
Business was affected and the on-going economic slowdown
was deepened.
José Lopez-Portillo assumed the Presidency on
December 1. His inaugural address set the basis for a
revival of confidence in the country's future. Relations
between the government and the private sector improved
dramatically. The capital flight now appears to have
ceased and funds are gradually flowing back into the banks.
The worse part of the economic and confidence crisis is
hopefully over, but restoration of financial stability
and resumption of Mexico's traditional high growth rate
will take time. While 1977 will be another difficult
year, the traumas of the last four months of 1976 should
not be repeated. The first quarter deficit in the balance
of payments on current account is estimated at one half
or less of the year earlier figure. The rate of inflation
is lower than in the last four months of 1976. The new
administration is grappling with the problem of how to
restore financial stability without unduly affecting the
standards of living of lower income groups. Mexico's un-
and under-employed were recently estimated to be 49 percent
of the economically active population. At the same time
it is trying to devise a new development strategy that
will provide the basis for a high level of sustainable
economic growth.
The Mexican economy is in a transition period with
new policies evolving that are likely to have a significant
impact on the patterns of economic activity. These cannot
be predicted with any degree of certainty. One exception
to this is oil. It is becoming increasingly likely that
Mexico will exploit its petroleum resources at a more
rapid rate and become a significant exporter of oil products
over the next six years.
All values in Millions in
Exchange Ra as of 04/22/76
US$ Unless Otherwise Stated.
US$1 Equals Mex. 22.55 Pesos.
KEY ECONOMIC INDICATORS: MEXICO
Item
1974
1975
1976
%Change
INCOME, PRODUCTION
GDP at current prices
65,032
(p)
(p)
2/
79,016
78,606
22.9
GDP at constant (1960) prices
30,008
2/
31,272
25,816
2.0-
Per Capita GDP, at current prices.
1,123
1,319
1,267
18.82/
Industrial Production Index
(1970 = 100)
132.8
139.0
142.3
2.4
MONEY, PRICES
Money Supply (end-yr.)
7,798
9,455
7,768
30.9
Interest Rates (commercial
bank prime)
12-13%
12-13%
16-17
National Consumer Price
Index (1968=100)
166.8
191.8
222.1
15.8
Mexico City Wholesale Price
Index (1954=100)
263.2
290.9
355.6
22.2
BALANCE OF PAYMENTS
(p)
Current Account Receipts
(p)
(p)
6,342.5
6,303.3
6971.4
10.6
Exports
2,850.0
2,858.6
3297.8
15.4
U.S. Share (%)
56,7
60.0
62.0
Current Account Expenditures
8,900.6
10,071.9
9995.1
-0.8
Imports
6,056.7
6,580.2
6029.6
-8.4
U.S. Share (%)
62.2
62.4
62.4
I
Balance on Current Account
-2,558.1
-3,768.9
-3023.7
-19.8
Capital, Errors & Omissions
2,595.0
3,933.9
2690.5
-31.6
Change in Reserves
36.9
1/
165.1
-333.1
I
Bank of Mexico Reserves
1,443.9
1,608.9
1411.7
-12.3
1/ Includes gold, SDRs, IMF gold tranche, foreign exchange and
silver.
2/ Applies to changes in terms of pesos.
(p) Preliminary.
Source: Bank of Mexico.
GERALD FORD LIBRARY
CURRENT SITUATION AND ECONOMIC TRENDS.
Mexico Floats the Peso
1976 was probably the most difficult year for the
Mexican economy in the post-war period. The economic
growth rate dropped to an estimated 2 percent from 4.2
percent in 1975 and an average growth rate of 6-7 per-
cent for the previous 20 years. After declining some-
what in the first eight months of the year, the rate
of inflation picked up following the August 31 devalua-
tion of the peso. The national consumer price index
rose 27.2 percent from December 1975 to December 1976.
The most dramatic development during the year was the
government's decision to abandon the fixed parity of
12.5 pesos per dollar which had prevailed since 1954.
Mexico's economic problems which surfaced so dramat-
ically in 1976 have their origins in earlier years. To
some degree, the problems are due to short-comings in
the economic development model that was followed for a
number of years. The import-substitution policies
hindered the development of competitive export industries.
Also, the "Growth with Stability" policies, followed for
at least fifteen years subsequent to the 1954 devaluation,
had given way to a more vigorous government role in the
economy. Following the economic slowdown in 1971, the
government adopted more aggressive spending patterns.
From 1972 to 1976, public sector spending more than
tripled. Revenues did not increase as rapidly with the
end result that the deficit quadrupled during this period.
The bulk of this deficit was financed by domestic and
external savings, but a significant portion was financed
by the creation of new money. This resulted in inflation
and a faster increase in domestic demand than domestic
output of goods and services. As the Mexican rate of
inflation exceeded that of the U.S., its major trading
partner, Mexican imports rose faster than its exports,
thereby increasing the current account deficit.
Another factor affecting the balance of payments was
the attempt by the Mexican government to bypass the world
recession of 1974-5. Rather than constrain domestic
economic activity in order to align the Mexican economy
with economies of the industrialized countries, growth-
orientated policies were pursued. This resulted in
continued increases in imports of goods and services that
GERALD FORD LIBRARY
were not compensated by increases in exports. Another
factor that contributed to the deterioration in Mexico's
external accounts was the relative stagnation in Mexico's
agriculture sector. It became necessary to increase food
imports to feed Mexico's growing population. While Mexico
is now basically self-sufficient in petroleum products,
the increases in world oil prices in late 1973 impacted
the Mexican economy. The current account deficit increased
from $1.1 billion in 1973 to $3.7 billion in 1975. This
deficit declined to $3.0 billion in 1976, but capital
outflows increased, resulting in a substantially greater
external financing requirement than in previous years.
The fixed peso-dollar parity was terminated August 31,
1976, and the peso was effectively devalued 37 percent
when Mexican banks resumed trading on September 2.
Confusion and Rumors, September - November.
The three months following the devaluation were a
period of confusion and rumors. Confidence ir the
government's ability to restore financial and economic
stability did not materialize. After twenty-two years
of a fixed exchange rate and statements by government
officials that the peso would never be devalued, the
public seemed to be in a state of shock. The prospect
of a change in government, with confidence in the outgoing
administration dropping, also contributed to the confusion.
In spite of the stated intention to let the peso float,
the central bank controlled the rate closely and, at the
President's instructions, "fixed" a rate of 19.7 (buying)
and 19.9 (selling), effective September 13. Shortly
thereafter, the government suggested guidelines for an
emergency wage increase for organized labor. These guide-
lines called for increases of 23 percent. It was not
clear whether these wage increases were to be additional
to or inclusive of any increases that had been obtained
in collective bargaining sessions earlier in the year.
The 23 percent increases appears to have been viewed as
additional for the most part. Minimum wages were also
increased 23 percent, effective October 1. Simultaneously
with the guidelines for wage increases, the government
broadened the coverage of its price control program and
issued a decree permitting a 10 percent increase in most
prices subject to controls over prices prevailing on
August 15.
FORD & GERALD LUBRARY
The combination of wage and price increases led
many to suspect that the country was entering a more
vicious inflationary spiral than had prevailed and
that further depreciation of the peso exchange rate
was likely. In addition, and perhaps as a result of
this, rumors began to circulate that bank accounts
would be frozen, foreign exchange controls would be
imposed, the government would nationalize the banks,
and/or a military coup was imminent. These rumors
circulated, died away and were revived until the
December 1 change in government. There were sizeable
transfers of capital into foreign exchange throughout
this period. Part of these transfers remained on
deposit with Mexican banks in the form of "Mex-dollars".
Mexican banks pay higher interest rates on dollars than
can be obtained elsewhere making local dollar time
deposits attractive.
The transfers out of pesos reached critical levels
at least twice. On October 26, the Bank of Mexico
announced that it would no longer buy and sell foreign
exchange at the 19.7/19.9 rates which had prevailed
since September 13. The buy/sell rates on October 27
were 26.24 and 26.50, respectively. With banks operating
at a one percent spread the peso gradually appreciated
until the week of November 15, when the rates leveled
off at about 24.1 buying and 24.3. selling. The rumors
of military coups, foreign exchange controls, etc.,
reached a peak this week, causing very large withdrawals
from banks. The central bank, the Bank of Mexico, then
decided to withdraw completely from the foreign exchange
market, and ordered other credit institutions to do like-
wise. Brokerage houses took over the foreign exchange
market. While banks were technically excluded from the
foreign exchange market, they continued to handle trans-
actions which were technically registered on the books
of brokerage houses. The foreign exchange market func-
tioned every business day. Foreign exchange controls
were not introduced, nor were bank accounts, in dollars
or pesos, affected.
In late October, the Mexican Government and the
International Monetary Fund agreed on a program under
which Mexico could use Fund resources up to an amount
of approximately $965 million over a three year period.
GERALD FORD LIBRARY
The Fund's resources are to be used in support of an
economic program for the short and medium term designed
to restore an adequate rate of economic growth and the
reduction of inflationary pressures. The Lopez-Portillo
government subsequently indicated its approval of the
agreement with the Fund.
In September, the U.S. Treasury and the Federal
Reserve System established arrangements with the
Government of Mexico whereby up to $600 million would
be available to the Bank of Mexico to counter disorderly
exchange market conditions during a transitional period
pending the receipt of drawings made on the International
Monetary Fund.
Mexico's Gross Domestic Product (GDP) increased an
estimated 2 percent in 1976, the lowest increase since
1953. The price deflator for 1976 was approximately
20 percent. The economic output appears to have grown
by roughly 4 percent in the first half of the year whereas
output was more or less flat in the second half of the
year. Crop production declined in 1976 due to shortage
of irrigation water in the Northwest and land tenure
problems. Output in all industrial sectors with the
exception of electrical energy grew less in 1976 than
in 1975. Output of manufacturers which accounts for the
bulk of the industrial sector, was up only 1.8 percent
in 1976, compared to 3.9 percent in 1975. The output of
petroleum and derivatives registered the largest growth,
9 percent, but this was two percentage points below the
increase in 1975. While petroleum output reflects external
demand, Mexico's manufacturing sector caters largely to
domestic demand. This has been increasingly affected by
the reduction in the purchasing power of large segments
of the population, according to the Bank of Mexico's
Annual Report. In other words, Mexico's inflation over
recent years has seriously damaged the standard of living
of Mexico's under-employed and workers who do not benefit
from the minimum wage and/or are not covered by collective
bargaining agreements. Production of consumer goods
increased only 1.5 percent in 1976, compared to 4.1 percent
in the previous year. Other factors affected output as
well. Mexico was unable to take full advantage of the
growth of the U.S. market in the first three quarters of
the year because the peso was overvalued. Another factor
was the limited availability of credit, particularly in
the second half of the year. Credit granted by private
credit institutions increased only 14 percent from end
1975 to end-1976.
FORD
GERAL
LIBRARY
Mexico was able to reduce the current account
deficit in 1976, to $3.0 billion from $3.7 billion
in 1975. The improvement came largely on the trade
account with the deficit declining from $3.6 billion
to $2.6 billion. The improvement was split between an
increase in exports (+$439 million) largely due to higher
prices for agricultural products, particularly coffee,
and a reduction in imports (-$550 million) which would
seem to reflect the impact of the devaluation as the
decline on a year-to-year basis occurred in the last four
months of the year. The country's external financing
requirement increased because of the large capital outflows
The "Errors and Omissions" entry in the balance of payments
was - $2,199.4 million, compared to - $406 million in 1975.
This figure may be indicative of the amount of capital that
left the country. Medium and long-term capital inflows
were $4,889.9 net. Direct investment inflows were $330.6
million, down from $362 million in 1974 and 1975, due to
a drop-off of these inflows in the fourth quarter of 1975. (1976?)
Public sector net medium and long-term borrowing was
$3,890.6 million. Mexico's public sector external debt
at end-1976 was $19.6 billion compared to $14.4 billion
at end-1975. Private sector external debt at end-1976
is estimated at about $6 billion. Reserves declined
$333.1 million during 1976, to total $1411.7 million as
of December 31. During the course of the year, the Bank
of Mexico revalued its gold holdings at close to the
market price.
A New President Assumes Office
On December 1, José Lopez-Portillo assumed the
Presidency of the United Mexican States. The new
President's address upon taking office was well received
as being proper in tone and an effective first step toward
restoring the badly shattered confidence of the Mexican
people in their economy. On December 10, the President
ratified ten agreements with private sector industrial
groups whereby private industry and government undertook
to make various investments in order to expand production
and employment. On December 15, the new administration
sent its proposed 1977 public sector budget to Congress.
The budget is said to be expansionary, but not inflationary.
Expenditures are to be 39 percent above estimated 1976
expenditures. Most of this increase is due to higher
prices and larger debt servicing costs. On December 20,
banks were once more permitted to deal in foreign exchange,
but the Bank of Mexico indicated that it may continue to
remain outside the market. The exchange rate remained
GERALD FORD LIBRARY
close to 20:1 until January 20, when the peso depreciated
by about 10 percent. The rate has hovered around 22.5
pesos per dollar through April.
There is little doubt but that 1977 will be another
difficult year for the economy. This is not to be unex-
pected as it will take several years to eliminate the
distortions in the economy that developed over the past
five years. The government does plan to reduce signifi-
cantly the rate of inflation, the current account deficit
and the public sector budget deficit in 1977. At the same
time, the government wishes to avoid any unnecessary contrac-
tion of economic activity because of the impact this would
have on Mexico's large numbers of un-and under-employed.
The President has stated on several occasions that Mexico
cannot deal with the inflation problem by reducing demand
because the country does not enjoy a standard of living
that permits greater sacrifices in consumption. He has
emphasized the need for greater output and in this regard
has instituted on "Alliance for Production" of which the
agreements with the private sector referred to above form
a part.
The statistical data available for the first quarter
of 1977 combined with statements by government officials,
indicate progress toward reducing the economic distortions.
The Director-General of the Bank of Mexico recently said
that the deficit on the current account of the balance of
payments in the first quarter of 1977 should be about $300
million, which is less than 50% of the deficit in the
corresponding period of 1976. The trade deficit was
approximately $100 million in the first quarter of 1977,
compared to a deficit of $650 million in the first quarter
of 1976. The capital flight that was so costly in 1976
appears to have stopped and there is capital reflow.
Deposits in banks are growing, with the increase registered
in the first quarter substantially above year earlier
levels. Inflation as measured by the national consumer
price index is declining. The month to month increases
in the first quarter of 1977 fell from 3.2% in January,
to 2.2 in February and 1.7% in March. Wage increases,
which were an important source of inflationary pressures
in 1976, have been held to 10% thus far this year. Economic
output is probably running at year earlier levels, but there
are no data on which a firm judgment can be made.
BERALD FORD LIBRARY
Implications for the U.S.
Mexico is going through a transition period. The
end result of this for Mexico, as well as its implica-
tions for the United States are not yet clear and un-
likely to be so for several years.
The need to reduce the current account deficit will
undoubtedly impact on U.S.-Mexican trade patterns.
Exports to Mexico in 1977 are likely to be lower than
1976 exports which were below 1975 levels. There will be
changes in the composition of U.S. exports to Mexico.
Some increase in exports of grains and oil seeds is likely.
Exports of capital goods to Mexico's energy sector may also
increase. Also, exports are likely to increase somewhat
as the year progresses should the economy revive, as is
hoped. Public sector investment spending has been held up
according to some reports due to the delays in organizing
the new government. It is possible that public sector
investment spending will increase, resulting in a higher
level of imports in the second half of the year.
U.S. exporters may find stiffer competition from
Mexican products in third markets. The government has
reinstituted its rebates to exporters for indirect taxes
(CEDIS) that it dropped at the time of the devaluation.
Trade in services are also being affected by the
devaluation. U.S. border cities that developed a large
trade with Mexican residents have been affected, and
pre-devaluation sales levels are unlikely to be attained
for a year or so. Tourism spending in the U.S. has also
declined and is likely to run below year earlier levels
in 1977. On the other hand, the number of U.S. tourists
visiting Mexico is reportedly increasing.
The new administration has said that it welcomes
foreign direct investment on the same terms as previously.
Essentially this means that investments up to 49% of a
firm's equity are welcome in most manufacturing activities.
Exceptions can be made to the foreign minority ownership
provision. No significant change in Mexican laws or
regulations is anticipated. The government is going ahead
with implementation of legislation passed under the previous
admiñistration such as the Patents and Trademarks Law.
GERALD FORD LIBRARY
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
CONF IDENTIAL
May 31, 1977
1977 MAY 31 AM 10: 22
OFFICE OF RECEIVED THE CHAIRMAN
TO:
Chairman Burns
FROM:
Ted Truman EMT
Attached are three recent cables from Mexico.
The first cable (Mexico 8163) describes the recent reform
of regulations governing interest rates that banks in Mexico can pay
on peso-denominated deposits. This reform introduces some scope for
market-determined interest rates.
The second cable (Mexico 8316) describes current borrowing
activities by Mexico. It indicates that the external borrowing
program is encountering some difficulties.
The third cable (Mexico 8332) reports on some remarks
attributed to ambassador-designate Lucey on the U.S. Government's
willingness to use its influence to encourage loans to Mexico for
petroleum development.
Attachments
cc: Governor Wallich
Defense classification of this document is due
to the inclusion of U.S. Government information
officially classified under Executive Order 10501
which provides that "A document... shall bear a
classification at lcast as high as that of its
highest classified component."
FORD is LIBRARY GERALD
UNCLASSIFIED
INCOMING
usp,JK
TELEGRAM
CCYM
Department of State
mexico
PAGE 01
MEXICO 08163 241920Z
7641
ACTION EB-07
INFO OCT-01 ARA-10 ISO-00 AID-05 CIAE-00 COME-00
EMT
FRB-01 INR-07 NSAE-00 USIA-15 XMB-04 OPIC-06
SP-02 BPG-02 OMB-01 ABF-01 /062 W
250208Z
026263
/66
R 241917Z MAY 77
FM AMEMBASSY MEXICO
TO SECSTATE WASHDC 2331
INFO TREASURY WASHDC
Center
UNCLAS MEXICO 08163
EO 11652: N/A
TAGS: EFIN MX
SUBJECT: INTEREST RATE REFORM
1. SUMMARY: BANK OF MEXICO DIRECTOR GENERAL ROMERO
KOLBECK ANNOUNCED OUTLINES OF LONG-AWAITED INTEREST RATE
REFORM ON MAY 20. BANK OF MEXICO IS SETTING MAXIMUM RATES
ON TIME DEPOSITS, WHILE PERMITTING BANKS TO PAY ANY RATES
AT OR BELOW MAXIMUM. END SUMMARY.
2. BANKS WILL BE PERMITTED TO TAKE SHORT TERM DEPOSITS,
THREE DAYS, ONE week, AND ONE MONTH THAT WILL PAY ANNUAL
INTEREST RATES OF NO MORE THAN 5.6 PERCENT, 5.8 PERCENT
AND 8 PERCENT, RESPECTIVELY, NET OF TAXES. FINANCIAL
BONDS, WHICH PAY 7.5 PERCENT NET OF TAXES AND ARE REDEEM-
ABLE UPON DEMAND WILL BE PHASED OUT OVER A TWO AND ONE-
HALF YEAR PERIOD.
3. MAXIMUM INTEREST ON THREE, SIX, TWELVE, 18 AND 24
MONTHS TIME DEPOSITS WILL BE 11 PERCENT, 13 PERCENT, 15
PERCENT, 15.5 AND 16 PERCENT, NET OF TAXES. THE PREVIOUS
RATES FOR DEPOSITS IN EXCESS OF ONE MILLION PESOS RANGE
FROM 8.5 PERCENT FOR THREE MONTHS, TO 10 PERCENT FOR SIX
MONTHS AND 12.75 PERCENT FOR TWELVE MONTHS.
4. EACH INSTITUTION IS FREE TO SET ITS OWN RATES AS LONG
AS THEY DO NOT EXCEED THE MAXIMUM. THE BANK OF MEXICO
WILL ALTER THE MAXIMUM RATES AS "MARKET CONDITIONS AND
ECONOMIC OBJECTIVES" REQUIRE. EXISTING DEPOSITS ARE NOT
AFFECTED. THE MINIMUM AMOUNT FOR TIME DEPOSITS, NOW
100,000 PESOS, IS ABOLISHED.
5. THE BANK OF MEXICO IS MAKING AN UNEXPLAINED EFFORT TO
MINIMIZE ANY INCREASE IN INTEREST RATES ON LOANS.
6. WHILE INCREASE IN ALLOWABLE RATES IS NOT DRAMATIC,
MOVEMENT TOWARD MORE FLEXIBLE AND MARKET-ORIENTED RATES
IS ENCOURAGING'
7. THESE INTEREST RATES APPLY TO PESO DEPOSITS.
WASHINGTON WILL RECALL THAT INTEREST RATES ON 'MEX-DOLLARS"
WERE "REFORMED" IN EARLY APRIL. INTEREST RATES ON THESE
DOLLAR-DENOMINATED TIME DEPOSITS ARE ONE PERCENTAGE POINT
OVER THE RATE FOR THE CORRESPONDING LONDON EURO-DOLLAR
DEPOSIT, PLUS AN AMOUNT EQUIVALENT TO THE MEXICAN 21 PER-
CENT WITHHOLDING TAX ON INTEREST. THOMPSON
GERALD LIBRARY GERALD R. FORD
UNCLASSIFIED
CCFD
URG, HT, RHM
CONF IDENTIAL
INCOMING
u yM, USITS
2a
Department of State
TELEGRAM
MEXICO
PAGE 01
MEXICO 08316 2523462
2254
MEXICO 08316 252346Z
ACTION EB-07
6. RE INTEREST RATE REFORM ANNOUNCED MAY 20, AND REPORTED
INFO OCT-01 ARA-06 IS0-00 AID-05 CIAE-00 COME-00
IN MEXICO 8163, MANY BANKS PUBLISHED ADS IN MAY 24 PAPERS
FRB-03 INR-07 NSAE-00 USIA-06 XMB-02 OPIC-03
EMT
OFFERING THE MAXIMUM RATES. THUS, IMMEDIATE IMPACT OF
SP-02 LAB-04 EPG-02 SIL-01 OMB-01 /050 W
REFORM IS A SMALL UPWARD ADJUSTMENT IN RATES ON TERM
2604322 046355 /23
DEPOSITS WITH NO COMPETITION BETWEEN BANKS. THIS IS
R 252337Z MAY
UNLIKELY TO GENERATE CONVERSIONS FROM DOLLARS TO PESOS.
FM AMEMBASSY XICO
IT REMAINS TO BE SEEN HOW OFTEN BANK OF MEXICO WILL ADJCT
TO SECSTATE WASHDC 2385
THE MAXIMUM RATES. CALDERHEAD
INFO TREASURY WASHDC
MEXICO 08316
E0 11652:GDS
TAGS: EFIN MX
SUBJECT: GOM BORROWING
1. SUMMARY: GOM EXTERNAL BORROWING EFFORTS CONTINUE TO
MOVE SLOWLY AHEAD WITH $150 MILLION BANOBRAS ISSUE TO BE
Please to
SIGNED MAY 24 OR 25 IN LONDON AND $150-200 MILL NAF INSA
information Center
CREDIT BEING PUT TOGETHER BY CITIBANK. ON THE DOMESTIC
FRONT, PETROBONDS WERE REPORTEDLY A LIMITED SUCCESS AND
BANKS REACT TO INTEREST RATE REFORM BY PAYING MAXIMUM
ALLOWABLE INTEREST RATES. END SUMMARY.
2. $150 MILLION BANOBRAS (GOM-OWNED PUBLIC WORKS BANK)
EURODOLLAR FIVE YEAR CREDIT IS TO BE SIGNED IN LONDON ON
MAY 24 OR 25. THIS HAS BEEN A VERY BADLY MANAGED ISSUE
AND HAS PROBABLY HAD A NEGATIVE IMPACT ON GOM'S EXTERNAL
DECLASSIFIED
BORROWING EFFORTS. MANDATE FOR LOAN ORIGINALLY GIVEN TO
E.O. 12958 SEC. 3.6
ORION BANK WHICH COULD NOT PUT TOGETHER AN UNDERWRITING
GROUP. MEXICAN TREASURY THEN CALLED IN LLOYD'S BANK AND
BANKERS TRUST TO ASSIST. UNDERWRITING GROUP HAS SOLD OFF
MR07-117, #30; state Yts 2/22/08
ONLY $20-30 MILLION. DIFFICULTIES FACED BY LOAN ATTRIBU-
TED IN PART TO BAD MANAGEMENT BY BANOBRAS AND MINISTRY OF
FINANCE IN PART TO PRICING WHICH WAS SAME AS EARLIER AND
BY dal NARA DATE 3/10/08
SUCCESSFUL PEMEX $350 MILLION EURODOLLAR CREDIT, AND IN
PART TO MANY BANKS ALREADY HOLDING ALL THE BANOBRAS PAPER
THEY CARE To, OR CAN IN ACCORD WITH LEGAL LENDING LIMITS.
3. BANK OF AMERICA, CITIBANK AND LIBRA ARE PUTTING
TOGETHER A TEN-YEAR EURODOLLAR ISSUE FOR NAFINSA (GOM-
OWNED DEVELOPMENT BANK. THIS WILL BE A "BULLET" CREDIT
WITH BANKS HAVING THE OPTION TO PULL OUT AFTER EVERY TWO
YEARS AND A PREMIUM OVER LIBO THAT INCREASES IN EACH TWO-
YEAR PERIOD. MARKET RECEPTION TO THIS ISSUE WILL BE
WATCHED CLOSELY. MANY OF MEXICO'S LARGER U.S. BANKERS
ARE REPORTED TO HOLD VIRTUALLY ALL OF THE NAFINSA, OR
NAFINSA-GUARANTEED PAPER THAT THEY LEGALLY CAN' THEREFORE
IT IS EXPECTED THAT CREDIT WILL HAVE TO BE SOLD LARGELY
TO EUROPEAN AND SMALLER U.S. BANKS. AMOUNT OF LOAN IS NOT
CLEAR. BANKERS HAVE SAID $300 MILLION; TREASURY OFFICIAL
SAID $150 MILLION WITH HOPES IT WILL GO TO $200 MILLION.
THIS OFFICIAL ALSO SAYS CITIBANK WANTED ISSUE AND CAN
ABSORB A REASONABLE AMOUNT OF NAFINSA PAPER.
4. SEVERAL BANKERS HAVE COMMENTED TO FINATT THAT NEXT
LARGE PUBLIC SECTOR CREDIT SHOULD BE A UNITED MEXICAN
STATES (FEDERAL GOVERNMENT) ISSUE AS THEIR BORROWINGS ARE
NOT AS GREAT AS THOSE OF GOM-OWNED BANKS. (AT END-76,
FEDERAL GOVERNMENT DEBT OUTSTANDING WAS $2.9 BILLION, AND
GOM-OWNED BANKS DEBT WAS $6.6 BILLION OUT OF $20 BILLION
TOTAL FOR PUBLIC SECTOR.
FORD
5. ON THE DOMESTIC SIDE, PETROBOND ISSUE (SEE MEXICO
4214) HAS REPORTEDLY NOT BEEN AS SUCCESSFUL AS HAD BEEN
GERALD
HOPED WITH SALES TO THE PUBLIC BEING SLOW. WHILE GOMK
LIBRARY
OWNED BANKS ARE ACTIVELY SELLING THE NONDS, PRIVATE BANKS
ARE NOT DOING SO APPARENTLY BECAUSE THEY PREFER TO HOLD
THESE AS INVESTMENTS RATHER THAN SELL THEM TO THE PUBLIC
IN COMPETITION WITH THEIR DEPOSITS. PAPERS HAVE REPORTED
THE ISSUE AS SUCCESSFUL.
CONF IDENT IAL
VUSP,JK
LIMITED OFFICIAL USE
INCOMING
MT,USITS
TELEGRAM
Department of State
mexico
PAGE 01
MEXICO 08332 260015Z
2304
ACTION ARA-10
INFO OCT-01 ISO-00 XMB-02 FEA-01 ERDA-05 AID-05 CEA-01
EMT
CIAE-00 COME-00 EPG-02 DODE-00 EB-07 FPC-01 H-01
INR-07 INT-05 L-03 NSAE-00 NSC-05 OMB-01 PM-04
USIA-06 OES-07 SP-02 SS-15 STR-04 TRSE-00 ACDA-07
PA-01 PRS-01 FRB-03 /107 W
260501Z 046719 /15
R 260007Z MAY 77
FM AMEMBASSY MEXICO
TO SECSTATE WASHDC 2388
LIMITED OFFICIAL USE MEXICO 08332
EO 11652: N/A
TAGS: EFIN, MX
SUBJECT: AMBASSADOR-DESIGNATE LUCEY' S REMARKS ON LOANS TO
MEXICO FOR PETROLEUM DEVELOPMENT
1. SUMMARY. MEXICO CITY NEWSPAPERS OF MAY 23 AND 24
GAVE PROMINENT COVERAGE TO STORY BY R. T. GARRETT OF
DALLAS TIMES HERALD TO EFFECT THAT AMBASSADOR-DESIGNATE
LUCEY SAID THAT USG WILL USE INFLUENCE WITH INTERNATIONAL
BANKS TO HELP MEXICO OBTAIN CREDITS TO DEVELOP PETROLEUM
RESOURCES AND BECOME A NEW SOURCE OF OIL FOR THE U.S.
PAPERS OF MAY 26 CARRY NEGATIVE REPLY OF SECRETARY OF
NATIONAL PATRIMONY AND DEVELOPMENT. END SUMMARY.
2. AMBASSADOR-DESIGNATE IS REPORTED AS HAVING
SAID THAT THE CARTER ADMINISTRATION WILL PROPOSE ECONOMIC
MEASURES TO ASSIST MEXICANS IN OBTAINING EQUIPMENT AND
TECHNOLOGY TO SPEED UP THE RATE OF PETROLEUM EXPORTS AND
THAT SOME INTERNATIONAL BANKS HAVE INDICATED A DESIRE TO
EXTEND CREDITS BEYOND THE NORMAL LIMITS OF INDEBTEDNESS
FOR EXPLOITATION OF MEXICO' S OIL RESERVES. GOV. LUCEY
REPORTEDLY SAID THESE RESERVES WERE NO LESS THAN 50
MILLION BARRELS. STORY QUOTES LUCEY AS STATING "THERE
ARE SOME IN MEXICO WHO FAVOR CONSERVING THE OIL FOR THE
MEXICANS, BUT THIS POINT OF VIEW IS LOSING GROUND",
ADDING, "IT SEEMS THE TENDENCY OF PRESIDENT LOPEZ-
PORTILLO/S GOVERNMENT WILL BE TO PUSH FOR RAPID OIL
EXPORTS".
3. QUESTIONED BY MEXICAN REPORTERS ABOUT THIS POLITICALLY
SENSITIVE ISSUE, THE MEXICAN SECRETARY OF PATRIMONY
AND INDUSTRIAL DEVELOPMENT, DE OTEYZA, TOLD REPORTERS
THAT MEXICO IS NOT DISPOSED TO COMMIT ITSELF TO PROVIDE
PETROLEUM TO THE U.S. IN EXCHANGE FOR INTERNATIONAL
FINANCING OBTAINED AS RESULT OF FAVORABLE U.S. INFLUENCE.
EXPANDING ON THIS POINT, DE OTEYZA SAID, "WE ARE
DISPOSED TO CONTRACT CREDITS UNDER NORMAL CONDITIONS TO
STIMULATE DEVELOPMENT OF THE COUNTRY BECAUSE OUR COUNTRY
HAS GOOD INTERNATIONAL REPUTATION WITH RESPECT TO LOANS;
WE HAVE MAINTAINED THIS STATUS AND WILL CONTINUE TO
OBTAIN FINANCING BY VIRTUE OF OUR CONDUCT".
4. COMMENT: REPORTED "50 MILLION BARREL" FIGURE ABOVE
PRESUMABLY INTENDED TO BE 50 BILLION. INTERESTING TO NOTE
THAT GOV. LUCEY'S COMMENTS POSSIBLY CLOSER TO THE MARK
THAN DE OTEYZA'S AS PEMEX DIRECTOR DIAZ SERRANO TOLD U.S.
PRIVATE OIL EXECUTIVE MAY 23 THAT PEMEX NOW WILLING TO
COMMIT SPECIFIC QUANTITIES OIL AND GAS TO U.S. IN EXCHANGE
FOR FINANCING (SEE SEPTEL). IF POSSIBLE, EMBASSY WOULD
APPRECIATE ANY FURTHER INFORMATION AVAILABLE TO THE
DEPARTMENT CONCERNING AMBASSADOR-DESIGNATE LUCEY' S
ALLEGED REMARKS. CALDERHEAD
FORD
GERALD
LIBRARY
LIMITED OFFICIAL USE
BOARD OF GOVERNORS OF THE DERAL RESERVE SYSTEM
CONFIDENTIAL
June 8, 1977
TO:
Chairman Burns
FROM: Ted Truman
Attached is the memorandum that I
mentioned I had been promised by Treasury
on the IMF visitation to Mexico. It was
apparently prepared two weeks ago in con-
nection with Secretary Blumenthal's trip
to the annual meeting of the Inter-American
Development Bank. I am trying to obtain a
more recent report if it is available.
cc: Governor Wallich
3VR303A GRASS
-8 will: BABLEM 38
VECEIAED
Defense classification of this document is due
to the inclusion of U.S. Government information
officially classified under Executive Order 10501
which provides that "A document shall bear a
classification at least as high as that of its
highest classified companent."
FORD & LIBRARY 07V839
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RESVED
Leddy
CONFIDENTIAL
Briefing
Date: May 26, 1977
MEMORANDUM FOR: Assistant Secretary Bergsten
From: Sam Y. Cross
Subject: Supplementary Briefing on the Mexican IMF Program for
Your Discussions with the Mexicans in Guatamala
The Mexican Extended Fund Arrangement with the IMF contains
a number of performance criteria which Mexico must meet in
order to continue to be eligible to draw on its Fund credit.
Apart from one technical point relating to measurement of
certain external debts (see below), Mexico is at present meeting
these performance criteria in full, according to IMF staff. In
part, this result reflects genuine improvement in Mexico's
situation -- inflation is much lower and trending down, wages
have not been increased in recent months, the balance of payments
is considerably improved, external borrowing has been restrained
(but for the reason that the Mexican's can't raise the money).
Mexico has also recently introduced interest and exchange rate
policies that we and the IMF staff consider sound.
However, another factor is that the new government hasn't
gotten organized to spend money as fast as planned -- and the
budget deficit so far this year is low and within the first
DECLASSIFIED
E.O. 12958 Sec. 3.6
MR95-2, #34; Treasmy Hr. 3/7/96
quarter's IMF target.
By let NARA, Date 5/3/96
The budget deficit is potentially a very serious problem,
and the IMF staff thinks it will determine Mexico's success
or failure in stabilization of the economy. The IMF program
calls for holding this year's deficit to 90 billion pesos
(or 6 percent of GNP) -- in the first quarter it was only
15 billion pesos. The IMF staff say the planned budget
expenditures will yield a deficit of 130 billion pesos -- and
they are very confident of this figure although the Mexicans
dispute it. In the view of the IMF staff, if the deficit can
be held to near the 90 billion peso figure, the Mexicans stand
FORD i LIBRARY GERALD
CONFIDENTIAL
Initiator
Reviewer
Reviewer
Reviewer
Reviewer
Ex. Sec.
Surname
CROSS/
2
LEDDY
Initials / Date
15/24
/
/
/
/
/
CONFIDENTIAL
-2-
a good chance of getting the inflation rate down to manageable
levels -- one percent a month by mid-1977. But with a deficit
of 130 billion pesos, there will be more inflation, possibly
leading to currency speculation and a recurrence of last year's
problems.
The Mexican Government is divided between those who agree
with the IMF and emphasize stabilization vs. those who argue
that Mexico should spend its way out of its difficulties and
emphasize production. Fortunately, the "stabilization" group
appears to be strengthening its position at the present time.
The U.S. view will be important.
We would suggest that the U.S. take the following position
in discussions with Mexican officials:
1. On the matter of the technical non-fulfillment of the
performance criteria resulting from the technique of valuation
of certain debt (the peso value of certain external debts has
risen as the peso depreciated), we agree that this should not
render Mexico ineligible and will support that view in the IMF
Board if necessary. (Even though a technical change, this
must be approved by the Board. The IMF staff plans to present
it on a "lapse-of-time" basis, without Board discussion.)
2. On the broader issue, we think Mexico's overriding
short-term priority must be stabilization. The budget deficit
appears to be critical, and we are concerned that there is a
possibility of a major break in the IMF target of 90 billion
pesos. We think it is in Mexico's interest to meet that
target -- or at least have no more than a very modest overage --
even if it means postponing some expenditures for a while. The
slow pace of expenditures so far this year gives a real opportunity
for meeting the budget deficit target, breaking the back of the
inflation, and providing the basis for real growth in the future.
3. We recognize Mexico's interest in oil development, and
hope they will make every effort to arrange this wihin the
framework of the IMF program. The Administration has offered
Eximbank help to finance oil development.
CC: Under Secretary Solomon
Deputy Assistant Secretary Nachmanoff
FORD & LIBRARY CERALD
Deputy Assistant Secretary Widman
Mr. Sweeney
Mr. Swofford
CLASSIFIED BY Thomas Leddy
SUBJECT TO GENERAL DECLASSIFICATION
SCHEDULE OF EXECUTIVE ORDER 11652
AUTOMATICALLY DOWNGRADED AT TWO
YEAR INTERVALS AND DECLASSIFIED
CONFIDENTIAL
ON DEC. 31 1983
CONFIDENTIAL
June 9, 1977
TO:
Chairman Burns
FROM: Ted Truman
Attached is the latest cable from Mexico describing the
general economic and political situation.
Attachment: Mexico 8935
cc: Governor Wallich
Defense classification of this document is due
to the inclusion of U.S. Government information
officially classified under Executive Order 10501
which provides that "A document shall heat a
classification at least as high as that of its
highest classified component."
DERALD R. FORD LIBRARY
CCYM
CCJKSP
CONF IDENT
fa
INCOMING
Department of State
TELEGRAM
MEXICO
PAGE 01
MEXICO 08935 01 OF 03 0400572 POSS DUPE 2180
MEXICO 08935 01 OF 03 040057Z POSS DUPE
ACTION ARA-10
EMT
(WHICH INCREASED 10 PERCENT FROM JAN 1 THROUGH APRIL) AND
INFO OCT-01 IS0-00 CIAE-00 DODE-00 PM-04 H-01 INR-07
PROBABLY WILL BE HIKING UP FUTURE WAGE DEMANDS. WE EX-
L-03 NSAE-00 NSC-05 PA-01 PRS-01 SP-02 SS-15
PECT INCREASED TENSIONS BETWEEN LABOR AND MANAGEMENT AND
USIA-06 AID-05 COME-00 EB-07 FRB-03 TRSE-00
LABOR AND GOVERNMENT (WHICH IS ALSO A MANAGER) DURING THE
XMB-02 OPIC-03 LAB-04 EPG-02 SIL-01 OMB-01 AGRE-00
COMING MONTHS. WITH SO LITTLE VISIBLE PROGRESS HOLDING
STR-04 CEA-01 FEA-01 OES-07 ERDA-05 DHA-02 CU-02
INFLATION IN CHECK. JLP WILL HAVE DIFFICULTY GETTING
/106
W
LABOR'S CONTINUED COOPERATION.
R 0400522 JUN
Seezt3ath
4. GOM FIGHTS RIGHTIST LABEL
FM AMEMBASSY MEXICO
TO SECSTATE WASHDC 2564
ACCUSATIONS FROM WITHIN THE POLITICAL ESTABLISHMENT THAT
ALL USCONS MEXICO BY POUCH
THE LOPEZ PORTILLO GOVERNMENT REPRESENTED A "TURN TO THE
RIGHT" (WHICH SURFACED PARTICULARLY AFTER NOMINATION OF
SECTION 01 OF 03 MEXICO/08935
DIAZ ORDAZ AS AMBASSADOR TO SPAIN) BROUGHT DENIALS
FROM BOTH CABINET MINISTERS AND THE PRESIDENT IN APRIL
Please to
AND MAY. INDEED, THE GOM'S UNEASINESS WITH A RIGHTIST
International Information Central
LABEL MAY HAVE INFLUENCED AT LEAST THE TIMING OF ITS DE-
CISION TO DROP CHARGES AGAINST 400 POLITICAL PRISONERS AND
E. 0. 11652: GDS
TO PROCEED WITH THE POLITICAL REFORM ANNOUNCED APRIL 1.
TAGS: PINT, PFOR, EGEN, MX
MORE IMPORTANTLY (ALTHOUGH THIS IS PURELY CONJECTURAL)
SUBJECT: MONTHLY HIGHLIGHTS - APRIL-MAY 1977
THIS FACTOR MAY HAVE INFLUENCED THE GOM NOT TO REVERSE,
EVEN PARTIALLY, PRESIDENT ECHEVERRIA'S LAND EXPROPRIATION
REF: MEXICO 4702
IN SONORA LAST NOVEMBER.
5. LOPEZ PORTILLO UPHOLDS ECHEVERRIA LAND EXPROPRIATION
SUMMARY: DOMESTIC POLITICAL ACTIVITY PICKED UP DURING
AFTER AGRARIAN REFORM OFFICIALS HAD WORKED SEVERAL MONTHS
APRIL AND MAY, RESPONDING TO THREE DYNAMICS:
ON A "POLITICAL SOLUTION" TO THE SONORA LAND EXPROPRIATION
WHICH WOULD HAVE RETURNED AT LEAST SOME OF THE LANDS TO
- THE LACK OF DEMONSTRABLE PROGRESS TOWARDS A RESUMPTION
THEIR FORMER OWNERS, PRESIDENT LOPEZ PORTILLO ANNOUNCED
OF ECONOMIC GROWTH WITHOUT INFLATION;
IN AN EARLY MAY VISIT TO SONORA THAT NONE OF THE LANDS
WOULD BE RETURNED, BUT THAT THE GOM WOULD PAY
- A PERCEPTION SHARED BY BOTH LEFT AND RIGHT THAT THE
INDEMNIFICATION. ALTHOUGH RETURNING SOME LANDS WOULD
LOPEZ PORTILLO GOVERNMENT REPRESENTED A TURN TOWARDS THE
HAVE PRESENTED TECHNICAL LEGAL PROBLEMS, WE SUSPECT THE
RIGHT, BOTH POLITICALLY AND ECONOMICALLY;
GOM WAS INFLUENCED MORE BY THE POLITICAL CONSIDERATION
NOT TO REINFORCE THE VIEW OF THE MEXICAN LEFT (ECHEVERRIA
- CONCERN OVER ALLEGED ACTIVITIES OF FORMER PRESIDENT
LOYALISTS, CAMPESINO GROUPS, UNREGISTERED OPPOSITION
ECHEVERRIA AND THE PRESENCE IN THE LOPEZ PORTILLO GOVERN-
MENT OF ECHEVERRIA'S LOYALISTS.
IN FOREIGN AFFAIRS, MEXICO TURNED ITS ATTENTION TO
ECONOMIC RELATIONS WITH A FEW KEY COUNTRIES. END SUMMARY.
2. MEXICAN ECONOMY STILL STAGNATES.
THE MEXICAN ECONOMY CONTINUES WEAK THE INDUSTRIAL
SECTOR, PARTICULARLY IN STEEL, AUTOS, AND CONSTRUCTION,
ALL RELATIVELY LABOR INTENSIVE. GRAIN AND MEAT PRODUCTION
LIKEWISE SHOW NO SIGNS OF EXPANSION. BOTH PUBLIC AND
PRIVATE INVESTMENT ARE STAGNATING, THE FORMER BECAUSE OF
CREDIT LIMITATIONS OWING TO MEXICO'S HUGE FOREIGN
INDEBTEDNESS; THE LATTER TO UNCERTAINTY AND LOW CAPITALI-
ZATION OF PRIVATE ENTERPRISE AFTER DEVALUATION. WE THINK
UNEMPLOYMENT MUST BE GROWING, ALTHOUGH STATISTICS ARE
LACKING.
is
ONE OF THE FEW BRIGHT SPOTS THE. EXTERNAL
SECTOR, WHICH IN THE FIRST FOUR MONTHS HAD A NEGATIVE
MERCHANDISE BALANCE OF ONLY $176 MILLION, COMPARED TO THE
$982 MILLION JANUARY-APRIL 1976. THE DEVALUATION, STRICTER
IMPORT CONTROLS, AND HIGH WORLD PRICES FOR COFFEE AND OIL
ARE LARGELY ACCOUNTING FOR THIS IMPROVEMENT. ANOTHER
BRIGHT SPOT IS THE CONTINUED EXPANSION OF INVESTMENT.
PRODUCTION, AND SALES OF PEMEX, THE GOM PETROLEUM MONOPOLY.
UNFORTUNATELY, THIS IS NOT HAVING ANY EFFECT ON THE EM-
PLOYMENT SITUATION.
3. 10 PERCENT WAGE RESTRAINT POLICY INTACT, BUT
THE MOST IMMEDIATE POLITICAL CONSEQUENCE OF THE ECONOMIC
SITUATION IS BEING FELT IN THE LABOR SECTOR. ORGANIZED
FORD i LIBRARY GERALD
LABOR CONTINUED TO HONOR ITS PLEDGE-TO HOLD COLLECTIVE
CONTRACTUAL WAGE SETTLEMENTS TO NO MORE THAN 10 PERCENT,
BUT LABOR'S HEAD MAN VELAZQUEZ AND OTHER MAJOR LEADERS
HAVE PUBLICLY REMINDED THE PRESIDENT THAT AS OF JUNE 1
THEY WILL BE TAKING A CLOSE LOOK AT CONSUMER PRICE LEVELS
CONF IDENT
dal 7/26/07
CONF IDENT
INCOMING
Department of State
TELEGRAM
PAGE 01
MEXICO 08935 02 OF 03 040106Z POSS DUPE 2182
MEXICO 08935 02 OF 03 040106Z POSS DUPE
ACTION ARA-10
WHICH PRESUMABLY WILL KEEP HIM OUT OF MEXICO FOR EXTENDED
INFO OCT-01 IS0-00 AID-05 CIAE-00 COME-00 EB-07 FRB-03
PERIODS. THE APPOINTMENT FOLLOWED REPORTS OF PRESIDENTIAL
INR-07 NSAE-00 USIA-06 TRSE-00 XMB-02 OPIC-03
ANNOYANCE OVER ECHEVERRIA CONTINUING TO SEE OLD POLITICAL
SP-02 LAB-04 EPG-02 SIL-01 OMB-01 DODE-00 PM-04
FRIENDS AND CONTACTS. ANTI-ECHEVERRIA ELEMENTS. PERHAPS
H-01 L-03 NSC-05 PA-01 PRS-01 SS-15 AGRE-00
SEEKING TO OPEN WIDER THE SMALL BREACH IN PRESIDENT LOPEZ
STR-04 CEA-01 FEA-01 OES-07 ERDA-05 DHA-02 CU-02
PORTILLO'S POLICY OF PROHIBITING PURGES AGAINST MEMBERS OF
/106 W
THE PREVIOUS ADMINISTRATION, ARE MOUNTING CAMPAIGNS
070312Z 064981 /45
AGAINST EDUCATION SECRETARY PORFIRIO MUNOZ LEDO IN
R 0400522 JUN 77
PARTICULAR, AND ALSO AGAINST PROGRAMMING AND BUDGET
FM AMEMBASSY MEXICO
SECRETARY CARLOS TELLO, WHO WHILE CLOSE AND LOYAL TO
TO SECSTATE WASHDC 2565
LOPEZ PORTILLO, ALSO BEARS THE TAINT OF A CLOSE ASSOCIATION
INFO ALL USCONS MEXICO BY POUCH
WITH ECHEVERRIA. THESE ATTACKS HAVE GROWN FROM ONE LINE
SEMI-SLANDEROUS COMMENTS IN POLITICAL COLUMNS TO RUMORS
L SECTION 02 OF 03 MEXICO 08935
OF A SIZEABLE CABINET SHAKEUP.
9. FOREIGN AFFAIRS DEVELOPMENTS
A. THE LOVE-FEAST CONTINUES
GROUPS, ACADEMIC COMMUNITY) THAT THIS GOVERNMENT HAS
TURNED TO THE RIGHT.
THE MOVE TO IMPROVE US-MEXICAN RELATIONS BASED ON THE
SPIRIT OF "NEWNESS" OF BOTH NATIONS' GOVERNMENTS RECEIVED
6. POLITICAL REFORM: WILL COMMUNISTS BE REGISTERED?
TWO MORE POSITIVE IMPULSES DURING THIS REPORTING PERIOD
WITH THE US-MEXICAN INTERPARLIAMENTARY MEETING HELD IN
GOM THROUGHOUT MAY HAS CONDUCTED PUBLIC HEARINGS ON THE
SONORA STATE MAY 26-30, AND THE VISIT TO WASHINGTON OF
POLITICAL REFORM ANNOUNCED APRIL 1 BY INTERIOR SECRETARY
FOREIGN SECRETARY SANTIAGO ROEL, MAY 26 TO BRING INTO
REYES HEROLES. LEFTIST GROUPS WANT REGISTRATION REQUIRE-
MOTION THE BILATERAL CONSULTATIVE MECHANISM AGREED UPON
MENTS FOR NEW PARTIES VIRTUALLY ELIMINATED; AN ELECTORAL
LAST FEBRUARY.
BOARD INDEPENDENT OF THE GOM/PRI; A SYSTEM OF PROPORTIONAL
IN SONORA, THE MEXICAN AND US LEGISLATORS DISCUSSED AT
REPRESENTATION; AND A DOUBLING OF THE NUMBER OF FEDERAL
LENGTH MAJOR BILATERAL, ISSUES INCLUDING ILLEGAL MIGRATION
DEPUTIES.
AND ENERGY, IN DEBATES THAT THE MEXICAN PRESS CHARACTERIZED
AS FRANK BUT LACKING IN ACRIMONY. THE OPENNESS AND
MOST INTEREST CONCERNS WHETHER REGISTRATION REQUIREMENTS
CORDIALITY OF THE SESSIONS UNDOUBTEDLY DID MUCH TO REDUCE
WILL BE EASED SUFFICIENTLY TO LET THE MEXICAN COMMUNIST
THE ILL-FEELING GENERATED LAST YEAR WHEN 76 US CONGRESSMEN
PARTY (PCM) REGISTER UNDER ITS OWN NAME. THE PCM AND
SENT PRESIDENT FORD AN OPEN LETTER DECLARING THAT MEXICO
SEVERAL OTHER LEFTIST GROUPS ARE DISCUSSING A JOINT
WAS "GOING COMMUNIST.
REGISTRATION EFFORT, BUT APPARENTLY ARE HAVING PREDICTABLE
DISAGREEMENT CONCERNING WHICH PARTY WOULD BENEFIT FROM
THE JOINT EFFORT.
THE PCM HELD A NATIONAL ASSEMBLY IN THE WEEK OF MAY 23
WHICH IT OPENED TO THE PUBLIC TO GAIN RESPECTABILITY AND
TO ATTRACT PRESS ATTENTION. PCM STRENGTH IS
TOTALLY CENTERED ON UNIVERSITY CAMPUSES, AN AREA WHERE IT
IS CAUSING STATE AND FEDERAL GOVERNMENT SOME CONCERN (SEE
FOLLOWING ITEM).
THE GOVERNMENT'S OBJECTIVE IS TO BRING MEXICO'S POLITICAL
DISSIDENCE WITHIN THE SYSTEM, WHERE IT CAN BE CONTROLLED
MORE EASILY, TO PROVIDE A NON-VIOLENT, HARMLESS OUTLET
FOR POLITICAL OPPOSITION, AND, BY HOLDING OUT THE PROSPECT
OF REGISTRATION, TO GAIN LEVERAGE OVER THE PCM AND OTHER
LEFTIST GROUPS.
7. UNIVERSITY UNIONS CAUSING HEADACHES
MEXICAN COMMUNIST PARTY AND OTHER LEFTIST SUPPORTED EFFORTS
TO UNIONIZE ACADEMIC AND ADMINISTRATIVE PERSONNEL ARE HAV-
ING SUCCESS IN SEVERAL OF THE NATION'S UNIVERSITIES. AT
MEXICO CITY'S MAMMOTH NATIONAL UNIVERSITY (260,000
STUDENTS) TWO UNIONS HAVE MERGED TO DEMAND A SINGLE COL-
LECTIVE CONTRACT. STRIKE DEADLINE IS JUNE 20. AT
PROVINCIAL UNIVERSITIES IN OAXACA, ZACATECAS, AND NAYARIT,
SIMILAR MOVEMENTS HAVE FORCED REFERENDUMS OVER UNIVERSITY
FORD
RECTORSHIPS, EACH OF WHICH HAS BEEN WON BY THE RECTOR WITH
UNION BACKING. A SIMILAR CONFLICT IS NOW COMING TO A
HEAD IN GUANAJUATO.
GERALD
LIBRARY
8. ECHEVERRIA NAMED THIRD WORLD AMBASSADOR CABINET
SHAKEUP RUMORED
GOM ON MAY 16 APPOINTED FORMER PRESIDENT ECHEVERRIA AS
"SPECIAL AMBASSADOR TO DEVELOPING NATIONS. AN ASSIGNMENT
ON WHICH ECHEVERR!A DEPARTED IMMEDIATELY AND
CONFIDENT
CONF IDENT
INCOMING
Department of State
TELEGRAM
PAGE 01
MEXICO 08935 03. OF 03 070308Z
2177
ACTION ARA-10
INFO OCT-01 ISO-00 CIAE-00 DODE-00 PM-04 H-01 INR-07
L-03 NSAE-00 NSC-05 PA-01 PRS-01 SP-02 SS-15
USIA-06 AID-05 COME-00 EB-07 FRB-03 TRSE-00
XMB-02 OPIC-03 LAB-04 EPG-02 SIL-01 OMB-01 AGRE-00
STR-04 CEA-01 FEA-01 OES-07 ERDA-05 DHA-02 CU-02
/106 W
070310Z 091852 /65
R 070109Z JUN 77
FM AMEMBASSY MEXICO
TO SECSTATE WASHDC 2566
e N FIDENTIAL SECTION 3 OF 3 MEXICO 8935
SIMULTANEOUSLY, MEXICAN-US RELATIONS WERE FURTHER CE-
MENTED BY FONSEC ROEL'S VISIT TO WASHINGTON ON MAY 26,
ACCOMPANIED BY CHIEF GOM ECONOMIC PEOPLE, AND BY THE SUB-
SEQUENT ESTABLISHMENT OF THREE HIGH LEVEL BILATERAL COM-
MITTEES-POLITICAL, ECONOMIC, SOCIAL- WHICH WILL STUDY IN
DEPTH, AND FOR THE FIRST TIME IN AN INTEGRATED FASHION,
THE MYRIAD BILATERAL PROBLEMS THE TWO NATIONS FACE.
PRESIDENT CARTER' S HISTORIC SIGNING OF PROTOCOL I OF THE
TREATY OF TLATELOLCO, DURING THE VISIT, WAS A GESTURE,
WHICH MEXICO, AS PRIME MOVER OF THE TREATY, OBVIOUSLY
APPRECIATED.
10. B. THEY' RE COURTING THE OTHERS, TOO.
NOW THAT THE NEW GOM BUREAUCRACY IS SETTLING IN, PENDING
ARRANGEMENTS WITH OTHER FIRST, SECOND AND THIRD WORLD
NATIONS ARE GETTING THE ATTENTION THAT WAS SOMEWHAT
LACKING IN THE FIRST 100 DAYS OF JLP' ADMINISTRATION WHEN
US-MEXICAN RELATIONS DOMINATED EVERYONE' S
THINKING.
BESIDES REFURBISHING ITS IMAGE WITH THE US, THE GOM HAS
ALSO MADE A MAJOR EFFORT TO GET ACROSS THE MESSAGE TO
EUROPEAN BUSINESSMEN THAT FOREIGN INVESTMENT IS ONCE
AGAIN WELCOME IN MEXICO. A THREE-DAY SESSION OF TALKS
WAS HELD IN MEXICO CITY IN MID-APRIL IN WHICH THE TOP GOM
ECONOMIC OFFICIALS MET WITH EMBASSY AND BUSINESS REPRE-
SENTATIVES FROM 12 WESTERN EUROPEAN NATIONS AND ISRAEL.
(MIXED REVIEWS - THE BUSINESSMEN LEFT STILL CAUTIOUS
ABOUT MEXICO' S NEAR-TERM ECONOMIC PROBLEMS, BUT FAVORABLY
IMPRESSED WITH JLP' S ECONOMIC TEAM).
GOM OFFICIALS HAVE ALSO MET MORE QUIETLY WITH OFFICIALS
FROM THE EEC TO IMPROVE MEXICO' S TRADING POSITION WITH
COMMON MARKET. SINCE THE OPENING OF MEXICAN-SPANISH
RELATIONS, BUSINESSMEN FROM BOTH NATIONS HAVE BEEN
TRAVELLING BACK AND FORTH SPEAKING WITH GREAT OPTIMISM
ABOUT THE SUITABILITY OF MEXICO FOR JOINT INVESTMENT
PROJECTS AND A GENERAL INCREASE OF SPANISH CAPITAL INTO
MEXICO.
THE GOM HAS ALSO RECENTLY REFOCUSSED SOME ATTENTION ON UN-
FINISHED AGREEMENTS WITH COMMUNIST NATIONS IN ITS SEARCH
FOR INVESTMENT CAPITAL. ALTHOUGH TRADE WITH THESE
NATIONS HAS DECREASED IN 1977, BOTH YUGOSLAVIA AND THE
GDR HAVE SIGNED JOINT INVESTMENT AGREEMENTS WITH MEXICO
IN THE PAST MONTH. IN CONTACTS WITH THE THIRD WORLD
NATIONS, THE GOM HAS PUSHED FOR LONG-OVERDUE MIXED-
COMMISSION MEETINGS WITH BRAZIL AND IRAN, INDICATING THAT
THIS GOM IS MORE CONCERNED WITH ECONOMIC ADVANTAGE IN ITS
BILATERAL RELATIONS THAN WITH IDEOLOGICAL CONGRUENCE.
THE GENERAL INCREASE IN MEXICO' S BILATERAL EXCHANGES IN
THE PAST TWO MONTHS SHOWS THAT JLP IS STILL PURSUING
THE FOREIGN CONTACTS so AVIDLY SOUGHT BY HIS PREDECESSOR,
FORD
BUT SELECTIVELY AND PRAGMATICALLY. THOMPSON
GERALD
LIBRARY
CONF IDENT IAL
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
1977 JUN 14 AM 10: 39
U
June 14, 1977
RECEIVED
OFFICE OF THE CHAIRMAN
TO:
FROM: Ted Truman
Chairman Burns EMT
Attached are two recent cables on Mexico.
Mexico 9385 reports on the reduced Mexican current account
deficit in the first quarter of 1977. It was $245 million compared
with $686 million in the first quarter of 1976 and an average quarterly
rate of $750 million for all of 1976. Much of the improvement was in
exports, especially increased export earnings on coffee, petroleum and
tomatoes.
State 134376 reports on the U.S. participants in the working
groups under the Mexican-U.S. "consultative mechanism."
Attachments
cc: Governor Wallich
GERALO R. FORD LIBRARY
COVM
UNCLASSIFIED
INCOMING
usp
Department of State
TELEGRAM
WJK
MEXICO
PAGE 01
MEXICO 09385 100004Z
0257
ACTION ARA-14
EMT
INFO OCT-01 ISO-00 AID-05 CIAE-00 .COME-00 EB-07 FRB-01
INR-07 NSAE-00 USIA-15 XMB-04 OPIC-06 SP-02
LAB-04 EPG-02 SIL-01 OMB-01 NSC-05 SS-15 STR-04
CEA-01 AGRE-00 L-03 H-02 PA-02 PRS-01 /103 W
100553Z
009902
/15
R 100008Z JUN
FM AMEMBASS MEXICO
TO SECSTATE WASHDC 2740
INFO TREASURY WASHDC
Please return to
UNCLAS MEXICO 09385
International Information Center
STATE PASS FEDERAL RESERVE BOARD
E.O. 11652: N/A
TAGS: EGEN, ECRP, BEXP, MX
SUBJECT: MEXICO' S BALANCE OF PAYMENTS, FIRST QUARTER 1977
1. THIS CABLE REPORTS BALANCE OF PAYMENTS DATA FOR FIRST
QUARTER 1977 AS IT APPEARS IN BANK OF MEXICO' S ECONOMIC
INDICATORS FOR APRIL 1977. ALL FIGURES ARE IN MILLIONS OF
DOLLARS; FIGURES IN PARENTHESES ARE FOR FIRST QUARTER 1976.
2. CURRENT ACCOUNT DEFICIT WAS 245.3 (665.8).
3. CURRENT ACCOUNT RECEIPTS TOTALED 1959.0 (1687.0)
BROKEN DOWN AS FOLLOWS: EXPORTS OF GOODS, 1059.6 (781.2);
SILVER, 38.8 (35.5); TOURISM 221.2 (237.6); FRONTIER
TRANSACTIONS, 376.2 (377.7); IN-BOND ASSEMBLY PLANTS,
113.5 (121.5); OTHER, 149.7 (133.5).
4. CURRENT ACCOUNT EXPENDITURES TOTALED 2,204.4 (2,352.8),
BROKEN DOWN AS FOLLOWS: IMPORTS OF GOODS, 1133.2 (1433.4);
TOURISM, 56.6 (70.6); FRONTIER TRANSACTIONS, 251.4
(243.2); DIVIDENDS, INTEREST AND OTHER PAYMENTS BY COM-
PANIES WITH FOREIGN OWNERSHIP 237.5 (198.9); INTEREST ON
PUBLIC SECTOR DEBTS 366.1 (254.7); OTHER, 159.5 (152.0).
5. ERRORS AND OMMISSIONS WERE PLUS 60.6 (-238.2).
6. NET LONG-TERM CAPITAL INFLOWS WERE 352.2 (858.5);
BROKEN DOWN AS FOLLOWS: FOREIGN DIRECT INVESTMENT 49.1
(85.2); FOREIGN CREDITS, NET, 323.9 (423.9), OF WHICH
PUBLIC SECTOR NET WAS 330.5 (425.3). DISBURSE-
MENTS WERE 673.7 (702.4) AND AMORTIZATION PAYMENTS 343.2
(277,1). NET PRIVATE SECTOR CREDITS WERE -6.6 (-1.3);
DATA ON THESE IS COLLECTED ON AN ANNUAL BASIS FOR THE
MOST PART. OTHER GOVERNMENT DEBT, NET, WAS 2.8 (345.3),
AND OTHER WAS -23.6 (4.1).
7. RESERVES INCREASED 167.5 (-45.4).
8. OF THE 278.4 MILLION INCREASE IN EXPORT EARNINGS FROM
THE FIRST QUARTER OF 1976 TO THE FIRST QUARTER OF 1977,
COFFEE ACCOUNTED FOR 100 MILLION ON REDUCED VOLUME: PETRO-
LEUM FOR 60.; TOMATOES FOR 16 MILLION, SHRIMP FOR 19
MILLION; FROZEN STRAWBERRIES, UP 12 MILLION, CHEMICALS,
UP 17 MILLION, IRON AND STEEL PRODUCTS UP 9 MILLION;
MACHINERY AND TRANSPORT EQUIPMENT EXPORTS WERE DOWN 8
MILLION; OTHER MANUFACTURED EXPORTS WERE UP 4 MILLION.
GERALD FORD JBRART
IN PERCENTAGE TERMS, AGRICULTURE AND FORESTRY EXPORTS IN-
CREASED 39 PERCENT, LIVESTOCK, FISH EXPORTS WERE UP 66
PERCENT; EXPORTS OF EXTRACTIVE INDUSTRIES WERE UP 49 PER-
CENT, AND EXPORTS OF TRANSFORMATION INDUSTRIES WERE UP
20.1 PERCENT.
9. OF THE 300 MILLION DECLINE IN IMPORTS, CORN IMPORTS
WERE OFF 52 MILLION; ENERGY IMPORTS DOWN 22 MILLION, AUTO
PARTS DOWN 25 MILLION, IRON AND STEEL IMPORTS DOWN 37
MILLION; AND INVESTMENT GOODS DOWN 153 MILLION. THOMPSON
UNCLASSIFIED
a YM
UNCLASSIFIED
OUTGOING
usp
CCJK
Department of State
TELEGRAM
PAGE 01
MEXICO
STATE 134376
2108
STATE 134376
ORIGIN ARA-14
INFO OCT-01 ISO-00 EB-07 SS-15 COME-00 AID-05 CIAE-00
CHAIRMAN: ANTHONY SOLOMON. UNDER SECRETARY OF TREASURY;
FRB-01 INR-07 NSAE-00 USIA-15 TRSE-00 XMB-04
EMT
OPIC-06 SP-02 LAB-04 EPG-02 SIL-01 OMB-01 NSC-05
CHARLES MEISSNER. DEPUTY ASSISTANT SECRETARY OF STATE FOR
STR-04 CEA-01 AGR-10 FEAE-00 INT-05 OES-07 INSE-00
INTERNATIONAL FINANCE AND DEVELOPMENT.
SCA-01 01C-02 /120 R
D. TOURISM SUBGROUP
DRAFTED BY ARA/MEX: M. YOHN: MRG
APPROVED BY ARA: H. LUERS
CHAIRMAN: FABIAN CHAVEZ. ASSISTANT SECRETARY OF COMMERCE;
COMMERCE:R. ADES
EB:J.GERVERS
DANIEL TAHER, OFFICE OF REGIONAL ECONOMIC AFFAIRS (ARA)
C:J.GORDON
DEPARTMENT OF STATE.
1019012 021706 /46
P 101519 JUN
2. SOCIAL WORKING GROUP
FM SECSTATE NASHDC
TO AMEMBASSY MEXICO PRIORITY
International Please Information Center
return to
COCHAIRMEN: MATTHEW NIMETZ. COUNSELOR OF THE DEPARTMENT OF
STATE; AND MICHAEL J. EGAN. ASSOCIATE ATTORNEY GENERAL.
UNCLAS STATE 134376
DEPARTMENT OF JUSTICE;
E.O. 11652:
N/A
CHARLES-KNAPP, SPECIAL ASSISTANT TO THE SECRETARY OF LABOR;
TAGS: PGOV, MX
LEONEL J. CASTILLO. COMMISSIONER. IMMIGRATION AND
NATURALIZATION SERVICE (INS);
SUBJECT: CONSULTATIVE MECHANISM: U.S. PARTICIPATION
FRANK A. WEIL, DEPARTMENT OF COMMERCE;
1. PLEASE CONVEY TO FOREIGN SECRETARY ROEL OR OTHER
APPROPRIATE OFFICIAL THE FOLLOWING LIST OF U.S. PARTICI-
MORTON BACH, SPECIAL ASSISTANT TO THE UNDER SECRETARY
PANTS IN THE CONSULTATIVE MECHANISM:
OF TREASURY.
ECONOMIC WORKING GROUP
3. ABOVE LIST SUBJECT TO ADDITIONS AND MODIFICATIONS
DEPENDING ON EXACT NATURE OF TOPICS CONSIDERED.
COCHAIRMEN: RICHARD COOPER, UNDERSECRETARY OF STATE FOR
ECONOMIC AFFAIRS; AND SIDNEY HARMAN, UNDERSECRETARY OF
4. PLEASE ALSO INFORM ROEL THAT WE ARE DEVELOPING AGENDA
COMMERCE.
PROPOSALS FOR SUBMISSION TO GOM BY JUNE 17 AS AGREED IN
MAY 26 MEETING.
A. TRADE SUBGROUP
CHAIRMAN, ALAN WOLFF, DEPUTY SPECIAL TRADE REPRESENTA-
VANCE
TIVE;
HOWARD SAMUEL, DEPUTY UNDER SECRETARY OF LABOR;
JOHN RAY, DIRECTOR OF TRADE POLICY, TREASURY DEPARTMENT;
S. STANLEY KATZ, DEPUTY ASSISTANT SECRETARY OF COMMERCE
FOR INTERNATIONAL ECONOMIC POLICY AND RESEARCH;
HARRY WILHELM, DEPUTY ASSISTANT SECRETARY OF AGRICULTURE;
WILLIAM G. BARRACLOUGH, DEPUTY ASSISTANT SECRETARY OF
STATE FOR INTERNATIONAL TRADE POLICY;
B. ENERGY, MINERALS, INDUSTRY AND INVESTMENT SUBGROUP
COCHAIRMEN: STEPHEN BOSWORTH, DEPUTY ASSISTANT SECRETARY
OF STATE FOR INTERNATIONAL RESOURCES AND FOOD POLICY; AND
CECIL THOMPSON, DEPUTY ASSISTANT ADMINISTRATOR OF FEA FOR
INTERNATIONAL ENERGY AFFAIRS;
HOWARD SAMUEL, DEPARTMENT OF LABOR;
FRANK A. WEIL, ASSISTANT SECRETARY OF COMMERCE FOR
R.
DOMESTIC AND INTERNATIONAL BUSINESS;
FORD
CHARLES SCHOTTA, DIRECTOR OF OFFICE OF ENERGY POLICY
ANALYSIS, DEPARTMENT OF TREASURY;
GERALD
LIBRARY
PATRICIA COUNTS, OVERSEAS PRIVATE INVESTMENT CORPORATION
(OP IC).
C. FINANCIAL SUBGROUP
UNCLASSIFIED
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
Date June 23, 1977
To
From
Ted Chairman Truman Burns EMT
Subject:
CONFIDENTIAL
Attached is the latest cable on financial developments
in Mexico.
Attachment: Mexico 10173
cc: Governor Wallich
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
1977 JUN 23 PM 2: 08 2:08
OFFICE OF THE RECEIVED CHAIRMAN
LIBRARY GERALD ? FORD
with
CONF IDENTIAL
INCOMING
5a
Department of State
TELEGRAM
PAGE 01
MEXICO 10173 01 OF 02 210032Z
4387
MEXICO 10173 01 OF 02 210032Z
ACTION ARA-14
INFO OCT-01 ISO-00 SP-02 USIA-06 AID-05 EB-07 NSC-05
6. THE STOCK OF BANKING SYSTEM (EX-BANK OF MEXICO) CREDIT
EPG-02 SS-15 STR-04 OMB-01 CEA-01 CIAE-00 COME-00
TO THE FEDERAL GOVERNMENT INCREASED 19.5 BILLION PESOS IN
FRB-03 INR-07 NSAE-00 XMB-02 OPIC-03 LAB-04
THE FIRST QUARTER. ADJUSTED FOR THE INCREASE IN THE STOCK
SIL-01 IGA-02 /085 W
OF DOLLAR-DENOMINATED DEBT IN TERMS OF PESOS RESULTING
21
019695 210055Z /21
FROM THE DEPRECIATION OF THE PESO, THE CREDIT FLOWS FROM
R 210023Z JUN 77
PRIVATE AND NATIONAL BANKS TO THE FEDERAL GOVERNMENT WERE
FM AMEMBASSY MEXICO
12.2 BILLION PESOS. THIS FIGURE EXCLUDES RECEIPTS FROM
TO SECSTATE WASHDC 2980
FOREIGN BORROWING AND CHANGES IN BANK OF MEXICO CREDIT.
INFO TREASURY WASHDC
IT ALSO EXCLUDES BORROWING BY THE REST OF THE PUBLIC
SECTOR.
SECTION 01 OF 02 MEXICO 10173
7. IT IS DIFFICULT TO RECONCILE THE ABOVE DATA ON BANK
EO 11652: GDS
LENDING TO THE FEDERAL GOVERNMENT WITH THE DATA ON CASH
TAGS: EFIN, EGEN, BEXP, MX
OUTLAYS AND RECEIPTS FOR THE FIRST TWO MONTHS WHICH SHOW
SUBJECT: RECENT FINANCIAL DEVELOPMENTS
A SURPLUS OF 0.4 BILLION PESOS. IT IS POSSIBLE THAT
MARCH SHOWED A SIGNIFICANT DEFICIT AND/OR BANK OF MEXICO
REF: MEXICO 9398
CREDIT TO FEDERAL GOVERNMENT DECLINED. FEDERAL GOVERNMENT
EXTERNAL BORROWING WAS NEGLIGIBLE, WITH ONLY $2.8 MILLION
1. SUMMARY. THE APRIL ISSUE OF THE BANK OF MEXICO'S
SHOWING UP IN THE BALANCE OF PAYMENTS ACCOUNTS. A PRIVATE
ECONOMIC INDICATORS PERMITS SOME ANALYSIS OF INTERNAL
BANK THAT IS USUALLY WELL-INFORMED, REPORTS THAT THE
ECONOMIC DEVELOPMENTS IN THE FIRST QUARTER. END SUMMARY.
FEDERAL GOVERNMENT DEFICIT IN THE FIRST QUARTER WAS ABOUT
6 BILLION PESOS.
2. MONETARY DEVELOPMENTS: THE END-MARCH MONEY SUPPLY
WAS 31 PERCENT ABOVE THE YEAR-EARLIER FIGURE, COMPARED TO
8. FEDERAL GOVERNMENT SPENDING IN THE FIRST TWO MONTHS
32.8 PERCENT FOR FEBRUARY AND 31 PERCENT FOR JANUARY. THE
WAS ABOUT 25 PERCENT ABOVE THE YEAR-EARLIER FIGURE. HOW-
RATIO OF CURRENCY TO MONEY SUPPLY REMAINS HIGH, 49 PERCENT,
EVER, CURRENT EXPENDITURES WERE 47 PERCENT ABOVE THE
COMPARED TO 43 PERCENT IN THE TWO PREVIOUS YEARS; HOWEVER,
YEAR-EARLIER FIGURES AND CAPITAL EXPENDITURES WERE 60
THIS RATIO IS DECLINING FROM THE HIGH OF 53 PERCENT
PERCENT ABOVE THE YEAR-EARLIER FIGURE. A REDUCTION IN
REACHED LAST NOVEMBER. THE SUBSTANTIAL CURRENCY ISSUE
PAYMENTS OF ADEFAS (OBLIGATIONS INCURRED IN PREVIOUS
MADE NECESSARY BY THE RUN ON THE BANKS HAS INDIRECTLY
HELPED THE BANK OF MEXICO MEET THE FUND AGREEMENT TARGETS
IN THAT THE CURRENCY ISSUE AS OF END-1976 WAS HIGHER THAN
IT WOULD OTHERWISE HAVE BEEN. THE BANK OF MEXICO'S
CURRENCY ISSUE AS OF END-MAY WAS 68.2 BILLION PESOS,
11.2 BILLION BELOW THE END-1976 FIGURE, AND 18.6 BILLION
OR 37.5 PERCENT ABOVE THE YEAR-EARLIER FIGURE.
3. PESO-DENOMINATED DEPOSIT LIABILITIES OF NATIONAL AND
PRIVATE BANKS INCREASED 16 BILLION PESOS IN THE FIRST
0! ARTER, VIRTUALLY ALL OF THE INCREASE WAS IN THE FORM
OF TIME DEPOSITS. ON A YEAR-TO-YEAR BASIS, THE
COMPARABLE FIGURE IS 2.3 BILLION PESOS; EXCLUDING DEMAND
DEPOSITS, PESO-DENOMINATED DEPOSITS AT END MARCH 1977
WERE 10 BILLION PESOS BELOW THE YEAR-EARLIER FIGURE.
DOLLAR-DENOMINATED DEPOSITS INCREASED $241. 3 MILLION OR
THE EQUIVALENT OF 5.3 BILLION PESOS IN THE FIRST QUARTER
CONVERTED AT THE AVERAGE EXCHANGE RATE FOR THIS PERIOD.
LIABILITIES TO FOREIGN BANKS INCREASED $175.2 MILLION IN
THE FIRST QUARTER. FOR THE 12-MONTH PERIOD, DOLLAR
DEPOSIT LIABILITIES WERE UP $1,691.6 MILLION AND LIABI-
LITIES TO FOREIGN BANKS WERE UP $2,640.9 MILLION. THE
SHIFT FROM PESOS TO FOREIGN EXCHANGE HAS SLOWED, BUT IT
HAS NOT REVERSED.
4. BANK OF MEXICO DIRECTOR GENERAL ROMERO KOLBECK HAS
STATED THAT THE INTEREST RATE REFORM HAS HAD A SIGNIFI-
CANT IMPACT. HOWEVER, IN APRIL AND MAY PROCEEDS FROM
MATURING TIME DEPOSITS WERE HELD IN MORE LIQUID FORMS
SINCE HIGHER INTEREST RATES WERE WIDELY ANTICIPATED.
GERALD FORD LIBRARY
5. TOTAL CREDIT FLOWS IN THE FIRST QUARTER AMOUNTED TO
20.4 BILLION PESOS, OF WHICH 8.3 BILLION WENT TO NON-
GOVERNMENT BORROWERS, BUT INCLUDING PARASTATAL ENTITIES.
ADJUSTED FOR THE IMPACT OF DEVALUATION ON DOLLAR-
DENOMINATED CREDIT, THE STOCK OF CREDIT TO NON-GOVERNMENT
BORROWERS WAS 16 PERCENT ABOVE YEAR-EARLIER FIGURES
WHICH WOULD BE A DECLINE IN REAL TERMS.
CONF IDENT
dal 7/26/07
CONFTDENTIAL
INCOMING
Department of State
TELEGRAM
PAGE 01
MEXICO 10173 02 OF 02 210040Z
4389
ACTION ARA-14
INFO OCT-01 ISO-00 SP-02 USIA-06 AID-05 EB-07 NSC-05
EPG-02 TRSE-00 SS-15 STR-04 OMB-01 CEA-01 CIAE-00
COME-00 FRB-03 INR-07 NSAE-00 XMB-02 OPIC-03
LAR-04 SIL-01 IGA-02 /085 W
019782 210057Z /21
R 210023Z JUN 77
FM AMEMBASSY MEXICO
TO SECSTATE WASHDC 2981
INFO TREASURY WASHDC
I
I
SECTION 02 OF 02 MEXICO 10173
FISCAL YEARS) ACCOUNTS FOR THE RELATIVELY SLOW GROWTH IN
TOTAL EXPENDITURES. ADEFAS IN 1977 WILL PRESUMABLY BE
GREATER THAN IN 1976. ALTHOUGH IT MAY BE TOO EARLY TO
EXTRAPOLATE, THESE FIGURES COULD INDICATE A HIGHER LEVEL
OF SPENDING THAN IS CONTEMPLATED IN THE BUDGET, WHICH
CALLS FOR A 35 PERCENT INCREASE IN FEDERAL GOVERNMENT
OUTLAYS. IN THIS REGARD FINANCE SECRETARY MOCTEZUMA TOLD
A GROUP FROM THE U.K. THAT THE TOTAL PUBLIC SECTOR DEFICIT
WOULD NOT EXCEED 125 BILLION PESOS THIS YEAR. WHILE
THIS NEED NOT CONTRADICT THE FUND PROGRAM, IT IS INTEREST-
ING THAT HE WOULD NOT GO ON THE RECORD AS PREDICTING A
DEFICIT CLOSER TO THAT CALLED FOR IN THE FUND AGREEMENT.
9. INDUSTRIAL PRODUCTION: WHILE THE INDUSTRIAL PRODUC-
TION INDEX SLIPPED 0.3 PERCENT FROM JANUARY TO FEBRUARY,
THE SUBINDEX FOR MANUFACTURERS WAS UP 1.4 PERCENT. THERE
IS SOME REASON TO BELIEVE THAT THE DECLINE IN INDUSTRIAL
OUTPUT WHICH BEGAN LAST JUNE HAS NOW STOPPED. THE OVER-
ALL INDEX DECLINED BECAUSE OF DECLINES IN FOUR OF THE
OTHER FIVE SUBINDICES. ONLY MINING OUTPUT INCREASED.
PETROLEUM OUTPUT IN FEBRUARY WAS AT THE YEAR-EARLIER
FIGURE. THE PETROCHEMICAL INDEX DROPPED 20. 3 PERCENT
FROM JANUARY TO FEBRUARY. THIS IS IN PART SEASONAL; THE
BALANCE MAY REFLECT THE DROP IN PETROLEUM OUTPUT. THE
ELECTRICITY SUBINDEX DROPPED 6.7 PERCENT FROM JANUARY
TO FEBRUARY WHEN IT WAS 5.2 PERCENT ABOVE THE YEAR-
EARLIER FIGURE. THE FEBRUARY INDUSTRIAL PRODUCTION INDEX
WAS 4.7 PERCENT BELOW THE YEAR-EARLIER FIGURE AND THE
MANUFACTURES' SUBINDEX WAS 3.3 PERCENT BELOW THE YEAR-
EARLIER FIGURE.
10. THERE ARE 16 INDUSTRY SUBINDICES IN THE MANUFACTURERS'
SUBINDEX. TENDING TO CONFIRM THE VIEW THAT THE BOTTOM
HAS BEEN REACHED, 13 OF THE 15 INDICES FOR WHICH THERE
IS MARCH DATA SHOWED MONTHLY INCREASES. ON A YEAR-TO-
YEAR BASIS, 8 OF THE 15 SHOWED INCREASES.
11. MEXICO'S INDUSTRIAL OUTPUT IN THE FIRST QUARTER 1977
IS LIKELY TO BE ABOUT SIX PERCENT BELOW THE YEAR-EARLIER
FIGURE. WHILE IT IS HOPED THAT THE BOTTOM HAS BEEN
REACHED, NOBODY IS ANTICIPATING A QUICK OR STRONG
RECOVERY. THE POSSIBILITY OF A SLIGHT YEAR-TO-YEAR
DECLINE IN INDUSTRIAL OUTPUT SHOULD NOT BE RULED OUT. IF
THIS OCCURS, IT IS UNLIKELY THAT GROWTH IN THE OTHER
ROUGHLY TWO-THIRDS OF THE ECONOMY WILL BE MUCH GREATER
THAN ZERO. THE LIKELIHOOD OF A ZERO GROWTH RATE FOR THE
YEAR AS A WHOLE LOOMS LARGER AND LARGER. THOMPSON
FORD
GERALD
LIBRARY
CONF IDENTIAL
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
Date August 17, 1977
To
Chairman Burns
Subject:
From
Edwin M. Truman
EMT
CONFIDENTIAL
The attached cable describes the progress made by Mexico
in stabilizing its economy this year. It indicates that Mexico
appears to have met all of the June 30 targets specified in its
IMF program though all data are not yet available to confirm this
(especially data on the public sector deficit). This information
is consistent with the analysis contained in Yves Maroni's most
recent note on Mexico, circulated to the Board on July 29. A copy
of that note is also attached, together with the latest revisions
of our tables on Mexican economic and financial indicators.
The cable also discusses the failure of private sector in-
vestment to revive, ascribing that failure to the slowdown in public
sector infrastructure investment, uncertainty over industrial and trade
policy, uncertainty over the future of the exchange rate, and doubts that
the Mexican Government will be able to cope with the country's social
and political pressures.
The cable also notes that the dollar component of the money
supply continues to expand. Partial data indicate that the increase
in peso interest rates, late in May, has not induced a shift from
dollars to pesos.
cc: Governor Wallich
CONFIDENTIAL one 18 0W10:01
FORD & LIBRARY GERALD
REDORAL RESERVE SYSTEM
BOARD of OF COVERNERS
COLLIDEN
1977 AUG 18 AM 10: 01
CC: COAGINOL Marrica
OFFICE
RECEIVED CHAIRMAN
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WJK,SP
Department of State
TELEGRAM
MEXICO
PAGE 01
MEXICO 13393 01 OF 02 111712Z
9327
MEXICO 13393 01 OF 02 111712Z
ACTION ARA-14
1976 FIGURE. THE APRIL DECLINE IS DUE IN LARGE PART TO
INFO OCT-01 IS0-00 AID-05 CIAE-00 COME-00 EB-08 FRB-03
THE EASTER HOLIDAYS. THE YEAR TO YEAR INCREASES ARE
VM
INR-07 NSAE-00 USIA-06 XMB-02 OPIC-03 SP-02
ENCOURAGING. IT WOULD APPEAR THAT THE BOTTOM HAS BEEN
EMT
LAB-04 SIL-01 OMB-01 NSC-05 SS-15 STR-04 CEA-01
REACHED. PARTIAL DATA FOR MAY INDICATES A CONTINUED
/082 W
RECOVERY, BUT VERY LIMITED GROWTH OF OUTPUT ON A YEAR TO
099238 111913Z /47
YEAR BASIS.
R 111656Z AUG
FM AMEMBASSY MEXICO
6. THE APPARENT INCREASE IN INDUSTRIAL OUTPUT IS BEING
TO SECSTATE WASHDC 4172
Sec 2 att.
DONE BY HIGHER UTILIZATION RATES. THERE ARE NO SIGNS OF
INFO TREASURY WASHDC
A REVIVAL OF PRIVATE SECTOR INVESTMENT. THIS IS BECOMING
AN ISSUE BETWEEN PUBLIC SECTOR OFFICIALS AND PRIVATE
SECTION 01 OF 02 MEXICO 13393
BUSINESSMEN, WITH SOME PUBLIC OFFICIALS CHARGING THAT THE
PRIVATE SECTOR IS FAILING TO LIVE UP TO ITS PROMISES WITH-
E.O. 11652: N/A
IN THE ALLIANCE FOR PRODUCTION. HOWEVER, THESE CRITICISMS
TAGS; EFIN, MX
HAVE BEEN MUTED. THE PRESIDENT IS REPORTEDLY DEEPLY
SUBJECT: THE MEXICAN ECONOMY AT MID-YEAR
CONCERNED OVER THE LACK OF PRIVATE SECTOR INVESTMENT AND
international Information Centex
Please return to
HAS ASKED U.S. BUSINESSMEN, AND PRESUMABLY MEXICAN
REF: STATE 180067
BUSINESSMEN, FOR IDEAS AS TO HOW TO REVIVE PRIVATE INVEST-
MENT. THERE IS AN ACTIVE DIALOGUE BETWEEN THE PUBLIC AND
1. SUMMARY: THE GOM HAS MADE CONSIDERABLE PROGRESS TOWARD
PRIVATE SECTORS ON THIS MATTER IN A SPIRIT OF COOPERATION,
STABILIZING ITS ECONOMY AFTER THE TUMULTOUS EVENTS OF 1976.
THOUGH RESULTS THUSFAR SEEM VERY LIMITED.
IT APPEARS TO HAVE MET ALL THE TARGETS FOR THE FIRST HALF
AS CALLED FOR IN THE IMF PROGRAM. THERE IS INCREASING
7. THERE ARE A VARIETY OF REASONS FOR THE LACK OF A REVIVAL
CONCERN OVER THE LACK OF PRIVATE INVESTMENT AND THE LACK -
IN PRIVATE SECTOR INVESTMENT. ONE IS THAT PUBLIC SECTOR
OF ANY APPARENT STIMULUS TO ECONOMIC RECOVERY. THIS
INVESTMENT IS DOWN, AND PRIVATE SECTOR INVESTMENT HAS
TELEGRAM PROVIDES PARTIAL RESPONSE TO REFTEL. FURTHER
TENDED TO FOLLOW AND COMPLEMENT PUBLIC SECTOR
ANALYSIS WILL BE SENT SHORTLY. END SUMMARY.
INFRASTRUCTURE INVESTMENT. ANOTHER IS UNCERTAINTY OVER
GOM ECONOMIC POLICIES. WHILE GOM OFFICIALS TALK ABOUT
2. THE GOM HAS RECEIVED A LETTER FROM IMF MANAGING DIREC-
A NEW INDUSTRIAL POLICY, THE DETAILS ARE VAGUE AND INADE-
TOR WITTEVEEN STATING THEY HAVE MET THE TARGETS IN THE
QUATE TO GUIDE SOME INVESTORS WHO FOR THIRTY YEARS HAVE
FUND PROGRAM FOR THE FIRST QUARTEP OF 1977. THEY PROBABLY
THOUGHT IN TERMS OF SUPPLYING THE DOMESTIC MARKET WITH
MET THE TARGETS IN THE SECOND QUARTER, THOUGH ALL DATA
GOODS PREVIOUSLY IMPORTED (AN IMPORT SUBSTITUTION ORIENTA-
ARE NOT AVAILABLE TO CONFIRM THIS. THE CURRENCY ISSUE OF
TION). A THIRD IS UNCERTAINTY OVER THE FUTURE EXCHANGE
THE BANK OF MEXICO WAS 68.6 BILLION PESOS AT END-JUNE;
RATE FOR THE PESO THAT MAKES BUSINESSMEN RELUCTANT TO TAKE
WELL WITHIN THE FUND PROGRAM CEILING. PUBLIC SECTOR
EXTERNAL DEBT INCREASED $641.4 MILLION IN THE FIRST
QUARTER OF THE YEAR, TO $20,241.6 MILLION AS OF MARCH 31.
NET BORROWING (DRAWDOWNS) IN THE FIRST HALF WAS PROBABLY
ABOUT $1.2 TO $1.4 BILLION. THE PUBLIC SECTOR DEFICIT IN
THE FIRST QUARTER WAS SAID TO BE ABOUT 14 BILLION PESOS.
THE SECOND QUARTER DEFICIT WILL BE GREATER, BUT SHOULD NOT
EXCEED 25 BILLION PESOS, FOR A FIRST HALF DEFICIT OF
ROUGHLY 40 BILLIONS PESOS.
3. THE GOM HAS ALSO MADE SIGNIFICANT PROGRESS IN REDUCING
THE RATE OF INFLATION. THE NATIONAL CONSUMER PRICE INDEX
INCREASED 0.9 IN MAY AND 1.2 IN JUNE. THE JULY INCREASE
SHOULD BE NO MORE THAN 1. THE INCREASE FOR THE FIRST
HALF OF THE YEAR WAS 11.2. THE WHOLESALE PRICE INDEX
INCREASED 12.5 IN THE FIRST HALF OF 1977. THE GOM
ALSO MANAGED TO KEEP ITS WAGE POLICY MORE LESS INTACT
THROUGH JULY WITH FEW WAGE INCREASES PASSING THE 10
FIGURE.
4. THE DECLINE IN INDUSTRIAL OUTPUT THAT BEGAN LAST JULY
MAY HAVE BOTTOMED OUT IN FEBRUARY. THE INDUSTRIAL PRODUC-
TION INDEX INCREASED 14 FROM FEBRUARY TO MARCH, BUT WAS
1.6 BELOW THE YEAR EARLIER FIGURE. ALL SIX SUB-INDICES
SHOWED SHARP INCREASES, BUT WITH THE EXCEPTION OF THE
PETROLEUM SUB-INDEX, ALL WERE AT OR BELOW YEAR EARLIER
FIGURES. THE SUB-INDEX FOR MANUFACTURES ROSE 12.7 FROM
GERALD FORD LIBRARY
FEBRUARY TO MARCH, BUT WAS 2.5 BELOW THE YEAR EARLIER
FIGURE. THE AVERAGE INDEX FOR THE FIRST QUARTER 1977 WAS
3.4 BELOW THE YEAR EARLIER FIGURE.
5. IN APRIL, THE INDUSTRIAL PRODUCTION INDEX DECLINED 3.8
DECLASSIFIED
FROM THE PREVIOUS MONTH BUT IT REMAINED 0.8 ABOVE THE
E.O. 12958, Sec. 3.5
APRIL 1976 LEVEL. THE SUE-INDEX FOR MANUFACTURES IN APRIL
WAS 5.3 BELOW THE MARCH FIGURE AND 0.5 ABOVE THE APRIL
CONF IDENT IAL
State Dept. Guidelines
By dal
$ NARA, Date 7/26/07
CONF IDENT
INCOMING
Department of State
TELEGRAM
PAGE 01
MEXICO 13393 02 OF 02 111721Z
9324
MEXICO 13393 02 OF 02 111721Z
ACTION ARA-14
INFO OCT-01 ISO-00 AID-05 CIAE-00 COME-00 EB-08 FRB-03
11. APPARENTLY THESE CAPITAL OUTFLOWS ARE TAKING THE FORM
INR-07 NSAE-00 USIA-06 XMB-02 OPIC-03 SP-02
OF REPAYMENTS OF PRIVATE SECTOR EXTERNAL DEBT. IT APPEARS
LAB-04 SIL-01 OMB-01 NSC-05 SS-15 STR-04 CEA-01
THAT THE INCREASE IN PESO CREDIT IN THE FIRST FIVE OR
/082 W
SIX MONTHS OF THE YEARS HAS BEEN USED TO REDUCE DOLLAR
099475 111912Z /47
DEBT. THUS, IT IS POSSIBLE THAT SOME PRIVATE CAPITAL HELD
R 111656Z AUG 77
ABROAD HAS BEEN REPATRIATED, BUT NOT IN AN AMOUNT ADEQUATE
FM AMEMBASSY MEXICO
TO OFFSET THE RUN OFF OF PRIVATE DEBTS TO FOREIGN
TO SECSTATE WASHDC 4173
FINANCIAL INSTITUTIONS. LUCEY
INFO TREASURY WASHDC
L SECTION 02 OF 02 MEXICO 13393
ON DOLLAR DEBT. MOST OF THE INCREASE IN PESO CREDIT
APPEARS TO HAVE BEEN USED TO PAY OFF DOLLAR DEBT. THE
FOURTH IS A FEAR THAT THE LOPEZ-PORTILLO ADMINISTRATION
WILL NOT BE ABLE TO COPE WITH MEXICO'S SOCIAL AND POLITICAL
PRESSURES, THEREBY MAKING FOREIGN INVESTMENTS BY MEXICANS
DESIRABLE.
8. MONETARY DEVELOPMENTS ARE REASONABLY ENCOURAGING, BUT
ANALYSIS IS COMPLICATED BY THE USE OF TWO CURRENCIES AS
WELL AS LIMITED STATISTICS. IN THE FIRST FIVE MONTHS OF
THE YEAR, THE PESO COMPONENT OF THE MONEY SUPPLY DECLINED
9.4 BILLION PESOS. WHEREAS PESO-DENOMINATED CREDIT FROM
THE BANKING SYSTEM INCREASED 11.8 BILLION PESOS, TIME
DEPOSITS WERE UP 15 BILLION PESOS. THIS APPARENT SHIFT
FROM CURRENCY AND DEMAND DEPOSITS IS SEASONAL, AND NOT OUT
OF LINE WITH DEVELOPMENTS IN THE TWO PREVIOUS YEARS. THE
YEAR TO YEAR INCREASE IN THE MONEY SUPPLY HAS DECLINED
FROM 31 IN JANUARY TO 28.7 IN MAY.
9. THE DOLLAR COMPONENT OF THE MONETARY SYSTEM CONTINUES
TO EXPAND. DOLLAR DEMAND DEPOSITS WERE UP $69 MILLION IN
THE FIRST FIVE MONTHS OF THE YEAR. DOLLAR DENOMINATED
CREDIT INCREASED $709.5 MILLION, WHEREAS DOLLAR LIABILITIES
(EX-DEMAND ACCOUNTS) WERE UP 1,279 MILLION. OF THE LATTER
AMOUNT EXTERNAL LOANS TO THE BANKING SYSTEM ACCOUNTED FOR
$575.4 MILLION. THE RESIDUAL IN THE DOLLAR EQUATION IS
$500.5 MILLION.
THIS PRESUMABLY WOULD SHOW UP IN OTHER ASSETS THAT ARE NOT
INCLUDED IN THE DATA PUBLISHED BY THE BANK OF MEXICO.
PARTIAL DATA ON BANK LIABILITIES THROUGH JUNE SHOW CONTIN-
UED INCREASES IN BOTH PESO AND DOLLAR LIABILITIES WITH THE
LATTER UP 11.9 FROM END-APRIL AND THE FORMER UP 1.6.
THIS PARTIAL DATA WOULD INDICATE THAT THE INTEREST RATE
REFORM OF LATE MAY DID NOT INDUCE A SHIFT FROM DOLLARS TO
PESOS, NOR DOES IT APPEAR TO HAVE BROUGHT ABOUT A SHIFT
FROM CURRENCY TO DEPOSITS. THE PRESIDENT REMAINS MOST
CONCERNED WITH DOLLARIZATIONS AND IS INTRODUCING ADDITIONAL
MEARSURES TO COPE WITH THE PROBLEM. FINANCE SUB-GROUP WAS
TOLD THAT THERE WAS A SHIFT FROM THE MORE LIQUID TIME
DEPOSITS TO THE LONGER MATURITIES.
10. THE CURRENT ACCOUNT DEFICIT FOR THE FIRST QUARTER OF
1977 HAS BEEN REVISED DOWNWARD TO ABOUT $190 MILLION, BUT
is
NOT YET PUBLISHED AS SUCH. THE SECOND QUARTER CURRENT
FORD
ACCOUNT DEFICIT IS LIKELY TO BE AROUND $300 MILLION.
"ERRORS AND OMMISSIONS" IN THE FIRST QUARTER WERE $215
GERALD
MILLION. THIS WOULD INDICATE THAT THERE WERE NET PRIVATE
CAPITAL OUTFLOWS IN THIS PERIOD. ACCOUNTING FOR THE
LIBRAIS
PROCEEDS FROM THEIR FUND DRAWING IN JANUARY AND REPAYMENT
OF THE $150 MILLION FED SWAP IN FEBRUARY WOULD REDUCE
THIS BY ABOUT $30 MILLION. ASSUMING A CURRENT DEFICIT
OF $300 MILLION IN THE SECOND QUARTER, NET PUBLIC SECTOR
BORROWING OF $500 MILLION AND A RESERVE INCREASE OF $15
MILLION, OR $165 MILLION, TAKING INTO ACCOUNT REPAYMENT
OF THE TREASURY SWAP, PRIVATE CAPITAL OUTFLOWS SLOWED IN
THE SECOND QUARTER.
CONF IDENT TAL
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
Date July 29, 1977
To
Board of Governors
Subject:
Recent Economic Developments
in Mexico and Performance
From
Edwin M. Truman
under IMF Agreement
RESTRICTED-CONTROLLED
Attached for your information is a note by Yves
Maroni providing an update on Mexico's economic and financial
situation.
Attachment
RESTRICTED-CONTROLLED
GERALD R. FORD LIBRERY
RESTRICTED-CONTROLLED
Yves Maroni
July 29, 1977
Recent Economic Developments in Mexico
and Performance under IMF Agreement
Preliminary indications are that Mexico remained in com-
pliance with the terms of its IMF Extended Fund Facility agreement
as of the end of the second quarter. However, it will be several
more weeks before the data with which to make a definitive statistical
verification become available. Moreover, uncertainty still exists
concerning the prospects for compliance at the end of the year.
The IMF agreement requires Mexico to observe
specified quarterly ceilings on (1) the public sector deficit, (2)
the net external borrowings of the public sector, (3) the relation-
ship between the growth of the net international reserves of the
Bank of Mexico and the increase in the currency issue, and (4) the
growth of the net domestic assets of the Bank of Mexico.
The IMF staff confirmed last month that Mexico met com-
fortably the March 31 targets. Beyond this, the Mexican officials
taking part in a meeting of the U.S.-Mexican financial working group
last week in Mexico City, gave the U.S. team provisional second quarter
results for the public sector deficit and for the net external borrow-
ings of the public sector, and these are within the June 30 limits
specified in the Extended Fund Facility agreement.
We also have a report that the currency issue at the end
of June was well below its end-of-December 1976 level, while gross
DECLASSIFIED E.O. 12958 Sec. 3.6
With PORTIONS EXEMPTED
RESTRICTED-CONTROLLED
E.O. 12958 Sec. 1.5(
CERALD FORD CIGNARY
.
MR95-1, # 35 Fed Res. Ltr. 2/13/96
By KBH NARA, Date 4/19/96
RESTRICTED-CONTROLLED
- 2 -
reserves of the Bank of Mexico were substantially higher than in
December. This makes it likely that the June 30 targets relating
to net international reserves and to net domestic assets of the Bank
of Mexico also were met.
The increase in Mexico's gross international reserves,
amounting to nearly $200 million in the first half of 1977 (and an
additional $150 million in the July 1-28 period), was made possible
in part by external borrowings. In the first half, Mexico arranged
medium-term Euro-currency credits totalling $1,045 million and issued
Euro-bonds totalling $290 million. Mexico also floated a $50 million
bond issue in the United States, and its medium-term borrowings from
the head offices of U.S. banks increased by about $40 million. The
IMF agreement limits the permitted net increase in the public sector's
external debt outstanding to $3 billion this year ($2.1 billion in
the first half of the year).
The Bank of Mexico made net intervention sales of dollars
totalling
in the first half of 1977, most of this in
May. Small additional net sales continued in July. The Bank allowed
the peso to depreciate from 4.98 to 4.40 cents in the first quarter,
and further to 4.34 cents in May-June. But there was a slight firming
in July, to 4.37 cents on July 28. The forward discount on the peso
narrowed significantly in July.
The satisfactory fiscal performance in the first half of
RESTRICTED-CONTROLLED
FORD LIBRARY
RESTRICTED-CONTROLLED
- 3 -
1977 is largely the result of a slowdown in public investment spending
attributable to the change in administration last December and to
subsequent administrative reforms. However, there continues to be
considerable skepticism, even among some Mexican officials, regarding
the fiscal performance in the second half of 1977, as public invest-
ment spending is likely to pick up. For the year as a whole, the
IMF staff's forecast of the public sector deficit remains distinctly
more pessimistic than the official Mexican forecast, and the latter
is not firm enough to justify a conviction that the year-end ceiling
for the public sector deficit will be observed. During the meeting
of the U.S. -Mexican financial working group last week, the Mexican
team indicated that the authorities were making strong efforts to
stay within the ceiling, but that it was not certain that they would
succeed. One obstacle the Mexicans mentioned was the difficulty of
raising public sector prices without undermining the wage policy.
The wage guideline adopted by the authorities at the be-
ginning of the year was that wage increases negotiated during the
year should not exceed 10 per cent. The wage settlements reached
during the first half of 1977 conformed to this guideline. But, at
the end of June, the head of the Mexican Labor Confederation, Mr.
Fidel Velasquez, was reported to have said that a recent meeting of
1/ This is not one of the performance criteria specified under the
IMF Extended Fund Facility agreement.
RESTRICTED-CONTROLLED
GEBALO FORD LIBRARY
RESTRICTED-CONTROLLED
- 4 -
the Confederation's executive board did not specify any maximum for
wage increases and gave each affiliated union freedom to negotiate
and obtain raises related to the economic capacity of the enterprises
concerned. While this appeared to signal the breakdown of the wage
guideline, several subsequent wage settlements, including an important
one in the steel industry, did not exceed 10 per cent.
On the other hand, we have received reports of a few settle-
ments in the 12-13 per cent range. Many executives of American
corporations and banks operating in Mexico are skeptical about the
prospect of holding wage increaes to 10 per cent for the rest of the
year. The Mexican Ambassador to the United States has said recently that
the 10 per cent guideline might be exceeded somewhat in coming months.
The test of the Government's determination to hold the line
on wages is likely to come in September when public sector salaries
are due to be increased. September is also the month when, in the
past four years, the Government has granted a special across-the-board
increase to all workers, and the possibility of another such increase
at that time cannot be ignored. President Lopez Portillo is scheduled
to deliver his first state of the nation address to the Mexican
Congress on September 1 and he may announce his intentions at that time.
In the first half of this year, consumer and wholesale
prices in Mexico rose by about 12 per cent (or about 25 per cent at
annual rate). While the month-to-month rates of increase have been
RESTRICTED-CONTROLLED
FORD is LIBRARY
RESTRICTED-CONTROLLED
- 5 -
diminishing, union pressure to disregard the government wage guide-
line has mounted as the cumulative increase in prices for the year-
to-date approached the 10 per cent barrier.
Mexican industrial production remains sluggish. In the
first quarter, it was more than 3 per cent lower than in the same
period of 1976. In April, it barely exceeded the year-earlier level.
The Mexican authorities anticipate an overall rate of real GDP growth
for the year of not more than 2 per cent. This is less than the rate
of increase in population, and implies a decline in real per capita
GDP.
The IMF staff estimates that, if all of the targets specified
in the Extended Fund Facility agreement are met, Mexico's deficit on
goods and services account may be less than $2 billion this year, in
contrast to about $3 billion last year. In the first quarter, the
deficit was less than $250 million, only about one third as high as
the average of the quarterly deficits recorded in 1976. Exports ex-
panded substantially because of the economic pick up in the United
States, the restoration of Mexican international competitiveness as
a consequence of the exchange rate adjustments undertaken since
September 1, 1976, the surge in coffee prices, and the steady growth
of Mexican crude oil production. Imports declined significantly,
as economic activity in Mexico continued to stagnate and, in particular,
industrial production fell and public investment slowed. Preliminary
indications are that these conditions continued in the second quarter
1/ Data on industrial production in the attached table are not
seasonally adjusted.
GERALD FORD JORARY
RESTRICTED-CONTROLLED
RESTRICTED-CONTROLLED
- 6 -
when, according to provisional figures, the deficit on goods and
services account was about $350 million. An increase in public
spending in the second half is likely to stimulate imports. At the
same time, recent declines in coffee prices may hold down the growth
of exports. These factors suggest that the deficit on goods and
services is likely to be larger in the second half of this year than
in the first half. However, the deficit for the year as a whole
may well be less than the IMF staff has projected.
At the meeting of the U.S.-Mexican financial working group,
the Mexicans made clear that the formulation of their strategy re-
garding the implementation and financing of the PEMEX oil and gas
development plans has not yet been completed. Therefore, it is likely
that the financial impact of this program in 1977 will not be very
large. Even if implementation starts toward the end of the year, this
should not pose an insurmountable problem in adhering to the specific
ceilings of the Extended Fund Facility agreement. In particular, the
external financing which is likely to be undertaken for this purpose
in 1977 is likely to be small enough to be accommodated within the
IMF external borrowing limit.
Under the IMF Extended Fund Facility agreement, new per-
formance ceilings for 1978 will have to be negotiated during the
fourth quarter of this year. By then, definitive information should
be available on Mexico's compliance with the terms of the agreement,
not only for June 30, but probably also for September 30.
RESTRICTED-CONTROLLED
GERALD is. FORD LIBRARY
MEXICO: ECONOMIC INDICATORS
C9.a
August 11, 1977
1974
1975
1976
1976
1976
1976
1976
1977
1977
1976
1977
1977
1977
1977
1977
1977
Per cent change
I
II
III
IV
I
II
DEC
JAN
FEB
MAR
Latest month
APR
MAY
JUNE
over year ago.
REAL GDP, 1970=100
126.4
131.8
134.4
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A. N.A. N.A. N.A. N.A. N.A. N.A.
REAL GDP, PER CENT
CHANGE (1)
5.9
4.2
2.0
N.A. N.A. N.A. N.A. N.A. N.A.
N.A. N.A. N.A. N.A. N.A. N.A. N.A.
INDUSTRIAL PRODUCTION
1970=100
132.8
139.1
142.8
144.0
145.8
143.8
137.6
139.1
N.A.
131.7 132.9 132.9 151.6 143.9 N.A. N.A.
INDUSTRIAL PRODUCTION
PER CENT CHANGE (1)
7.3
4.7
2.6
2.3
1.3
-1.4
-4.3
1.1
N.A.
-4.6
0.9
0.0
14.1
-5.1
N.A.
N.A.
0.8
WHOLESALE PRICES
PER CENT CHANGE (1)
22.4
10.5
22.3
5.6
3.2
5.6
21.0
10.5
6.7
5.3 2.3 1.7 1.9 2.9 2.2 0.9
50.9
CONSUMER PRICES
PER CENT CHANGE (1) 23.8 15.0 15.8
4.4
2.6
3.2
12.5
8.6
4.6
2.5
3.2
2.2
1.7
1.6
0.9
1.2
32.7
MOVEY STOCK (M1) (SA)
PER CENT CHANGE (1) 20.9 22.3 22.9
3.9
4.7
5.8
13.1
5.2
N.A.
3.2 -0.4 2.0 -0.5 1.0 N.A. N.A.
29.8
PUBLIC SECTOR DEF. (-)
AS PER CENT OF GDP
-7.0
-9.0
-9.3
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A. N.A. N.A. N.A. N.A. N.A. N.A.
CENTRAL GOVT. DEF. (=)
AS PER CENT OF GDP
-3.8
-4.3
-4.7
NoAs
N.A.
N.A.
N.A.
N.A.
N.A.
N.A. N.A. N.A. N.A. N.A, N.A. N.A.
EXPORTS (2)
($ BILLION)
3.5
3.5
4.0
0.9
1.0
0.8
1.1
1.2
N.A.
0.4
0.3
0.3
0.4
0.4
N.A.
N.A.
IMPORTS ($ BILLION)
6.1
6.6
6.0
1.4
1.7
1.5
1.4
1.1
N.A.
0.6
0.4
0.4
0.4
0.4
N.A.
N.A.
TRADE BALANCE (2)
($ BILLION)
-2.6
-3.1
-?.1
-0.5
-0.6
-0.7
-0.3
0.1
N.A.
=0.2 -0.1 0.0 0.0 0.0 N.A. N.A.
BALANCE ON GOODS AND
SERVICES ($ BILLION)
-2.6
-3.8
-3.0
-0.7
-0.9
=1.0
=0.5
-0.2
N.A.
N.A. N.A. N.A. N.A. N.A. N.A. N.A.
(1) PER CENT CHANGE FROM PREVIOUS PERIOD. QUARTERLY CHANGES
AT QUARTERLY RATES: MONTHLY CHANGES AT MONTHLY RATES.
( 2 ) MONTHLY DATA EXCLUDE EXPORTS OF BORDER ASSEMBLY PLANTS AND OF SILVER
AND ARE NUT CONSISTENT WITH QUARTERLY OR ANNUAL DATA.
FORD
GERALD
Aggndir
RESTRICTED-CONTROLLED
C.9b
FINANCIAL INDICATORS - MEXICO
(dollar amounts in millions)
1975
1976
1977
Week ended
AUG 1-
YEAR
QI
QII
QIII
QIV
QI
QII
JULY
10
JULY 13
JULY 20
JULY 27
AUG.3
AUG 10
EXCHANGE RATE (CENTS PER PESO, END OF PERIOD)
8.00
8.00
8.00
5.03
4.98
4.40
4.34
4.3688
4.3663
4.35
4.36
4.36
4.3663
4.3663
SDR VALUE OF PESO
.06842
.06924
.06985
.04364
.04297
.03802
.03723
.03734
.03742
.03713
.03707
03706
.03727
.03742
SHORT TERM INTEREST RATE (E.O.P.)
12.94
13.11
13.11
14.36
14.36
14.36
15.52
15.52
15.52
15.52
15.52
15.52
15.52
15.52
LONG TERM INTEREST RATE (E.O.P.)
13.97
13.80
15.40
16.41
15.56
17.75
RESERVES (IFS, E.O.P.)
1,533
1,501
1,585
870
1,251
1,442
1,444
1,615
AVAILABLE IMF CREDIT TRANCHES (E.O.P.)
433
620
615
621
596
481*
481'
481*
INTERVENTION, PURCHASES (+) OR SALES (-)
OF DOLLARS
-19.0
-261.9
26.4
33.6
-6.2
59.3
9.6
74.8
-24.5
(OF OTHER CURRENCIES, EQUIVALENT)
SWAP ACTIVITY (SWAP LINE -- 360)
DRAWINGS
360
360
150
--
REPAYMENTS
-360
-360
-150
LIBRARY GERALD FORD
*Available under three-year Extended Fund
Facility program starting January 1, 1977.
RESTRICTED-CONTROLLED
August 12,1977
Prepared by Financial Markets Section
[c. 8-77?
MEXICO
External Debt
-- Rising rapidly in recent years to a level of about $25 billion at end 1976;
about $19 billion owed or guaranteed by public sector.
-- U.S. banks hold about half this debt.
-- Interest payments are now about $2 billion per annum, about 28% of goods and
services exports.
Balance of Payments and Reserves
-- Current account deficit increased from about $800 million in 1972 to over
$4 billion in 1975; $3.4 billion in 1976.
-- International reserves down $275 billion in 1976 to $1.3 billion; have since
risen about $350 million.
-- Peso devalued 37%, effective September 1 and a further 24% on October 27.
Support withdrawn on November 22; peso has since floated.
Domestic Economy
-- Industrial production rose 7% in 1974, about 4% in 1975 and less than 3% in
1976.
-- Consumer price inflation on order of 20% per annum in 1973 and 1974, 13% in
1975 and 27% in 1976.
-- Public sector deficit was 9.3% of GDP in 1975 and 8.2% in 1976.
-- Money supply rose more than 20% per annum in 1972-76.
Assessment
GERALD FORD LIBRARY
-- Likely that not all elements of IMF program will be adhered to.
-- Fiscal and wage restraint are key elements.
-- Debt servicing capacity being strained. Gross borrowing requirements
approximate $750 million per month for 1977.
-- State of world (and especially U.S.) economy critical to prospects.
-- Problems could result if tourist earnings fail to rebound.
BRAZIL
External Debt
-- Rose about 25% in 1976 to about $28 billion, owed in roughly equal parts by
public and private sectors.
-- U.S. banks hold about $12 billion of this total.
-- Interest payments in 1976 are estimated at 20% of export receipts.
Balance of Payments and Reserves
-- Adjustment needed: 1973 current account deficit of $2 billion rose to $7
billion in 1974; remained over $6 billion in 1976.
-- Because of heavy international borrowing, reserves rose from a low of $3.4
billion in May 1976 to about $6.4 billion at end of 1976.
-- Currency is devalued frequently by small amounts.
Domestic Economy
-- Real growth averaged more than 9% for the years 1968-1974; it fell to 4% in
1975, but was more than 8% in 1976.
-- Price inflation was 35% in 1974, 30% in 1975 and perhaps 45% in 1976.
-- Money supply has risen rapidly in each of past four years.
-- Wage restraints in effect since mid-sixties were relaxed in 1975; wages
almost doubled since then.
Assessment
-- Real growth at unsustainably rapid rate in 1976 and rapid inflation continues.
-- Record high level of reserves provides a cushion but current account deficit
remains stubbornly high.
-- Policy of restraint in 1977 has political backing.
GERALD FORD LIBRARY
KOREA
External Debt
-- External debt rose about 50% in 1975 to level of $7.5 billion.
-- U.S. banks held about 1/3 of this total.
-- End-1975 data indicate average maturity of 17 years and only 5% of debt
with maturity less than three years.
-- Debt service ratio declined from a high of 25% in 1971 to about 11% in 1976.
Balance of Payments and Reserves
-- Some adjustment has occurred: current account deficit only $200 million for
first nine months of 1976 after having been near $2 billion for 1974 and 1975.
-- International reserves increased $1 billion in 1976 to $2.6 billion in October.
-- Exchange rate has been stable since 18% devaluation against the dollar in
December 1974.
Domestic Economy
-- Real growth under 9% in 1974 and 1975; in excess of 15% in 1976.
-- Inflation being curtailed: price inflation at 8% for 1976/75; had been 25%
for 1975/74.
-- Budget surplus in 1976, after three years of deficit averaging 2.2% of GNP.
-- Money supply growth continues rapid (33% annual rate for October 1975/
October 1976).
Assessment
-- Fiscal restraint expected to continue.
-- High rate of growth of increasingly diversified exports expected.
-- Little debt maturing in near term.
-- Adjustment (domestic and international) has improved picture substantially.
⑇
FORD & LIBRARY GERALD
SPAIN
External Debt
-- Total external debt rose about 35% in 1976 to $12 billion.
-- U.S. banks hold about $2.6 billion of Spain's external debt.
-- Total external debt equals about 145% of exports.
Balance of Payments and Reserves
-- Current account balance weakened by almost $4 billion in 1974 to a deficit
in excess of $3 billion; the deficit was about $3.5 billion in 1975 and 1976.
-- International reserves declined almost $1 billion in 1976 to $5.3 billion.
-- Peseta depreciated by about 13% in 1976 against the dollar.
Domestic Economy
-- Real growth about 1% in 1975 and an estimated 2% in 1976.
-- Consumer price inflation about 17-18% during past two years.
-- Growth of money supply near 20% for past three years.
-- Fiscal policy tightened in mid-1976. Budget deficit is 2% of GNP.
Assessment
-- Reserves appear adequate to preclude problems with debt repayment over
coming months.
-- Unlikely that there will be any further economic reforms until after the
June elections.
-- If these elections do not return a strong government, fundamental reforms may
be further delayed. Under such circumstances, external imbalance may be
worsened and the possibility of difficulties in servicing external debt will
increase.
FORD i LIBRARY 038670
TAIWAN
External Debt
-- External debt rose $1.5 billion to $3.3 billion at end-1975.
-- Indebtedness to U.S. banks probably rose about 35% in 1976, however, to a
level in excess of $2.3 billion.
-- The debt-service ratio was 4.7% of exports in 1974, 6.9% in 1975, and 6.5%
in 1976.
Balance of Payments and Reserves
-- The current account moved from a $1.1 billion deficit in 1974 to a surplus in
1976.
-- International reserves rose by about 1/3 in 1976 to $1.6 billion in October.
-- The New Taiwan dollar has been stable against the U.S. dollar since 1973.
Domestic Economy
-- Real output grew 2.8% in 1975 and almost 12% in 1976.
-- Consumer price inflation, 48% in 1974, fell to 6% in 1975 and 3% last year.
-- The budget consistently has been in surplus.
-- Money supply is growing at about 15%, down from rates of approximately 20% in
1974 and 1975.
Assessment
-- Taiwan's real growth and inflation prospects are bright.
-- No economic problems seem likely in the foreseeable future.
FORD is GERALD LIBRARY
SOUTH AFRICA
External Debt
-- Bank reported debt rose from $2.7 billion at end 1974 to $4.8 billion at
end 1975 and to $6.5 billion by the third quarter of 1976.
-- U.S. banks hold about 1/3 of this total.
-- Most recent borrowings have been short-term.
-- Total external debt equals about 130% of exports.
Balance of Payments and Reserves
-- 1976 current account deficit of about $1.7 billion down $700 million from
the 1975 deficit.
-- International reserves down about $200 million in 1976 to $1.2 billion.
-- Rand devalued 20% in September 1975; stable against the dollar since.
Domestic Economy
-- Real growth during 1975 and 1976 was near 1% per year.
-- Consumer price inflation was on order of 17% per annum during 1975 and 1976.
-- Budget deficit as per cent of GNP was 7% in 1975 and 8% in 1976.
-- Money supply growth slowed dramatically in second half of 1976.
Assessment
-- Current account is likely to improve due to improved world primary commodity
prices and demand.
-- About 40% of exports are gold and will be sensitive to gold production and
price developments.
-- Policy has recently become quite restrictive.
-- Major (and very substantial) uncertainties that could cause trouble include
political factors.
FORD in GERALD LIBRARY
THE PHILIPPINES
External Debt
-- Increased from $1.8 billion at end-1974 to $3.0 billion at end-1975.
-- U.S. banks held about 60% of Philippine external debt at the end of 1975.
-- Almost 70% of total external debt has a maturity of more than 5 years.
-- Total external debt equals about 30% of 1975 Philippine exports. Debt service
in 1976 was 17% of exports.
Balance of Payments and Reserves
-- Current account balance weakened from 1973 to 1975 as imports rose and exports
weakened; deficit in 1975 of about $1 billion; no improvement in 1976.
-- International reserves increased some $250 million in 1976 to about $1.6
billion.
-- Exchange rate at 7-1/2 pesos per dollar since July 1975.
Domestic Economy
-- Real growth near 6% per annum for the past three years.
-- Consumer price inflation on the order of 35% during 1974 but has slowed
dramatically to 8% in 1975 and perhaps a bit lower than that in 1976.
-- The budget deficit was about 0.8% of GNP in 1975 following surpluses in the
prior two years.
-- Growth in the money supply had slowed from more than 20% in 1973 and 1974 to
less than 15% in 1975, but has accelerated a bit in 1976.
Assessment
-- Philippine reserves and foreign borrowing resources seem adequate to finance
1977 current account deficit.
-- Policies in line with restraints associated with drawing under IMF Extended
Fund Facility.
-- Situation stable barring sharp break in sugar prices.
GERALD FORD LIBRAGA
ARGENTINA
External Debt
-- $8 billion at end-1975; perhaps $8.5-$9.0 billion at end-1976, owed in
roughly equal amounts by public and private sectors.
-- U.S. banks hold 20-25% of this total.
-- External debt amounts to more than twice annual exports.
Balance of Payments and Reserves
-- Current account deficit of $1.3 billion in 1975 transformed to a surplus of
$550 million in 1976.
-- International reserves rose sharply in 1976 to about $2.2 billion.
-- The peso is devalued frequently by small amounts.
Domestic Economy
-- Inflation rates were around 500% per annum in the first part of 1976; toward
the end of 1976, the annual rate of price inflation had fallen to about 100%.
-- Real GDP estimated to have declined 3% in 1976.
-- Real wages declined substantially in 1976.
-- Central government deficit at 8% of GDP in 1976, down from over 12% in 1975.
-- Money supply expansion remained very high in 1976 (344% for the year ending
in September).
Assessment
-- Government aiming at further reduction of fiscal deficit in 1977, to 3% of
GDP, but this target is not likely to be reached.
-- 1977 real wage policy to match only productivity increases.
-- Labor is becoming increasingly restive.
-- A new round of political turmoil in a year or two would be consistent with
Argentine history.
GERALD FORD LIBRARY
INDONESIA
External Debt
-- External debt has increased substantially in recent years, reaching almost
$9 billion at the end of 1975.
-- U.S. banks hold about $2.1 billion of this debt.
-- The average maturity of the debt has declined substantially.
-- Debt service is now about 10% of annual exports.
Balance of Payments and Reserves
-- The current account deficit increased rapidly since 1974 to about $1.8
billion in 1976.
-- International reserves, however, roughly tripled in 1976 to a level of
$1.7 billion.
-- The dollar exchange rate of the rupiah has been unchanged since 1971.
Domestic Economy
-- Real growth was almost 10% in 1976.
-- Consumer prices rose 40% in 1974 and about 20% in 1975 and 1976.
-- The budget deficit has increased in recent years, reaching 2.9% of GNP in
1975.
-- Money supply grew more than 30% in 1975 and 1976.
Assessment
-- Large current account deficit likely to continue, despite oil exports.
-- Continued large budget deficits and rapid monetary expansion expected.
-- Oil exploration has been temporarily suspended.
-- Current trends are not encouraging.
GERALD R. FORD LIBERTY
PERU
External Debt
-- Estimated at $4.5 billion at end-1976, up from $3.7 billion a year earlier.
-- U.S. banks hold about $1.8 billion of this total.
-- External debt is more than 3 times annual exports.
-- Experienced difficulties in borrowing during 1976.
Balance of Payments and Reserves
-- The current account deficit rose to over $1.5 billion in 1975. Incomplete
data indicate a deficit of about $1.3 billion in 1976.
-- Having reached a low of $300 million in June 1976, international reserves were
confidentially reported just over $350 million at the end of 1976.
-- Sol depreciated 35% in 1976 against the dollar.
Domestic Economy
-- Real growth was less than 4% in 1975 and less than 3% in 1976.
-- Inflation has risen steadily since 1972, reaching 40% in the year ending
September 1976.
-- Since the June stabilization measures, the public sector deficit has declined
from 9.5% of GDP in the first half of the year, to about 8% of GDP in the
second half.
-- Bank credit has been tightened and interest-rate ceilings increased.
-- A moderate decline in real wages has occurred since June.
Assessment
-- The June stabilization measures have a reasonable chance of success under
present conditions.
-- The labor situation is, however, potentially explosive.
-- The external financial situation could also deteriorate quickly.
FORD i LIBRARY GERALD
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
Date October 3, 1977
To Chairman Burns
Subject: More Information on Mexico's
From Charles J. Siegman CJ3
$1.2 Billion Loan
The attached telegram from Mexico provides information
concerning the banks participating in, and the terms of, the $1.2 billion
Euro-credit that the Mexican government recently negotiated. At
least six U.S. banks, out of a total of about 34 banks, are participating
as underwriters for this loan.
Attachment.
cc: Governor Wallich
FORD is LIBRARY GERALD
uFD
LIMITED OFFICIAL USE
INCOMING
CCRG,HT,RHM
aGBHIEMT, EK, RFE
Department of State
TELEGRAM
USITS
MEXICO
PAGE 01
MEXICO 16193 280010Z
0375
ACTION ARA-14
INFO OCT-01 ISO-00 EUR-12 AID-05 CIAE-00 COME-00 EB-08
FRB-03 INR-07 NSAE-00 USIA-06 TRSE-00 XMB-02
OPIC-03 SP-02 LAB-04 SIL-01 OMB-01 /069 W
055428 280516Z /11
R 272358Z SEP 77
FM AMEMBASS) MEXICO
TO SECSTATE WASHDC 5283
INFO TREASURY WASHDC
#
LIMITED OFFICIAL USE MEXICO 16193
Please
International Information Center
EO 11652: N/A
TAGS: EFIN MX
SUBJECT: GOM EXTERNAL BORROWING
REF: MEXICO 14443
1. SUMMARY: $1.2 BILLION EUROCREDIT REPORTED REFTEL IS
BEING WELL RECEIVED WITH OVER 30 BANKS SIGNED UP AS PART
OF UNDERWRITING SYNDICATE. MOST ARE EUROPEAN. END SUMMARY.
2. MEXICO' S LARGEST EURODOLLAR SYNDICATED BORROWING IS
REPORTEDLY BEING WELL RECEIVED. ABOUT 34 BANKS HAVE JOINED
THE UNDERWRITING GROUP, THEREBY ENABLING THE MINIMUM COMMIT-
MENT TO BE LOWERED FROM $50 MILLION TO AROUND $35 MILLION
PER BANK. GOM APPARENTLY PREFERS TO KEEP ISSUE AT $1.2
BILLION RATHER THAN LETTING LOAN BE OVERSUBSCRIBED.
SECONDARY DEMAND IS CONSIDERED TO BE RELATIVELY STRONG AND
ONE BANK REPRESENTATIVE SAID THEY HOPED TO SELL DOWN TO
$25 MILLION.
3. THERE WILL BE ONLY SIX U.S. BANKS IN THE UNDERWRITING
GROUP, BANK OF AMERICA AND FIVE LARGE NEW YORK CITY BANKS.
THE BALANCE OF THE GROUP IS COMPOSED OF FOUR CANADIAN BANKS,
THREE JAPANESE BANKS, TWO MIDDLE EASTERN BANKS AND NINETEEN
EUROPEAN BANKS. LOW NUMBER OF U.S. PARTICIPANTS REPORTEDLY
DUE TO CONCERN OVER LEGAL OR IN-HOUSE LENDING LIMITS.
WHILE WE DO NOT HAVE COMPARATIVE DATA ON HOLDERS OF MEXICAN
DEBT, OUR IMPRESSION IS THAT THIS YEAR A LARGER PORTION HAS
BEEN PLACED WITH EUROPEAN BANKS THAN IN EARLIER YEARS.
MEXICO HAS BEEN VERY SUCCESSFUL IN ENTERING EUROPEAN BOND
MARKET THIS YEAR HAVING FLOATED THREE OR FOUR DM AND SWISS
FRANCS BOND ISSUES.
4. FAVORABLE RECEPTION OF $1.2 BILLION EUROCREDIT ATTRIB-
UTED TO YIELD, L.75 PERCENT OVER LIBO, AND THE ANTICIPATION
OF A DECLINE IN YIELDS ON FUTURE ISSUES, PLUS THE VIEW THAT
MEXICO/S MEDIUM-TERM PROSPECTS ARE FAVORABLE DUE TO ITS
PETROLEUM. EUROPEAN BANKERS OCCASIONALLY COMMENT THAT THEY
FEEL CONFIDENT LENDING TO MEXICO BECAUSE THEY BELIEVE THE
USG WOULD NOT PERMIT OR PREVENT A MAJOR DEFAULT. THERE IS
TO BE A MANAGERS' MEETING IN NEW YORK OCTOBER 3, TO BE
ATTENDED BY FINANCE MINISTER MOCTEZUMA.
5. ABOVE INFORMATION OBTAINED FROM VARIOUS REPRESENTATIVES
OF U.S. AND FOREIGN BANKS. SUBSEQUENT TO DRAFTING THIS,
WE HEARD THAT THE NUMBER OF U.S. BANK PARTICIPANTS MAY BE
GREATER THAN SIX. LUCEY
GERALD FORD LIBRARY
LIMITED OFFICIAL USE