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WPost: Mexico lines Up IMF loans
Mexico Lines Up Loans as Vote Nears
By Paul Blustein
Washington Post Staff Writer
Wednesday, June 16, 1999; Page E01
Mexico said yesterday that it had lined up more
than $20 billion in loans and lines of credit that
it might tap in an effort to ensure economic
stability during next year's presidential election.
The loans, which include some that were previously
pledged and others that renew existing
credit lines, come from the International Monetary
Fund, the U.S. and Canadian
governments, the World Bank, and the
Inter-American Development Bank. The money is
aimed at keeping President Ernesto Zedillo's
six-year term from ending the way nearly all of
his recent predecessors' terms have ended -- in a
panicky flight by investors and lenders
fearful that the country is on the verge of
bankruptcy. In many past election years, the
government has gone on spending binges aimed at
winning support for the ruling Institutional
Revolutionary Party, or PRI.
"This will provide us with the conditions
necessary to have an orderly economic transition at
the end of the six-year administration," Guillermo
Ortiz, the governor of Mexico's central
bank, said at a news conference in Mexico City.
The move comes amid nervousness in financial
markets that next year's elections, which are
expected to be hotly contested, could be afflicted
by the sort of political instability, economic
mismanagement and capital flight that caused the
peso to plunge in 1994, weeks after Zedillo's
electoral victory. The peso crisis rocked global
markets and prompted the Clinton
administration to lead a $50 billion bailout for
Mexico that sparked criticism on Capitol Hill.
The administration, the IMF and their allies
contend that this time around, Mexico is in much
better economic shape and will use its
international support to buttress sensible policies. The
government has won praise from economists for
keeping its budget and trade deficits under
control, and Zedillo has sworn to keep from
repeating the mistakes of his predecessors. The
loans are designed to guard against a sudden loss
of investor confidence by providing the
government with extra resources if the need arises
and by assuring markets the government is
sticking to a sound policy path.
In announcing that the IMF board would meet in
early July with an eye toward approving a
$4.1 billion standby loan for Mexico, IMF Managing
Director Michel Camdessus hailed
Mexico's recent economic performance for being
"resilient in the face of international market
turbulence." Unlike other big Latin American
countries -- notably Brazil and Argentina, which
have fallen into recession -- Mexico has weathered
the global financial crisis and is expecting
economic growth of 3 percent this year.
Camdessus noted the government had pledged to keep
its budget deficit at 1.25 percent of
gross domestic product this year, the same as last
year, and reduce the budget gap further to 1
percent of GDP in 2000.
Treasury Secretary Robert E. Rubin echoed
Camdessus's positive assessment, saying in a
statement that "Mexico's commitment to a sound
economic program, supported by the IMF,
should improve prospects for continued strong
economic performance."
Rubin announced that the Treasury and the Federal
Reserve had renewed a $6.8 billion credit
line for Mexico for another year, as expected,
together with Canada, Mexico's other partner in
the North American Free Trade Agreement. The U.S.
Export-Import Bank has provided $4
billion in trade credits, and the World Bank said
it is extending $5.2 billion in loans between
now and 2001 "to improve social conditions for the
country's poor, to reinforce
macroeconomic stability and to strengthen reforms
to public governance." The Inter-American
Development Bank is providing an additional $3.5
billion.
Some of those loans were previously pledged, but
Mexican markets rallied strongly on the
announcement, with the stock market rising as much
as 4.3 percent during the day.
"This is extremely bullish news. It puts Mexico as
the best-positioned country in Latin
America to continue to weather international
financial market turbulence," said Paolo Leme,
chief of emerging-markets research at Goldman
Sachs Group Inc.
Some experts voiced skepticism, however.
Charles Calomiris, a Columbia University professor
who has been critical of international
lending to Mexico, acknowledged that "there is a
legitimate argument" that Mexico's economic
fundamentals have improved and that the country
needs protection against an irrational
investor stampede.
"But the risk is that as the PRI gets into this
election, they start to lose support," Calomiris
said. "And even though Zedillo really means it
that he won't go on a fiscal binge, the PRI may
tell him, 'You don't have a choice.' These things
tend to happen around election years in
developing countries."
1999 The Washington Post
Company