[clari.biz.top] Treasury official defends Mexican debt-reduction deal

clarinews@clarinet.com (BOB WEBSTER, UPI Business Writer) (02/08/90)

	WASHINGTON (UPI) -- Treasury Under Secretary David Mulford defended
Wednesday the historic debt-reduction agreement between the United
States and Mexico, rebuffing critics who say the deal did little to trim
actual Mexican debt.
	The deal, the first of the so-called ``Brady Plan,'' of which
Mulford was a principal architect, was signed Sunday in Mexico City.
	Treasury officials said the deal will cut Mexico's total external
debt by $15 billion to $80 billion at the end of this year, from $95
billion in 1989, and will help spur Mexico's beleaguered economy.
	The landmark agreement restructures more than 85 percent of the
debt owed by Mexico's banks. Bank debt will be cut by about $7 billion
through debt reduction bonds, and a debt-equity swap will retire as much
as $3.5 billion worth of debt by 1992.
	In announcing the deal, Treasury Secretary Nicholas Brady told
Mexican President Carlos Salinas de Gortari the agreement forever
removes ``from the backs of the Mexican people,'' the burden of $42
billion in debt payments.
	``The reason this deal is important is because it is regarded as a
turning point for Mexico,'' Mulford told a subcommittee of the House
Banking Committee.
	Critics contend the deal will leave Mexico's debt virtually
unchanged during the next two years and will cut its foreign interest
payments by less than $1 billion annually.
	Shafiqul Islam, a senior fellow on the Council on Foreign
Relations, told the panel that the Brady Plan package gives Mexico only
40 percent of the interest relief and 20 percent of the new money that
the World Bank thought Mexico needed nine months ago to spur economic
recovery.
	``One thus cannot help feel somewhat bewildered that President
Salinas and the international financial community are celebrating a debt
accord that will do no more than help move Mexico from being `a severely
indebted country' to a less `severely indebted country','' Islam said.
	``It's always easy to say a good program isn't good enough,'' said
Rep. Jim Leach, R-Iowa, who likened the Brady Plan to the Marshall Plan
that was used to rebuild Europe after World War II.
	Without the Brady Plan deal, Mulford said, Mexcio's total debt by
1992 would increase by about $24 billion. The deal also frees about 4
percent of Mexico's gross domestic product for investment and lends
stability to Mexico's economic and investment climate.
	Mulford also defended the price of the 30-year zero-coupon Treasury
bonds used by Mexico as collateral for the debt reduction and debt
service bonds. Critics termed the Treasury bonds a $300 million
subsidized gift to Mexico.
	``The simple and honest response is that the pricing of the
zero-coupon bonds represented no subsidy to Mexico,'' Mulford said.
	The bonds carried a 7.925 percent interest rate, below the 8.05
percent average borrowing rate for 30-year notes as of Jan. 5.
	``Pricing zero-coupon bonds is complicated by a number of
factors,'' Mulford said, adding that the Treasury had only issued
non-marketable zero-coupon bonds twice before and had little
price-setting guidance.
	He also deflected reports that Treasury officials exerted undue
pressure upon major U.S. commercial banks to paticipate in the Mexican
debt reduction plan.
	``There has been one basic message to banks -- this is a voluntary
program for them but we do expect them to paticipate,'' Mulford said.
``We don't take the view that there's an option to do nothing.''
	He said no pressure was applied on banks to participate in upcoming
Brady Plan deals with Costa Rica and the Philippines, whose debt will be
structured differently than the Mexican transaction.