[clari.biz.economy.world] Mexico and bankers finalize debt-reduction agreement

clarinews@clarinet.com (BRENDAN J. MURPHY, UPI Business Writer) (02/08/90)

	NEW YORK (UPI) -- Mexican finance officials and international
bankers met in a Manhattan hotel Wednesday to sign a pact easing the
Latin nation's debt burden by $7 billion while, in Washington, a senior
U.S. Treasury official defended the landmark deal as representing real
	Representatives of about 100 of Mexico's 460 commercial bank
creditors showed up to sign papers executing an agreement of about 2,000
pages, the result of a year of negotiations. It was the first concluded
under a plan launched in 1989 by, and named for, Treasury Secretary
Nicholas Brady.
	``The Mexican debt deal that we are signing today is an extremely
important milestone in contemporary financial history,'' Angel Gurria,
undersecretary for international financial affairs of the Mexican
Finance Ministry, told the gathering in a hotel ballroom.
	In drafting the pact, Gurria said, ``the leitmotif, the one
recurring thought ... was Mexico's life after debt, Mexico's future no
longer discussed in terms of the debt burden but of development
	The complex agreement reduces Mexican debt principal and interest
by partial forgiveness through conversion into discounted bonds, and by
the issuance of long-term, lowered-interest bonds. Principal will be
paid off in 30 years with zero-coupon bonds akin to U.S. savings bonds.
	A ceremonial signing was held Sunday in Mexico City, where Citibank
Chairman John Reed and representatives of 14 other banks at the center
of negotiations met with Brady and Mexican President Carlos Salinas de
Gortari. The New York session enabled other bankers to affix signatures.
	Attention now turns to possible negotiations with Brazil, the most
debt-laden developing nation in the world. Citibank negotiator William
Rhodes said talks could open with Brazil after its new president takes
office March 15, and Argentina could also return to the table ``very
	The Mexican accord directly reduces Mexico's $48.5 billion
medium-term bank debt by $7 billion, lowers annual interest payments by
$1.6 billion and brings in $1.5 billion in annual new loans during
1990-92. But critics say the deal doesn't reduce the debt sufficiently
or fast enough.
	When the instruments for reduction are issued in March the total
Mexican debt will stand at $93.6 billion, down from about $100 billion.
Mexico's debt to other countries and international agencies was not
	Gurria told journalists that the accord brings a ``very
considerable alleviation'' of Mexico's debt burden, and opens the door
to economic expansion which heavy annual obligations have restrained.
	Treasury Under Secretary David Mulford told a House banking
subcommittee in Washington the deal is important ``because it is
regarded as a turning point for Mexico.'' One expert told the same panel
the pact leaves the Latin nation heavily indebted, if marginally less
	But Robert A. McCormack, the Citibank vice president succeeding
Rhodes at the head of the bank's Third World loan restructuring
committee while the latter assumes wider international debt duties, said
the Mexican deal will encourage other countries to seek an amicable debt
	The agreement, he said, ``proves that working with the banks on a
constructive basis is the way to go -- and certainly the quickest.''
	Rhodes quoted Citicorp Chairman John Reed, who said at the
ceremonial signing in Mexico city that the pact was ``an end and a
beginning'' in the drawn-out debt crisis which sprang up in the early
	Mulford, the Treasury's debt specialist, said that without the pact
Mexico's total debt by 1992 would increase by $24 billion. With it, 4
percent of Mexico's gross domestic product will be freed for investment.
	Mulford dismissed claims that the 30-year zero-coupon Treasury
bonds to serve as Mexican collateral for the debt reduction and debt
service bonds involve a $300 million subsidy to the U.S. southern
	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. The
Treasury had issued non-marketable zero-coupon bonds only twice before,
Mulford said, and had few price-setting precedents to refer to.