firstname.lastname@example.org (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 progress. 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 opportunities.'' 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 shortly.'' 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 affected. 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 so. 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 resolution. 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 1980s. 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 neighbor. 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.