Skidding world oil prices are disrupting Mexico's delicately balanced economic recovery plans, pushing inflation up and the peso down while forcing the government to impose emergency spending cuts.
If oil prices continue to slide, experts here predict, Mexico and its creditors will be forced to return to the bargaining table to lighten the country's debt servicing load. The debt problem has receded into the background since Mexico and its banks agreed on a $48 billion, 14-year rescheduling last March.
In a statement issued last weekend, the government pointedly noted that for "some heavily indebted exporting countries like Mexico, an abrupt drop in oil prices would have serious repercussions on their capacity to pay and, therefore, on international finances as a whole."
Mexico surrendered to pressure from clients this week and cut its heavy-oil price for June by $1.50 a barrel, a reduction that the government said will chop $290 million from its "budgeted income" this year. International oil company executives, while welcoming the reduction, termed it "an intermediate step" toward further expected price cuts. "If Pemex [the state oil monopoly] wants to stay competitive in Europe and Japan, they will have to come down $2.50 or $3 a barrel," one said.
The government, which has not published export figures since April, said that its oil revenue from January to May was $330 million less than anticipated. Independent analysts, however, contend the shortfall was substantially greater.
Exports slowed to 1.3 million barrels per day in May and fell below a million barrels daily in the first half of June, industry sources estimate, bringing the average for this year to about 1.36 million barrels per day. That is about 200,000 barrels per day less than the 1.56 million barrel per day average of the first half of 1984.
Representing a potential income of more than $900 million, an export volume drop of that magnitude would have effectively erased the balance-of-payments benefits to Mexico of the decline in dollar interest rates during the first half, analysts note.
To compensate for loading interruptions in the autumn Gulf of Mexico gale season, Mexico usually exports more oil in the first half of the year than it does in the second. "There are customers who will make up their reductions with bigger purchases down the line, but some of that volume will be gone forever," one U.S. oil buyer said.
Mexico's dependence on oil revenue has not diminished despite government efforts to diversify export earnings. Foreign sales of Mexican manufactured goods, after increasing in 1984 by 19 percent, have dropped by 10 percent this year as inflation has driven up production costs and the domestic market has absorbed more output -- "a worrisome phenomenon," Mexican Foreign Trade Director Manuel Armendariz said in an interview.
Even with its oil income declining, Mexico expects petroleum revenue this year to continue to contribute two-thirds of its export earnings, economists report.
But independent economists predict Mexico's gross domestic product will expand by a scant 2 percent this year instead of the 3.5 to 4 percent forecast by the government. Inflation, stimulated by oil-provoked currency speculation, is expected to exceed the official 35 percent goal by as much as 20 percentage points.
And Mexico's trade surplus, already 41 percent smaller in the year's first four months than in the same period last year, is now expected to drop below $10 billion in 1985 from 1984's $12.8 billion.
Currency speculation prompted by the weak oil market drove the peso's exchange rate in unregulated U.S. border markets down to 320 to the dollar this week. By contrast, the official "controlled" exchange rate that Mexico uses for more than four-fifths of its dollar transactions was set this week at 225 to the dollar.
The widening spread between the official and offshore peso rates encourages exchange-control cheating and capital flight, Mexican authorities admit.
Oil prices have increased pressure on Mexico to abandon its abuse-prone dual exchange rate system. But paradoxically, central bank officials say, the two-tier system is needed more than ever as a "dam holding back a capital flight flood," already estimated to have exceeded $3 billion this year despite the legal obstacles hindering direct peso-dollar transactions.
"If Iran and Iraq start fighting in earnest and oil goes up to $100 a barrel, then we could institute a single exchange rate," one bank official sardonically remarked.
The impact of the oil price slide also has been felt on Mexico's domestic finances. The government announced June 5 what Finance Minister Jesus Silva-Herzog called its "difficult, painful, bitter" decision to cancel some 300 billion pesos ($1.33 billion at the controlled exchange rate) in long-planned infrastructure expenditures.
Combined with another 400 billion pesos in emergency 1985 budget cuts, the reduction will mean a loss of some 300,000 public sector jobs this year, officials estimate. Such drastic measures were not expected to be announced before the country's critical July 7 mid-term elections, when the government will face an unusually tough opposition challenge