Banking and financial sources said yesterday they expect Mexico and the International Monetary Fund to try to come to a quick agreement on Mexico's economic policies -- perhaps as soon as the first week in October at the IMF's annual meeting.
Mexico, which had been considered the model for all Latin American debtors, fell seriously out of compliance with its nearly three-year-old IMF program this year and will not be eligible to borrow about $400 million from the IMF next month as scheduled.
But bankers and international financial executives said that Mexico's problems should not be interpreted as a body blow to the three-year strategy of managing the Latin American debt crisis -- a strategy that involves the banks and the IMF making loans to the debtors and in return for austerity measures from the debtors as well as policies designed to increase their exports.
Reports that Mexico would not be eligible to make its scheduled October drawing leaked out late Thursday, on the same day that the country experienced a devastating earthquake. But it had become clear to IMF and Mexican officials weeks ago that the country was so far out of compliance that it would have to forego the loan disbursement, which is tied to meeting goals agreed to by the funds and the country.
Because of the earthquake Mexico may be eligible for emergency assistance of nearly $400 million from the IMF, about the same amount it was due to receive under the loan program that was agreed to on Jan. 1, 1983.
IMF officials were angered by the timing of the reports on the at least temporary cut-off of IMF funding and the earthquake. The IMF issued a statement saying that there was no "decision" to cut off Mexico but that IMF procedures preclude the country from borrowing more money when it is "out of compliance" with its fund agreement.
Mexico will run a budget deficit about twice as large as anticipated and inflation in the country has been accelerating in recent months after declining steadily in 1983 and 1984. Economists say that Mexico overstimulated its economy last year, then found it difficult to cut back until national elections were over in July.
Since then the government has announced new budget cuts, other austerity measures and sharply devalued the peso -- a move that makes Mexican exports cheaper and imports more expensive.
The country is being hit hard by declining oil prices, which is the major source of the export revenues it needs to pay debt bills and import vital commodities. Mexico is the developing world's second bigest foreign debtor. It owes about $96 billion.
Brazil, whose debts exceed $100 billion, also is out of compliance with its IMF program and the new civilian government headed by Jose Sarney is beginning talks with the IMF about starting a new program.
International financial sources said yesterday that Mexico and the IMF could either agree to an entirely new program or make adjustments to the program now in existence. That program is supposed to expire at the end of the year. The original agreement provided Mexico about $5 billion over three years. The country has about $900 million remaining.