The Reagan administration and international lending institutions will have to ease up on public demands that Mexico adopt politically difficult, long-term economic reforms in return for billions of dollars of loans that the country needs during the next few months, according to international monetary sources.
Administration and international lending officials agree that Mexico, and most other debtor nations, must make major structural reforms. However, monetary sources said, because President Miguel de la Madrid cannot be seen as knuckling under to pressure from industrial governments, the agreements Mexico must sign to get the billions of dollars in new loans it needs this year cannot include tough language about long-term-reform steps the debtor nation must take.
Administration officials have laid the groundwork for easing some economic conditions on new Mexican lending.
Assistant Treasury Secretary David Mulford told a congressional subcommittee last week that many people in the United States do not recognize the herculean efforts Mexico has made during the past few years to adjust to a harsher international economy.
Mulford cautioned that the United States often is too quick to criticize Mexico and too slow to recognize the country's accomplishments.
On the other hand, economists and economic officials are worried that banks will try to avoid giving any new money to cash-starved Mexico unless the country is required to take steps such as selling off state enterprises, opening the private sector to international competition and reforming the laws to encourage foreign investment.
"Banks are looking for any excuse to stop lending to Mexico and other debtors," said an economist for a multinational financial institution.
"Not so," countered an official at a major international bank. "Some banks might try to use it as a way out -- or to argue for a reduction in the banks' share of the Mexican rescue. But the major ones are ready to help, once Mexico reaches agreement with the IMF on an economic program."
This banker noted that Mexico always has treated bank lenders properly and most banks would return the treatment.
"Mexico has never built up [interest] arrearages. The [Finance] Minister [Jesus Silva Herzog] has always kept his word," he said.
Last October, Treasury Secretary James A. Baker III proposed a three-part program designed to help debtor nations, many of them in Latin America, return to solid economic growth while continuing to pay their debts.
Baker said that banks and international financial institutions should step up their lending to the debtor nations and, in return, the debtors should take major steps to eliminate inefficiencies and barriers to economic growth -- many of which have existed for decades and have become part of a country's political and economic fabric.
According to a top official of an international financial agency, the official lenders will not have to worry only about domestic political pressure in Mexico and bank reluctance to lend, they also must ensure that other debtor nations do not use any concessions to Mexico to resist making their own economic reforms, including restraining federal spending and deficits.
The IMF and Mexico have been deadlocked for months over how big a deficit Mexico can incur.
Until the two can reach an agreement, Mexico will be unable to borrow from the IMF, the World Bank and commercial banks to compensate for some of the decline in oil revenue.
Mexico argues -- persuasively, according to many economists -- that it has made major budget cuts during the past few years and that it has little fat left to cut in its federal budget to compensate for the decline in oil-related tax revenue. Mexico's tax revenue has fallen more than 25 percent this year because of the plunge in oil prices.
But the IMF worries not only about what effect a big budget deficit will have on investor confidence in Mexico, but also about what other countries might demand if the agency relaxes its requirements on Mexico -- even though those countries have not faced the sudden decline in revenue that Mexico has.
International monetary sources said that the U.S. government and multilateral agencies such as the World Bank and the IMF likely will extract secret commitments from Mexico that the country will implement reforms on a specific schedule, after it recovers from the plunge in oil prices.
In effect, there will be an interim agreement in which Mexico agrees to take certain steps in return for IMF and World Bank loans -- agreements the banks say are necessary before commercial lenders will consider making new loans to Mexico -- and a long-term, probably unannounced agreement that will spell out the long-term reform schedule that Mexico must follow.
"But you cannot announce that this is being done," said a top official at a multinational lending institution.
"There would be too much criticism from the left. . . . It is almost a return to a policy of 'muddling through.' But there are advantages to muddling through. You don't have to be specific about what you're doing," he said.
A top international banker said that, as long as banks are assured of Mexico's resolve to tackle both the short- and long-term problems, most major creditors will be willing to lend Mexico more money. Mexico has said publicly that, because of the decline in oil prices, it will have to borrow $4 billion from foreign sources this year -- $2.5 billion of it from commercial banks.
International financial officials said the country's borrowing needs will be higher -- perhaps as much as $7 billion -- and the commercial banks might have to ante up $3.5 billion or more. Commercial banks account for about 70 percent of Mexico's debt.