Mexico will present "solid" new financial proposals to the International Monetary Fund in Washington Thursday, including plans to link debt payments to oil earnings, Mexico's new finance minister said today.
A revised financial and economic program was approved by President Miguel de la Madrid in a cabinet session today, Finance Ministry spokesmen confirmed.
The program will be the basis of a letter of intent formally requesting a new IMF standby loan, Finance Minister Gustavo Petricioli said today in his first meeting with foreign reporters since his appointment a week ago.
Petricioli, who is scheduled to arrive in Washington late tonight, will meet with U.S. Federal Reserve Chairman Paul A. Volcker Friday morning. He also will see Treasury Secretary James A. Baker III during his visit.
Mexico needs financial aid soon if it is to meet some $1.5 billion in interest and principal payments that are due on Monday, Petricioli warned. Mexico's ability to meet its June debt-servicing bill "will depend on what happens with our negotiations this week," he said.
Mexico's proposals center on its insistence that it must achieve 3 to 4 percent economic growth in 1987 and that its budget deficit targets and foreign credit requirements should be adjusted according to changes in its oil income, Petricioli said.
Since the beginning of the year, Mexico has been seeking an approximately $1.3 billion standby loan from the IMF. The funds would be disbursed gradually through the end of 1987, providing that Mexico meets the economic performance targets outlined in the pact.
The IMF's central economic condition is that Mexico reduce its expanding budget deficit, now expected to reach at least 13 percent of gross domestic product this year, up from 10 percent of GDP in 1985.
In Washington, Washington Post staff writer John M. Berry reported that the IMF had eased its demand that the deficit be reduced to only 6 percent of GDP. When negotiations between the IMF and the Mexicans were interrupted last week by the sudden departure of Finance Minister Jesus Silva-Herzog, they were close to an agreement under which the deficit would be pared to 8 or 9 percent of GDP, an IMF official said.
Once it wins approval of the IMF loan, Mexico will pursue negotiations for some $3 billion in fresh credits from government and multilateral lenders, plus another $2.5 billion to $3.5 billion from private banks, Petricioli confirmed.
Mexico's commercial creditors also will be asked to speed up disbursement of new loans while lowering fees and profit margins, he said. In addition, banks will be asked to accept new repayment schemes pegged to Mexico's export income or, alternatively, to lower interest rates, he said.
Other "options" being considered by Mexico are a postponement of interest payments and a plan to service foreign debts in pesos or "in dollars within Mexico," Petricioli said.
Banks are worried that any concessions granted to Mexico could set a precedent for negotiations with Brazil, Argentina, and other big Latin debtors, Petricioli acknowledged. "We will leave that concern for the other side of the table," he said.
A number of executives of American banks holding part of the Mexican debt said they knew no details of the new plan, and that until an agreement had been reached with the IMF, they expected to have no negotiations of their own, Berry reported.
Some "trial balloons" floated by Mexican officials, such as having any new money loaned to Mexico secured by oil held in commercial storage in the United States, have not been discussed by the advisory committee of bank officials that negotiates with the Mexicans, a spokesman for one of the banks said.
The finance minister was accompanied at today's press conference by Budget and Planning Minister Carlos Salinas de Gortari, who has emerged as the dominant economic policy maker in Mexico's cabinet following last week's sudden departure of Silva-Herzog. Salinas emphasized Mexico's commitment to renewed economic growth and challenged the assertions of critics that Mexico's budget deficit could be cut substantially further this year.
Long-term budget and foreign borrowing projections, Salinas said, must take into account the volatility of the world oil market. "The size of the budget deficit or of the foreign resources we need cannot be the same when oil is at $10 a barrel as it would be if oil were at $20 a barrel," he said.
Until oil prices began plummeting early this year, Mexico counted on petroleum earnings for two-thirds of its foreign exchange revenues, the officials noted.
Silva-Herzog's departure was widely interpreted as a sign that Mexico was hardening its line towards foreign creditors. Some senior Mexican officials, however, suggest that his exit was due not to ideological or policy disputes, but to economic policy commitments he made in negotiations with foreign banks and governments without clearing them first with the president.
Petricioli made a point of emphasizing that he will be presenting proposals in Washington that are backed by the president and his cabinet and do not represent "the personal, individual position of a finance minister."
He refused to confirm reports that Mexico's foreign reserves have dwindled to about $2.5 billion, not enough to meet June's payments. He insisted, however, that Mexico "is not going to paralyze imports" and cannot afford "a process of constant decline in reserves while we are not getting resources from abroad."