Mexico Pledges Oil Income To Secure Loans -- $40 Billion In U.S. Backing Sought To Stabilize Markets
WASHINGTON - Mexico will pledge revenues from its state-owned oil company to secure as much as $40 billion in U.S. loan guarantees under a politically risky plan for bailing out its economy.
Treasury Secretary Robert Rubin and Federal Reserve Chairman Alan Greenspan described the arrangement in a closed-door meeting yesterday with senators and House members, whose leaders appointed a 16-member panel to draft the legislation. The plan appeared to win widespread initial support in Congress.
At $7 billion a year, the income from Petroleos Mexicanos (commonly referred to as Pemex) may prove crucial for winning congressional approval of the loan guarantees, analysts said.
To avoid a bruising battle in the U.S. Congress, Mexico will pay an upfront fee for at least 10 percent of the loans that it taps. Cost of the credit will be more than $4 billion.
"It is in the best interest of the United States to have a stable southern neighbor," said Sen. Kay Bailey Hutchison, R-Texas, who was appointed to the special panel. "We must, however, assure that there are protections and safeguards for American taxpayers."
The commitment of oil reserves illustrates Mexico's acute need to stabilize its markets, analysts said.
"The pledge of the oil income, along with the upfront fee, are the critical elements in winning the support of Congress," said Riordan Roett, a senior political adviser for Chase Manhattan Bank.
Critics, however, said Mexicans have always considered Pemex, at the heart of their country's oil wealth, as untouchable.
Pledging Pemex's income will add to the sense of betrayal already caused by the peso's loss of a third of its value, which causes hardships for Mexican workers, said Carlos Heredia, a former Mexican finance official and outspoken critic of the country's leadership.
"Oil has a very political, symbolic charge for Mexicans," he said.
The U.S. initiative continued to calm traders yesterday, as Mexican stocks and the peso again gained in value. Both, however, remained well below their levels of three weeks ago, when Mexico first devalued its currency before sending it into a near free fall.
Meanwhile, in New York, Ross Perot called the loan guarantees a bid by "embarrassed politicians" to save face at taxpayer expense.
Perot, an independent presidential candidate in 1992 and a vocal opponent of the North American Free Trade Agreement launched last year, said the financial turmoil in Mexico points up major problems in the pact to create a free-trade zone.
He predicted that today's problems would be followed by a loss of American jobs over the next two years.