Mexico, Its Economy Ailing, Seeks Anew to Cut Foreign Debt Outlay

MONTERREY, Mexico — With Mexico’s battered economy the top issue in the country’s presidential campaign, the Mexican government is again casting about for ways to reduce payments on its foreign debt.

Mexican officials are already in contact with foreign bankers, testing their reaction to new proposals for reducing payments that amount to about $10 billion a year on a debt of $106 billion, Western diplomats say. The amount of Mexico’s debt is second only to Brazil’s in Latin America.

‘Limits of Sacrifice’

Carlos Salinas de Gortari, the presidential candidate of the ruling Institutional Revolutionary Party, hinted this week that the government will take a tougher stand in future debt negotiations. Mexico’s economy is virtually stagnant, and Salinas’ campaign has been marred at nearly every stop by public complaints about inflation and unemployment.

“If we fail to grow because of the burden of the debt, we will not pay,” Salinas told a meeting of businessmen in this northern industrial city. “The limits of internal sacrifice have been reached.”

Salinas, 38, is considered certain to be Mexico’s next president. His party has not lost a presidential election in its 60-year history. Nonetheless, by hammering at the failure of the government’s economic policies, an unusually aggressive slate of opposition candidates is obstructing the normally easy road to the presidency.

The election is scheduled for July 6, and the winner is to take office Dec. 1 for a six-year term. Salinas is the handpicked candidate of President Miguel de la Madrid, whom Salinas served as secretary of planning and the budget.

“The sight of jobless men holding out their hats and housewives wringing their hands over price increases at each campaign rally has put Salinas’ campaign on the defensive,” a Mexico City economic analyst said.

A stockbroker was quoted by the independent newspaper El Norte in Monterrey as saying, “The economic team in the next presidential term clearly sees that it will not be possible to keep paying the debt at the same pace as in the last five years.”

Slower Pace Foreseen

According to economist Rogelio Ramirez de la O, Mexico has received about $20 billion in new loans in the past five years but has paid out $60 billion in interest, a drain on potential investment capital and a drag on the economy.

“That kind of outflow cannot continue,” Ramirez said.

The government has not specified what kind of solutions it may be pursuing in dealing with foreign creditors, among them some of the largest banks in the United States. Economists see several possibilities short of an outright cancellation of payments.

Mexico may try to revive a flagging program to buy up its debt with so-called zero-coupon bonds. Such a program was undertaken last year, but banks balked at selling their loans back to Mexico at discounts as low as 50 cents on the dollar. Mexico had little success in reducing the amount it owes abroad and ended up saving no more than $100 million a year in interest payments.

Embittering Development

Mexican officials are described as disenchanted with the low level of response among bankers to the program. They are said to be especially embittered because, of all the Latin debtor countries, Mexico has been exceptionally faithful to its payment schedule.

“Mexico has fallen into the trap of being the punctual debtor,” financial analyst Jorge Fernandez said.

Mexico may also press for limits on interest rates and longer terms of payment, but foreign banks have long resisted putting a cap on interest rates.

Needs $5 Billion

Finally, Mexico is expected to seek a guarantee of fresh loans to fuel economic growth. Some economists estimate that the country requires $5 billion a year from abroad to stimulate the economy.

According to government statistics, Mexico’s economy grew by a scant 1% last year. This year it will not grow at all; it may even shrink a bit. Half of all Mexican workers are underemployed, if not out of work altogether.

President De la Madrid has instituted a program of wage and price controls in an effort to bring triple-digit inflation under control, and the rate for 1988 is expected to fall to 60% after last year’s level of more than 150%.