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U.S. Will Help Out Mexico With $10-Billion Bond Sale : Treasury Sees No Cost to Taxpayer

December 29, 1987|Associated Press

WASHINGTON — The Reagan Administration today unveiled a novel financing plan to help Mexico repay some of its $76-billion debt to commercial banks through the sale of special U.S. Treasury bonds.

Officials claimed the plan would entail no additional cost to U.S. taxpayers.

The Mexican plan, announced by the Treasury Department, calls for selling up to $10 billion in special 20-year U.S. bonds to the government of Mexico.

Mexico in turn would use the bonds--for which it would pay only about $2 billion--as collateral in swap arrangements with banks to which it owes money.

Zero-Coupon Issue

The special bonds--which will be sold only to the government of Mexico and not made available to any other buyer--will be a zero-coupon issue maturing in 20 years with a face value of $10 billion, the agency said.

Zero-coupon bonds pay no interest but are issued at a sharp discount--enabling Mexico to buy the bonds for $2 billion.

Specifically, Mexico would issue its own new peso-denominated bonds--backed by the U.S. securities--that it would then offer to its bank creditors. The Mexican bonds would be exchanged at a discount for existing Mexican debt, U.S. officials said.

Banks would be expected to write down some of the debt, but in exchange for this they would receive Mexican bonds backed by the full faith and credit of the U.S. government.

Easier Repayment Terms

This exchange arrangement is expected to reduce Mexico's outstanding debt and result in easier repayment terms for the debt remaining, the Treasury Department said in a statement.

Robert Levine, a Treasury spokesman, said the Mexican government would pay for the special U.S. Treasury bonds in dollars and that the arrangement will not cost U.S. taxpayers anything.

Levine said Mexico owes $76 billion to foreign commercial banks, including $24 billion to U.S. banks.

The government of Mexico is expected to purchase the special securities in early 1988, the Treasury statement said.

Benefits Both Nations

"The issuance of this special U.S. Treasury security, which is expected to raise up to $2 billion in cash (for the United States), will . . . be on terms that are beneficial both to the United States and Mexico," the statement said.

The plan "is fully consistent with the Administration's strong support of the international debt strategy and its efforts to involve the private sector to the maximum extent possible in working constructively with the debt countries," the statement added.

In a separate proposal also aimed at alleviating the Third World debt crisis, the International Monetary Fund today announced it would set up a new $8.4-billion lending pool for its poorest members.

62 Nations Eligible

Sixty-two nations, most of them in Africa, would be eligible for the low-interest, easy-term IMF loans.

The fund was proposed last year by IMF Director Michel Camdessus and endorsed in June at the seven-nation economic summit in Venice. It brings the amount of IMF aid available for hard-pressed nations, nearly all of them in sub-Saharan Africa, to $11.4 billion.

The money in the new fund will supplement an existing $3-billion fund set up in 1986 to help the poorest of the world's poor nations make payments on old loans.

The loans under the new program would carry an annual interest rate of just one-half of 1% and would help the countries "undertake strong three-year . . . programs to improve their balance of payments positions and foster growth," the IMF said.

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