MEXICO CITY — Amid indications that a vaunted anti-inflation program is running into problems, Mexico's finance minister has announced that the government will seek to reduce its foreign debt by $10 billion in the next five months.
The announcement followed weeks of preliminary talks among Mexican officials, foreign bankers and U.S. government officials about ways to ease Mexico's debt burden of $107 billion. Payments on the debt amount to about $10 billion a year, a significant drain on the government treasury and a drag on the country's economy.
"The tentative objective, still subject to diverse negotiations and calculations, will be to diminish, before the month of December, about $10 billion of our debt," Finance Minister Gustavo Petricioli was quoted as saying in Friday newspapers here.
Petricioli denied that Mexico would, on its own, stop or reduce debt payments and confront bankers with a take-it-or-leave it resolution.
"Our position is not to take the apparently simple route of stopping payments or unilaterally reducing payments," he said. "We are looking for concerted mechanisms and, in the proportion possible, international cooperation."
Won't Stand in Way
Pressure to reduce debt payments has been building in Mexico for months. A presidential election is scheduled for Wednesday, and the candidate of the governing party, Carlos Salinas de Gortari, has been under fire for the slow pace of economic activity in the country.
In response, he has begun pledging that the debt will not stand in the way of economic growth. Last week, Salinas' campaign workers put up posters throughout Mexico City bearing the message, "Growth First, Debt After." Such rhetoric has led to speculation that the incumbent government of President Miguel de la Madrid might make a dramatic gesture to reduce payments.
"We have demographic pressures, (pressures to) create employment . . . and we cannot continue a period of permanent adjustment," Petricioli said.
"Adjustment" is the government's euphemism for the austerity accompanying the budget cuts that have reduced spending on public works and threatened the jobs of thousands of bureaucrats.
In the meantime, a government wage and price control program is showing signs of weakening. Although prices and salaries have been held back, government spending spurted in April as the government was forced to increase subsidies on such food products as meat and milk that are in short supply. Foreign and domestic debt is reported to be eating up 70% of the government budget, according to the newspaper El Financiero.
The added government spending is expected to raise inflationary pressures. But economic observers are predicting that price increases will not be announced until September, long after the presidential election.
Although Mexico had been suffering triple-digit annual inflation, De la Madrid's wage and price control program reduced inflation last month to less than 2%. Government advisers are hoping that if inflation is brought under control, domestic businesses will be encouraged to invest in Mexico and rekindle growth.