MEXICO CITY — President Carlos Salinas de Gortari says negotiations between his government and international banks could continue for "several weeks or even a couple months," making it unlikely the two sides will reach a debt-reduction agreement before the United States attends a seven-nation economic summit next month.
U.S. officials had been hoping for a settlement with Mexico to bolster the Third World debt reduction plan of Treasury Secretary Nicholas F. Brady and to avoid controversy on the issue at the Paris summit.
Salinas has accepted an invitation from President Francois Mitterrand of France to attend a meeting with leaders of 29 other debtor nations in Paris on the eve of the summit. The meeting presumably is intended to draft a Third World position to present to the industrialized countries.
In an interview this week, Salinas sounded optimistic about prospects for an agreement with the banks for a sizable reduction in his country's more than $102-billion foreign debt, despite the fact that negotiations already have dragged on for more than seven weeks.
"We are confident that we will reach an agreement," Salinas said, adding, however, that "we expect the negotiations to continue still for some weeks, even a couple of months."
The President virtually ruled out the possibility of a suspension of debt payments any time soon.
Willingness to Pay
Mexico's strategy has been to try to distinguish itself from the rest of Latin American debtors. The government has stressed its desire to avoid confrontation and its willingness to continue making debt payments as long as reserves hold up.
Mexico originally sought a 50% reduction in the market value of its debt. The banks offered a 22% reduction, and Mexico came back a couple weeks ago with a 45% figure. The banks are expected to respond again in the next week.
"The two sides inexorably are moving toward something in the mid-30s," said a source close to the negotiations.
Economist and private consultant Rogelio Ramirez de la O said he believes the government will accept a reduction of "anything over 30% that it feels is the banks' rock-bottom offer."
Mexico has been pushing for a multi-year agreement combining debt relief and new loans to reduce its net transfer of capital by $7 billion a year.
The government says it has been paying 6% of gross national product per year to service the debt. Officials want to cut that to about 2%--a reduction they say is necessary to reach a projected growth rate of 6% annually by the end of Salinas' term in 1994.
"We are expecting a tremendous influx of capital that fled the country, once Mexicans have confidence in the stability of the peso, and that stability will come when we substantially reduce the transfer of resources out of the country. The return of capital is not a solution, but it will be a tremendous result of the success of a debt negotiation," Salinas said.
U.S. and Japanese bankers are pushing for debt-for-equity swaps--accepting property of some kind in place of being repaid for loans--an option the Mexican government views as inflationary and politically unpopular.
Although the Salinas administration says it is pushing for a so-called "permanent solution" to its debt problem, economist Ramirez said he believes the government will want to return to negotiations with the banks in two years to seek further reductions.
Salinas and his predecessor, President Miguel de la Madrid, have taken dramatic steps to restructure Mexico's economy that have been politically costly for the governing Institutional Revolutionary Party. Officials say the budget has been reduced by "several Gramm-Rudmans" through layoffs, subsidy cuts and the sale of hundreds of state enterprises.
Last month, the government announced a liberalization of its foreign investment regulations to allow 100% foreign ownership of some industries such as tourism and exports. Previously, all businesses had to have 51% Mexican ownership. The new rules also permit minority foreign investment in industries such as petrochemicals and financial leasing that were off limits before.
Last week, meanwhile, the government signed an eight-month extension of its wage and price control agreement with unions and the private sector. The anti-inflationary pact, which promises a currency devaluation of one peso per day, is also meant to appease fears of a massive devaluation.
Mexican officials believe banks should reward Mexico for its tough actions to turn around the economy. If not, officials argue, no other Latin country will follow suit.