MEXICO CITY — Three weeks after it started receiving one of the biggest and most controversial credit packages in U.S. history, the Mexican government has spent a fifth of the $20 billion in promised U.S. loans to pay off American insurance companies, mutual fund investors, Wall Street brokerage houses, Mexican banks and the richest of Mexico's rich.
Documents obtained from Mexico's treasury department and U.S. officials confirm that Mexico has spent slightly more than $4 billion of the funds to cover high-risk government bonds. The United States sent two installments totaling $5.2 billion to Mexican government accounts at the Federal Reserve Bank in New York, the latest on March 15.
Much of the money never left New York, where it was used to redeem the high-profit bonds, held primarily by major U.S. institutions, Wall Street speculators and wealthy Mexicans who bought the securities largely through non-taxable offshore corporations, according to investment sources and market analysts.
The expenditure--a permissible use of the money--is expected to fuel criticism by the small but vocal group of U.S. lawmakers who have blasted the credit package as a bailout for the rich.
But officials in both countries say the bond redemptions are designed to save Mexico from the economic catastrophe of default by showing that the government can make good on its debts.
If the U.S. money had not been used to pay off the bonds, known as tesobonos, Mexico almost certainly would have defaulted, the officials argue.
"And if Mexico has to default on its tesobonos," one official said, "it means they can't trade in the international market, and the whole economy melts down."
*
Still, officials who defended the buybacks concede that the $20 billion--even when combined with $28 billion in additional international loans--will be nowhere near enough to cover all of Mexico's investment debts as they come due this year.
Mexico plans to use the $1.2 billion that remains from the first installments during coming weeks to pay off additional bonds--also held by U.S. institutions, speculators and wealthy Mexicans--said officials in Washington and Mexico City.
Although it remains uncertain this week whether the massive bond redemptions will achieve the Clinton Administration's stated goal of helping to defuse one of Mexico's worst economic crises in modern history, the use of the loans appeared consistent with the terms the U.S. Treasury attached to the credit package.
