Financial Post, Weekly edition, Sat 07 Oct 95, page 6

Martin hails Mexico's financial recovery

Peter Morton Ottawa Bureau

Mexico's pledge last week to repay US$700 million of the US$12.5 billion it borrowed from the U.S. during its peso crisis could not come at a better time, says Finance Minister Paul Martin.

Finance ministers from the seven largest industrialized countries meet today in Washington to push ahead with plans to ensure that there will not be a repeat of last December's plummet in the value of the peso anywhere else.

``I think it's a very good sign,'' Martin said of Mexico's repayment before leaving for Washington Friday. ``Clearly, Mexico has regained complete control over its finances.''

Mexican President Ernesto Zedillo is in Washington as a series of key meetings of the G-7 finance ministers, the International Monetary Fund and the World Bank are taking place.

The Mexican government raised the US$700 million for repayment through a bond offering in Germany earlier this month.

``After the 1980 [economic] crisis, it took us seven years to be able to borrow in international markets,'' said one senior Mexican official. ``This time, it has only taken seven months [until] the first [international] bond offering was made in May.''

The peso crisis was a catalyst behind a movement from leaders of the G-7 to give the IMF and the World Bank more clout and cash to bail out countries whose currencies are battered in international money markets.

Both the IMF and World Bank were set up after the Second World War to stabilize international currencies, but don't have the funding to respond quickly to dramatic swings in money markets.

``The Mexico crisis was a shock to governments,'' said U.S. deputy treasury secretary Lawrence Summers. ``The Mexico crisis was a shock to investors.''

The peso lost about one-third of its value almost overnight after the markets panicked that Mexico did not have enough foreign reserves to back up its debts. It now has about US$15 billion in international reserves.

Martin said the G-7 finance ministers hope to push ahead with plans to create a global crisis fund and to give the IMF the ability to borrow money from quickly developing countries such as those in Asia.

Currently the IMF can only borrow from the 11 major industrialized countries and Saudi Arabia, and only under certain circumstances. Those restrictions make it difficult for the international institution to respond to such situations as the plummeting Mexican peso.

In addition, the ministers are trying to find ways of ensuring that money traders do not artificially inflate -- or deflate -- the value of foreign currencies.

``Our position is the currencies ultimately must reflect their real values,'' Martin said.

The ministers are also considering a proposal to give the World Bank, also based in Washington, a US$11-billion fund to help developing countries pay off foreign debts.

	This information is provided by the Financial Post.
	Please send comments to: g8@utoronto.ca Revised: May 10, 1996

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