• by IPS Correspondents (washington)
• Thursday, December 29, 1994
• Inter Press Service

WASHINGTON, Dic 29 (IPS) - The United States is considering billions of dollars in investments to help Mexico out of the financial crisis unleashed by the plummeting value of the peso under the recently liberalised exchange rate.

Treasury Department sources quoted in the U.S. daily The New York Times said the aid would reinforce the Mexican exchange rate and help the country pay its national debt.

In addition to the funds, which may be released next week, the United States put a six billion dollar line of credit at Mexico's disposal last week to offset the effects of a devaluation announced on Dec. 20 by President Ernesto Zedillo.

A response to pressures on the peso from the trade deficit - estimated at 17 billion dollars for 1994 - the devaluation unleashed a financial crisis, with harsh increases in interest rates and declines in the stock market.

When Zedillo responded by allowing the exchange rate to float, the peso fell more than 40 percent in a single week, although it did recuperate 14 percentage points on Wednesday.

Washington is concerned with the effects of the crisis on the balance of trade between the two nations, as devaluation pushes up prices of U.S. exports to Mexico and lowers import prices.

As a result, the United States is prepared to offer assistance by authorising credit to the Mexican government and acquiring pesos on the exchange market.

Treasury Department sources confirmed that Mexico has not yet used the available credit, which may mean that the authorities prefer to wait for the measures in the upcoming aid package.

Meanwhile, a report by the non-governmental Development Group for Alternative Policy attributed the crisis to Mexico's economic reform, which has had the strong support of the World Bank.

Carlos Heredia, the author of the report, said, "the renewed hostilities in (the Mexican state of) Chiapas and the devaluation of the peso demonstrate the failure of Mexico's structural adjustment programme to bring economic stability or to close the gap between rich and poor."

The study showed that free trade has caused a massive trade deficit - 23 billion dollars in 1993 - with the influx of imported goods affecting local production.

It added that farmers have suffered from restrictions on credit. One third of all available credit in the agricultural sector was suppressed between 1980 and 1988, while the remaining capital is too expensive for many producers.

© Inter Press Service (2014) — All Rights Reserved. Original source: Inter Press Service

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