Clinton Will Offer Mexico $20 Billion Loan PackageBy Ann Devroy and Clay Chandler
The Washington Post
President Clinton Tuesday abandoned his proposed $40 billion loan guarantee package for Mexico in the face of unrelenting congressional opposition, and announced he would instead act on his own authority to offer Mexico $20 billion in U.S. government short-term loans and loan guarantees to stabilize the peso.
The U.S. initiative, a major policy shift, included large new pledges of support for Mexico from international financial institutions that will raise the total global commitment to Mexico to more than $49 billion.
Clinton decided to abandon the effort to get congressional approval of loan guarantees late Monday night after being informed by Republican leaders that success was nearly impossible and would take two weeks or more of significant presidential lobbying.
"We cannot risk further delay," Clinton said in announcing his decision after a White House meeting with congressional leaders. He argued the financial situation in Mexico was so dire that executive action was needed.
The new initiative was applauded in Mexico and on Wall Street, because it eliminated the risk Congress would reject the rescue package and trigger a financial crisis in Mexico and possibly elsewhere. The peso and Mexican stocks soared in value Tuesday, reversing steep falls on Monday, and in New York the Dow Jones Industrial average rose modestly in heavy trading.
Reflecting how politically charged the issue has become since Clinton and congressional leaders announced the original package Jan. 13, the four top leaders in Congress Tuesday joined with the president in a joint statement of agreement on the need for the new policy.
The $20 billion Washington will now make available to Mexico comes from the federal Exchange Stabilization Fund, set up in the 1930s under control of the president and treasury secretary, and usually is used to intervene in foreign currency markets to support the dollar.
The money will be provided as short-term loans to Mexico, and as longer-term loan guarantees. The Treasury said Mexico had agreed to pledge oil revenues as collateral to guarantee repayment, and that Mexico promised to pursue economic austerity, in its interest-rate and government spending policies, under the plan.
The original $40 billion loan guarantee package was Clinton's first major effort to negotiate a difficult and politically charged issue with the new Congress under control of Republicans. The White House had expected support by leaders of both parties would produce a quick piece of legislation and fast approval.
But the legislation became a forum in which dozens of members wished to air old and new political grievances. Almost from the outset, congressional leaders and their membership feared bailing out Mexico, as it was commonly described, would be hugely unpopular with the public, difficult to sell under any situation and ripe for political gamesmanship.
With no firm control over his party, Clinton had to turn to Republicans, who could not rise above their political suspicion that Democrats would flee the package and they would bear political blame.
Senior officials who briefed reporters on the new effort said it essentially involves using the Exchange Stabilization Fund and the Federal Reserve System in an unprecedented effort to restructure Mexico's short-term debt into longer-term debt. The goal is to stabilize its peso and get it over what the administration describes as a short-term liquidity problem, not a fundamental economic problem.
Central to the U.S. effort was the agreement by the International Monetary Fund to add $10 billion to the effort to stanch Mexico's economic crisis, raising its commitment to $17.5 billion. Another international financial institution, the Swiss-based Bank for International Settlements, agreed to double its contribution to $10 billion, and $2 billion more has been pledged by Latin American nations and Canada.
Congressional critics had complained the United States was being asked to act alone in helping Mexico.
The trouble with Congress spelled big risks for Mexico. On financial markets, speculation ran high that the Mexican government was only days away from defaulting on its short-term bonds-an extremely rare event that could have sparked an international financial panic.