January 10, 1995 in Nation/World

Bailout Fund Helps Peso Stage Slight Recovery U.S., Canadian Line Of Credit Comes To The Aid Of Mexico’s Embattled Currency, But Market Confidence Is Low

Associated Press
 

The peso rose slightly Monday as Mexico began drawing on a bailout package from the United States and Canada. But the stock market plunged, with investors unconvinced of the government’s ability to overcome the crisis.

Opposition congressmen, meanwhile, filed an unprecedented criminal complaint against the previous government, saying its mismanagement and lies helped cause the current economic woes.

Six legislators from the leftist Democratic Revolutionary Party accused President Carlos Salinas de Gortari and close aides of deliberately failing to devalue the peso although they knew it was overvalued.

In a boost for the battered peso, the Banco de Mexico, the nation’s federal reserve, said it made the first withdrawals of $500 million and $83 million in Canadian dollars ($59 million) from the Bank of Canada under the so-called North American Framework Agreement.

The loan agreement, set up in April 1994, was expanded Dec. 22 to $9 billion from the United States and $1 billion from Canada. Previously, the United States had offered $6 billion and Canada had offered $1 billion.

In New York, the the U.S. Federal Reserve also said it was buying pesos and selling dollars at the request of its Mexican counterpart. But the bank, the arm of the U.S. central bank that conducts market activities, did not disclose the size of its intervention.

As a result of the supporting measures, the peso in Mexico City trading closed at 5.4, compared with 5.7 to the dollar on Friday.

Still, the main IPC stock market index plunged during the day, down 6.88 percent to 2098.86 minutes before the close. Analysts said that investors were not convinced that the government was handling the crisis well.

The Mexican currency has lost nearly 40 percent of its value against the dollar since the peso crisis erupted Dec. 20, barely three weeks after President Ernesto Zedillo took office for a six-year term.

The crisis, largely the result of big trade deficits and declining foreign investment, was touched off by Mexico City’s decision late last month to scrap its defense of the currency and let the peso freely float in world currency markets.

The opposition congressmen’s complaint, filed with the attorney general, said Salinas’ decision to avoid a devaluation had caused the country’s trade and services deficit to balloon and forced the government to dip into foreign currency reserves to shore up the peso.

It also specifically said Salinas and these officials knowingly lied to the Chamber of Deputies when they presented the 1995 budget, saying conditions were stable and there was no cause for worry.

One possible motive, the complaint cited was that Salinas did not want to tarnish his image with a devaluation.

Salinas is not immune from criminal prosecution, yet such a step would be unprecedented. The attorney general now must decided whether to pursue the complaint.

On Monday, the Banco de Mexico said foreign currency reserves dropped by $602 million since the crisis erupted - from $6.148 billion at the end of 1994 to $5.546 billion last Friday. The bank said it mostly spent the money to make payments on short-term debt.

Monday’s announcement appeared to be part of a new Zedillo policy to be more open with government information. During the first days of the peso’s plunge in December, U.S. investors and economists bitterly complained about Mexico’s secretiveness.

© Copyright 1995 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.


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