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Spokane, Washington  Est. May 19, 1883

Clinton Goes To Mat For Mexico U.S. Lawmakers Consider Loan Guarantees For A Friend In Need

Jennifer Lin And David Hess Knight-Ridder

Would you co-sign a loan for a friend with a shaky credit rating and pile of bills?

That’s the question now facing lawmakers as they consider whether to approve the Clinton administration’s plan to offer Mexico billions of dollars in loan guarantees.

Republican and Democratic leaders have pledged to support President Clinton’s financial-rescue package for the new government of Mexican President Ernesto Zedillo.

But it will be harder for the White House to convince a majority on Capitol Hill that the plan is needed and will not become a burden for U.S. taxpayers.

“This is going to be a tough sell,” said Sen. Charles Robb, D-Va. “But we’re going to have to do it because there are no viable alternatives.”

Already, the debate over a bailout plan is sounding a lot like the bruising battle over the North American Free Trade Agreement, which created free trade among Mexico, the United States and Canada.

“This is going to be another NAFTA battle,” said Rep. Bill Richardson, D-N.M., who fought for NAFTA’s passage.

The Clinton administration is prepared for a fight.

“When feelings were so high on NAFTA, you’re not going to have something like this hit them immediately and have anything close to unanimity,” said a senior administration official in an interview.

In December, the value of the peso fell by more than a third after investors panicked following a renewed peasant uprising in the Chiapas region of Mexico.

The Mexican central bank has come close to running out of money to support the value of the peso, and the Zedillo government has turned in desperation to allies for help.

A coalition of nations has agreed to provide $18 billion in reserves to prop up the peso. Half the money could come from the U.S. Treasury. But that has not been enough to restore investor confidence - which forced the Clinton administration to devise another bailout plan.

In effect, Clinton is extending loan guarantees that will assure investors that if the Mexican government can’t make good on its IOUs, the U.S. government will.

And that’s what worries members of Congress the most.

Lawmakers fear that the promise to Mexico will end up costing American taxpayers in the end.

“This isn’t a free ride,” said Rep. Peter DeFazio, D-Ore., who objects to the bailout proposal. “In this case, there’s a tremendous amount of risk … If they don’t pay, we do.”

Clinton, who was speaking in Cleveland Friday, said the bailout agreement “demonstrates the potential of a coalition committed to America’s interests in the world of tomorrow.”

“I won’t let anyone or anything divert the United States from this course,” the president said.

Federal Reserve Chairman Alan Greenspan and Treasury Secretary nominee Robert Rubin spent the morning on Capitol Hill briefing lawmakers on the terms of the plan.

They stressed that the plan did not include grants or direct foreign aid, only loan guarantees. But they declined to pinpoint how much in Mexican loans the U.S. government would be willing to back up. A senior administration official said estimates of $25 billion to $40 billion were “in the right ballpark.”

According to lawmakers at the closed-door meeting, Greenspan and Rubin stressed not only the economic necessity of shoring up the Mexican economy, but also the political risk to the United States if the situation worsened. They said illegal immigration could increase by 50 percent.

“This is a national security as well as a financial problem,” said Sen. Kay Bailey Hutchison, R-Texas. “The risks of not helping Mexico are very great and something we cannot afford to do. We can’t walk away from Mexico.”

Senate Majority Leader Bob Dole of Kansas said there weren’t many alternatives for the administration to pursue at this point.

“Let’s assume we do nothing and there’s a collapse - you talk about illegal immigration. We would have REAL illegal immigration,” Dole said. “It’s not a happy thought for anybody in the border states.”

The administration official said it was critical to get congressional approval of the bailout plan as soon as possible to restore investor confidence.

“If it hangs on and on and on and begins to seem as if, in fact, you can’t deliver, then you have a real problem,” the official said.

Lawmakers who have reservations about the bailout package want to be sure the offer has strings attached, such as assurances from the Zedillo government that it will stick to economic reforms or promises that Mexico would not flood the U.S. market with cheaper products.

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