The Clinton administration, facing a hostile congressional review of its rescue plan for Mexico, said Friday it is freeing up $3 billion more in funds to help ease the peso crisis and warned that attacks on the plan could backfire.
“Mexico will use these funds to strengthen and stabilize financial markets by cancelling short-term public sector debt,” the Treasury Department said in a statement. “If Mexico proceeds along the path it has committed to follow, it should be able to regain stability and resume economic growth.”
Treasury Secretary Robert Rubin warned members of Congress that any moves to block the aid “risk damaging market confidence in Mexico and thereby reduce the prospects this program has. This program is sound and it must be given an opportunity to work.”
Federal Reserve Chairman Alan Greenspan, a strong supporter of the administration approach, added, “I currently see no viable alternative to the type of program that is being pursued.”
The new aid, in addition to $3 billion the Treasury and Federal Reserve previously provided Mexico under earlier agreements, is the first installment of a $20 billion support package the United States approved for its beleaguered neighbor.
The announcement of the latest funds came minutes before the Senate Banking Committee, headed by Sen. Alfonse D’Amato, R-N.Y., began a critical examination of the administration plan.
The hearing began on a positive note for the administration as former Federal Reserve Chairman Paul Volcker expressed support for the rescue effort.
“We can argue about the nature and size of that support, the relative responsibilities of the U.S., other countries and the International Monetary Fund and other multilateral institutions,” said olcker, who headed the central bank for eight years in the 1980s. “What can not, in my view, be disputed is that it was appropriate for us to act and act with dispatch.”
The rescue plan has become a more tempting target for critics who say it helped launch an international assault on the dollar.
D’Amato has charged the plan is a badly flawed bailout that is undermining the United States’ ability to defend its own currency.
But Rubin told the committee the money will be doled out in stages and said there is nothing in the package that would “in any way impede our ability to protect the dollar.”