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Mexican Peso Hits New Low on Economic and Political Uncertainties

March 6, 1995

MEXICO CITY (AP) _ The peso traded at an unprecedented 7.025 to the dollar at midday Monday before rebounding slightly to finish at another record low close.

The peso closed at 6.575, 27 centavos lower than Friday’s record low close of 6.304. The peso has lost nearly half of its value since a financial tailspin began Dec. 20.

Traders in New York said the Mexican currency was hit hard by the fall of the dollar against other major currencies, prompting a rush to such safer currencies as the Japanese yen and the German mark.

But the extent of the peso’s erosion surprised many analysts, who thought the currency had already hit bottom.

``There was no reason for the peso to drop so low,″ said Eduardo Perez, a trader with the Valores Bursatiles de Mexico brokerage.

In its previous low, the Mexican currency hit 6.550 to the dollar on Jan. 30, one day before President Clinton announced a $50 billion international aid package for Mexico.

Mexican traders speculated the central bank sold dollars on Monday to boost the peso, but the Banco de Mexico would not confirm it had intervened.

Meanwhile, the Mexican stock market rose slightly in speculation tied to the peso’s weakening. The market’s main IPC index was up 3.02 points, trading at 1,522.72.

The government’s takeover of Grupo Financiero Asemex-Banpais, a conglomerate that includes Mexico’s ninth-largest bank, raised fears about the health of the country’s banking system.

The peso’s latest slide followed the arrest last week of the brother of former President Carlos Salinas de Gortari on charges of masterminding the Sept. 28 murder of a ruling party leader.

The former president was not implicated in the crime, but the arrest of his brother, Raul, underscored a political schism between the former administration and new President Ernesto Zedillo, who took office Dec. 1.

Traders said the lack of a new emergency plan to control wage and price inflation was eroding the peso. Zedillo has said he will announce a new plan once Mexico’s congress formally approves a $20 billion Clinton administration bailout package.

The ruling party-dominated congress opened a special session Monday but was not expected to take up the issue before Tuesday.

``My best-case scenario is that the government will announce very tough fiscal policies to reduce pressure on monetary policy and on interest rates,″ said Felix Boni, chief analyst at the brokerage Interacciones Casa de Bolsa.

Boni said such a move might keep heavily indebted companies from defaulting on outstanding loans and further straining the Mexican banking system.

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