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Stocks, Peso Rally For Third Day as Rescue Plan Emerges

January 13, 1995

MEXICO CITY (AP) _ The peso rose and the Mexican stock market rallied Friday for a third consecutive day, strengthening on the emerging details of an enormous U.S. aid package intended to rescue Mexico from its economic crisis.

By late afternoon the main IPC index was up 99.47 points or 4.69 percent to 2,218.29, buoyed by Clinton administration promises to extend tens of billions of dollars in credit to Mexico.

The battered peso, trading at about 3.4 to the dollar before it abruptly began sliding Dec. 20, was trading at 5.25 to the dollar by late afternoon, more expensive than its 5.5-dollar exchange rate late Thursday.

Analysts said the peso and stocks were clearly finding new vigor on announcements by the United States and the international community to extend favorable financing to surmount the crisis.

``It’s making people feel much calmer,″ said Pablo Riveroll of Casa de Bolsa Bursamex. ``It appears that there might be a solution to the crisis, but we still don’t know.″

In Washington, U.S. officials said Thursday they would extend up to $40 billion in loan guarantees to Mexico.

``We agreed to do what is necessary to restore financial confidence in Mexico without affecting the current budget at home,″ President Clinton said in a statement with congressional leaders after a meeting at the White House.

The crisis began when the new government of President Ernesto Zedillo was forced to devalue the currency after a year of political turmoil in Mexico and pressure on the peso by a $28-billion foreign trade and services deficit.

That triggered a stampede as investors rushed to dump pesos and peso-denominated Mexican treasury bills and other investments.

The peso’s losses have translated into higher inflation and significant losses and cutbacks for a range of Mexican and foreign corporations doing business in Mexico. Many are likely to reduce their work forces.

Grupo Dina, a leading Mexican truck and bus maker, said Thursday it expected a 1994 foreign exchange loss of 600 million pesos, or about $107.14 million.

Volkswagen de Mexico and Nissan Motor Co. have also announced cutbacks. Nissan and Ford Motor Co. have both said they will raise prices on their cars by 10 percent in Mexico because of the peso plunge.

Meanwhile, the Mexican government said it was negotiating arrangements to blunt the crisis.

A senior Mexican Finance Ministry official, speaking on condition of anonymity, disclosed Friday that his government expects U.S. approval of the additional aid package in the next two to three days.

The United States already has pledged $9 billion in financing to Mexico.

The source said the government was also expecting ``substantial″ credit lines from both the International Monetary Fund and the World Bank to be announced in coming days.

The International Monetary Fund and World Bank are expected to provide as much as $5 billion in stand-by credit. Delegations from both groups are currently in Mexico to conduct negotiations.

Mexico needs the aid partly because it faces a potential cash shortage raised by the prospect of foreign investors cashing in $17 billion in outstanding Mexican bonds. About $4 billion of that debt is due for repayment in the next month alone.