Mexican Peso Strengthens; Volcker Meets With Officials
Jun. 10, 1986
MEXICO CITY (AP) _ President Miguel de la Madrid said Tuesday the frenetic trading in the Mexican peso was due to the collapse of oil prices and uncertainty about the nation's negotiations on its foreign debt.
De la Madrid also said, as he has previously, that the sharp decline in oil prices has changed Mexico's ability to make payments on its $97.6 billion foreign debt.
''We continue examining'' options for dealing with the debt problem, he said in the interview which was taped last Thurday and aired late Tuesday nationally. ''We have stopped collecting the resources (from oil), and we don't have a way to substitute for them in a rapid way.''
The president, asked about trading in the peso, said, ''Some Mexicans want to cover themselves. They prefer their personal interest to that of the nation and have demanded dollars in excess. The policy of the govenment is to not maintain an artificial exchange rate.''
The 75-minute interview was conducted in an informal setting at Los Pinos, the presidential residence, and the president appeared relaxed and at ease.
The Mexican Treasury Department confirmed, meanwhile, that U.S. Federal Reserve chief Paul Volcker met Monday in Mexico City with Treasury Secretary Jesus Silva Herzog and Miguel Mancera, head of the Banco de Mexico, the central bank.
It was not known what the officials discussed, but Volcker has been a key player in past efforts to work out financial aid packages for heavily indebted developing nations.
The peso, badly battered in frenetic trading last week, Tuesday rebounded sharply. Commercial banks and exchange houses changed their rates throughout the day.
Currency traders say the financial markets in Mexico were in turmoil because investors are worried about the economic outlook. The peso plunged more than 20 percent last week in a dramatic decline blamed on economic jitters.
Newspapers have been filled with stories that the government is on the verge of suspending payments on its foreign debt of $97.6 billion and of announcing a plan to revive the ailing economy.
Leaders of opposition parties, labor unions and business groups have expressed their support if the government decides to hold up debt payments.
Fidel Velazquez, president of the 4-million member Confederation of Mexican Workers, said the nation was already isolated from the international financial community ''since we are not receiving more loans and are being asked to pay what we cannot.''
Even so, the peso regained some of its strength on the free market, which is the rate used in tourism and for most border transactions.
At midday Tuesday, exchange houses in Mexico City were giving 635 pesos to those wanting to exchange a dollar for pesos, and demanding 690 pesos for those wanting to buy a dollar. At the start of trading, their rates were over the 700-mark.
Banks were quoting rates ranging from 640 for those wanting to sell a dollar and as much as 665 for those wanting to buy. At the commercial National Bank of Mexico, sponsoring bank for the soccer World Cup tournament under way here, the rate at its press center branch strengthened from 705 pesos to 680 pesos in a half hour.
At the start of last week, the rates were 554 and 559.
A senior government economist, who spoke on condition of anonymity, attributed the peso's recovery to a greater supply of dollars, which exceeded the market's demand. The peso ''overshot'' its level late last week, he said.
When the peso deteriorates, visitors to Mexican get more pesos for their dollars. Goods priced in pesos cost less.
With the falling peso, Mexicans have had to come up with more pesos to buy dollars for travel outside of Mexico. For businesses, U.S. imports needed in production cost more.
The value of a second peso rate, regulated by the government, has not been affected by the turmoil in the free market. The rate declined gradually last week and was at about 549 pesos to the dollar on Tuesday. The rate, set daily by representatives of the nation's central bank and commercial banks, is used in about 80 percent of commercial transactions.
Currency traders and other analysts said last week's peso plunge was prompted by investors nervous about a string of bad economic news and wanting to trade their own weaker currencies for stronger ones like the dollar.
''There are so many things involved,'' said Don Shuffstall, vice president at MBank in El Paso, Texas. They point to, he said, a lack of confidence in the government.
A key concern is the lack of progress in negotiations between the government and the International Monetary Fund on a new financial aid package. Foreign bankers have said they don't intend to consider giving Mexico new loans without an IMF agreement. The government needs the money to help it meet payments on its debt and buy imports.
Silva Herzog raised the possibility late last week in an interview with The Associated Press that Mexico might suspend payments on the debt if the negotiations were not successful.
Mexico's economy has been hard hit by the collapse of world oil prices. Mexico, the world's fourth-largest oil producer, earns about 70 percent of its foreign income from crude sales. Government officials project that the price decline will transalte into a loss of about half the $13.3 billion earned in 1985.
The peso has weakened sharply in recent years. In February 1982, it was 26 to the dollar. It was 445 to the dollar at the start of 1986.