Banking on Mexico

Bankers who loaned Mexico $80 billion on the strength of its oil riches have been growing increasingly edgy about their borrower, and the chance of a big drop in oil prices has done nothing to soothe their nerves. For the past month the lenders have been putting the final touches on a rescheduling agreement designed to halt the financial skid that Mexico has been in since late summer, when the country nationalized its banks after devaluing the peso for the second time in less than a year. U.S. private lenders alone have some $25 billion at risk in Mexico, a sum that puts that nation, along with Brazil, at the top of the list of foreign borrowers from American banks. Brazil, however, does not rely on oil for its income. Mexico's major creditors include Citicorp, which has loaned $2.8 billion to government agencies and companies there.

A sharp slide in oil prices could be devastating to Mexico. Every $1 cut in the price of Mexico's crude oil, which now sells at $32.50 per bbl. for the highest grade, would cost the country about $550 million in revenues and make it that much harder to meet the estimated $12 billion in foreign interest payments that are scheduled to become due this year.

The ripples from the impact of an oil-price break would quickly spread past Mexico's moneylenders, who could face substantial losses. Mexico is a major U.S. trading partner, for example, and thus a substantial source of American jobs. Commerce Department officials figure that some 150,000 U.S. workers were laid off in 1982 because of a drop in U.S. exports to Mexico, which fell 34% for the year as oil prices tumbled.

Lower energy costs, however, would bring some benefits to help offset Mexico's woes. Reduced prices would trim inflation worldwide and thereby cut Mexico's interest bill. Economists estimate that a one-percentage-point drop in borrowing costs could save Mexico about $700 million in interest payments this year.

The beleaguered country, which last year passed Saudi Arabia as the leading U.S. oil supplier, might also recoup some losses simply by pumping more oil. William M. Brown, director of energy studies for the Hudson Institute, believes that Mexico could fairly easily double its exports to 3 million bbl. per day in three years. That way, oil earnings would stay level even if the per-barrel price was cut in half. Other experts, however, believe Mexico would not have the wherewithal to make the investment required to double its output unless it could line up cash customers first. One willing buyer might be the U.S. Department of Energy, which under a one-year contract is already pumping 170,000 bbl. of Mexi can oil per day into the U.S. Strategic Petroleum Reserve, and has paid $1 billion in advance.

The outlook for Mexico, as for other oil exporters, ultimately depends on how far prices fall. The country could handle a modest decline without much trouble. But some experts believe that oil at $20 per bbl. would be a disaster. With so much already at stake, however, moneymen would seem to have little choice but to continue banking on Mexico. This file is automatically generated by a robot program, so viewer discretion is required.