IMPLICATIONS OF MEXICAN FINANCIAL PROBLEMS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90R00961R000600100004-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 6
• Document Creation Date: December 23, 2016
• Document Release Date: December 9, 2011
• Sequence Number: 4
• Publication Date: February 1, 1986
• Content Type: SNIE

Declassified in Part - Sanitized Copy Approved for Release 2011/12/09: CIA-RDP90R00961 R000600100004-0
Director of Central Intelligence S ret
Special National Intelligence Estimate
Implications of Mexican
Financial Problems
Key Judgments
41
Declassified in Part - Sanitized Copy Approved for Release 2011/12/09: CIA-RDP90R00961 R000600100004-0
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/09: CIA-RDP90R00961 R000600100004-0
Declassified in Part - Sanitized Copy Approved for Release 2011/12/09: CIA-RDP90R00961 R000600100004-0
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/09: CIA-RDP90R00961 R000600100004-0
SNIE 81-86W
IMPLICATIONS OF MEXICAN
FINANCIAL PROBLEMS
KEY JUDGMENTS
The full text of this Estimate
is being published separately
with regular distribution.
Declassified in Part - Sanitized Copy Approved for Release 2011/12/09: CIA-RDP90R00961 R000600100004-0
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/09: CIA-RDP90R00961 R000600100004-0
KEY JUDGMENTS
Mexico's economic outlook has become grim indeed:
- The country's financial position, already shaky, is now made
significantly more difficult by the sharp fall in oil prices.
- Mexico City has announced it needs $9 billion in financial relief
in 1986; we believe the needs are on the order of $6-9 billion,
depending on the level of adjustment undertaken.
- President de la Madri is con-
fronted on all sides by political constraints that sharply limit his
ability to take tough adjustment measures.
- Commercial banks are taking a hard line, and we expect many
European banks will not want to provide substantial amounts of
new money, leaving a larger share of the debt to US interests.
The key variables at present are the price of oil and the nature of
the supporting financial package that Mexico receives from outside:
- Should Mexico agree to a financial package in some combina-
tion of new money and concessions, we believe the government
will promise to undertake economic reforms but, owing to
domestic political constraints, fall far short of measures needed
to prevent future financial problems or significantly improve
the performance of the Mexican economy.
- Should the price of oil fall further or substantial financial
assistance not be given, we believe Mexico will shortly begin to
withhold interest payments selectively and may subsequently
take additional unilateral actions.
- In our view, Mexico will implement significant economic
reforms only if deteriorating economic conditions convince the
ruling Institutional Revolutionary Party (PRI) that its grip on
power is threatened. We give such a decision a low probability
over the next year, and in any case it will become more difficult
to make as the PRI gets closer to the 1988 presidential elections.
If Mexico succeeds in negotiating significant new money and
interest rate concessions, other debtors will put strong pressure on banks
to match the terms. In the event Mexico takes unilateral action to limit
its debt burden, we do not believe other debtors will act immediately in
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concert to follow the Mexican lead. Even so, because of similar
economic pressures affecting other debtors and the precedents for
unilateral action, others could decide to follow suit. The prospects for
radical action by other debtors would increase if they perceived that
Mexico was not suffering as a result of its actions.
Politically, an outcome that includes substantial new lending or
concessions from creditors will underscore Mexico's growing economic
dependence on US and other creditors. However, we believe that, in
terms of US ability to influence Mexico's foreign policy, the changes
will be marginal.
Alternatively, in the less likely event Mexico City cannot negotiate
a settlement and takes unilateral action, the de la Madrid administration
would blame Washington and the Western financial community for its
own problems. Mexico City probably would pursue a more nationalistic
foreign policy.
Overall, the most likely outcome for the near term will be one of
semibailout, minimal Mexican reforms, and growing economic depen-
dence on the United States. Whether or not such an outcome evolves in
coming weeks, the longer term financial outlook for Mexico-and for
US interests-is troubling. Economic conditions within Mexico almost
certainly will deteriorate over the next two to three years, and
dissatisfaction with the stewardship of the ruling PRI will rise
significantly.
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STAT
Declassified in Part - Sanitized Copy Approved for Release 2011/12/09: CIA-RDP90R00961 R000600100004-0