132. Memorandum From Secretary of the Treasury Blumenthal to President Carter1


  • Mexican Economic Problems

In conjunction with the Washington visit of Mexican President Lopez Portillo, we have been reviewing the immediate and longer-term prospects of the Mexican economy. Treasury and Federal Reserve officials have worked together and have had discussions with their Mexican counterparts to establish the facts and their meaning.

We have concluded: (1) the longer run economic prospects of Mexico are quite good, but (2) a serious situation may develop within the next few months, primarily because of Mexican difficulty in following through with the major stabilization program agreed with the IMF. A financial crisis could involve a run on the peso and would confront us with difficult policy choices, a significant economic impact on the U.S., and potentially serious consequences for overall U.S.-Mexican relations.

We are following up two approaches to deal with this situation:

(1) A short-term program to be negotiated with the Mexicans, designed to prevent a serious financial crisis or, at least, to keep the situation within manageable bounds;

(2) Examining contingency plans for possible U.S. action, assuming a “worst case” situation of a collapse of the peso with attendant financial and economic turmoil in Mexico.


Mexico’s total external debt is about $23 billion. $6 billion of this is public sector debt which must be refinanced in this year. $3 billion or more of additional new loans are also needed.

Much of this borrowing is from U.S. private banks who feel over-exposed and who view with anxiety (1) President Lopez Portillo’s reluctance to take stern internal measures to bring this budget under control; (2) the possibility that he will not meet previously agreed to IMF goals; and (3) the lack of any long-term program to contain inflation, cut expenditures and limit foreign borrowing.

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A crisis could rapidly develop and escalate if, in the next few weeks, private banks do not extend additional credits, and worse yet, refuse to refinance the outstanding $6 billion or so in existing loans to Mexico.


Treasury, keeping the Federal Reserve fully informed, has impressed on the Mexican team the need to move quickly on the following:

(1) As quickly as possible, an authoritative statement specifically defining Mexico’s commitment and determination to implement a stabilization program (even though they insist it will be necessary to modify “slightly” the IMF targets on reducing the budgetary deficit).

(2) A private session with U.S. banks in which the Mexicans explain their situation and their future plans in detail and negotiate the new money they will need.2

(3) Negotiation of a substantial line of credit with Mexico by Ex-Im Bank during the next few weeks to finance the capital equipment imports from the U.S. necessary to increase Mexican petroleum production and distribution (including natural gas), ultimately leading to an increase in Mexican exports.

The Mexican public announcement contemplated in point 1 would bolster confidence in Mexico and also add resources to the Mexican economy beyond the amounts envisioned under the IMF program.

The Mexicans have already announced large additional petroleum reserves. They are thinking of announcing a program of Ex-Im credits on March 18, the anniversary date of their expropriation of the oil companies in the 1930’s and the date on which the Mexican national oil company issues its annual report.

The above program could engender sufficient confidence to prevent the commercial banks from pulling out and thus enable Mexico to get over the next few months.


Meanwhile, Treasury officials are meeting with the Federal Reserve to think through a series of steps which we might be prepared to take if the [Page 294] above program fails and a serious Mexican financial crisis develops in coming weeks.


(1) That the above consultations with Mexican financial authorities, the Fed and the Ex-Im Bank be pursued quietly and without publicity so as to avoid adding existing concerns in the international financial community.

(2) That your letter to President Lopez Portillo list the issues to be discussed between the two countries in general terms, while making no particular reference to the financial specifics or to the serious potential problems in the Mexican economy.3

(3) That I be charged with insuring that State and NSC be fully informed on the progress of implementing the above program in Treasury discussions on financing with the Mexicans.4

W. Michael Blumenthal
  1. Source: Carter Library, National Security Affairs, Staff Material, North/South, Pastor, Country, Box 28, Mexico, 2–3/77. Secret; Priority.
  2. In late March, officials of the Mexican Government stated, at the Mexican Bankers’ Convention, that they planned to borrow $6 billion in 1977 to cover public sector debt and interest payments, although they insisted that their financial agreements would not influence the government’s domestic policies. (Telegram 3576 from Mexico City, March 24; National Archives, RG 59, Central Foreign Policy File, D770102–0169) They later circulated a confidential prospectus that pledged a closer commitment to the IMF. (Telegram 3769 from Mexico City, March 25; National Archives, RG 59, Central Foreign Policy File D770104–0773)
  3. See Document 133.
  4. Although Carter’s letter to Lopez Portillo had already been sent, Brzezinski, in a February 25 memorandum to Carter, summarized Blumenthal’s recommendations. The President checked the approve option. (Carter Library, National Security Affairs, Brzezinski Material, Country File, Box 48, Mexico 1–12/77)