Plummeting oil prices push Mexico to the breaking point

Long lines of cars snaked out of the gas stations in Mexico City recently, looking like a replay of the 1973 energy crisis in the United States. But unlike their US counterparts of a decade ago, the drivers had panicked over plummeting oil prices, not rising prices and shortages.

As the oil-price war continues, Mexico is suddenly earning much less for its oil exports. The Mexican drivers, guessing that this loss would cause them to pay dearly at home, thronged the gas stations before prices at the pump could go up.

They were both right and wrong. Rumors that the price of gasoline would go up at midnight Feb. 1 proved incorrect. But the Mexicans were right in feeling anxious over the collapse of world oil prices and its ramifications for the economy. In December, Mexico drew up its 1986 budget based on a $24 a barrel price for oil but with contingency plans for a drop to $20 a barrel.

Now the Treasury Ministry is scrambling to do its sums from a base of $16 a barrel. At that low figure, with its exports already slipping in volume, Mexico would earn only $7 billion from oil sales this year instead of the $13.1 billion it had forecasted.

Mexican officials, diplomats, and bankers see Mexico quickly coming to the breaking point in its ability to service its debt and warn that new solutions to the debt issue have to be formulated. They believe that what happens to Mexico will happen to other debtors.

Oil provides Mexico with 75 percent of its export earnings. The cascading price has meant that Mexico's original estimation that it would need $4 billion in new financing in 1986 has jumped to something more like $8 to $10 billion. In 1986 alone, Mexico was scheduled to pay almost $10 billion in interest payments on its $97 billion foreign debt.

``If this was a company instead of a country, it would have been broke a long time ago,'' said one US banker resident here.

``At $15 a barrel, Mexico needs more money to stay afloat than the banks are going to lend without the intervention of the US government,'' said another American banker whose bank is one of Mexico's main creditors.

When Treasury Minister Jes'us Silva Herzog Flores spoke at a Third World debt conference in London recently, he signaled a change in Mexican attitude. ``The limit of our responsibility to our creditors is determined by the responsibility to our people.'' He did not go as far as to mention the word ``moratorium'' when talking about the debt, but he sounded more like Peruvian President Alan Garc'ia P'erez, who has set a limit to the amount of interest his country will pay the world banks.

Diplomats and bankers here think Mr. Silva Herzog was making it clear that the solutions tried so far have failed.

``We have all the elements [here] we need already for a complete change in the way we look at debt handling in developing countries,'' said the resident banker.

``It will be the Mexicans who blow the whistle and say the game is over. The Mexicans have the most to lose,'' he predicted.

``They will have to force it on them [the banks] and I think they are going to have to accept.''

Banking and diplomatic sources say Mexico as well as some international bankers are thinking about such measures as:

Capping interest rates. This means Mexico would declare its willingness to pay, for example, only 5 percent interest instead of the present rate of about 10 percent. The unpaid interest would be added to the principal, but this amount would not be subject to further interest charges.

Saying Mexico would pay only a certain percentage of what it earns from its exports annually as interest on its loans.

The banks writing off at least a portion of their loans to Mexico as nonperforming and showing them as a loss on their balance sheets.

The US government helping either by writing Mexico a check, buying more oil for the strategic reserves or arm-twisting the banks into lending more money.

``We've got all the makings of a major disaster and the way it is going to be averted is for the banks to take a very different approach to the situation with the US government leaning on them to do just that,'' said one of the US bankers.

The price of a barrel of oil is not Mexico's only oil revenue problem. Diplomats and bankers say Mexico exported only 1.25 million barrels a day in January, a fall of 250,000 barrels. Purchasers of Mexican oil are displeased with the pricing formula used by the state-owned oil company Pemex.

One Western oil analyst summed up the thinking of many oil experts, bankers, and diplomats about what the US will do if Mexico reaches the breaking point:

``You won't know until you have a drowning man and you don't have one yet. But there is a point beyond which the US will not let Mexico slip.''