US firms help lighten Mexico's debt

American companies are helping Mexico lighten its huge international debt burden. In return, they are obtaining Mexican subsidies and investing them in economic development projects there. The program is becoming an integral part of Mexico's plans for developing its northern border.

Since it was introduced last May, Mexico's debt-equity swap program has resulted in the conversion of nearly $2 billion in foreign debt to pesos that are being invested in job- and export-creating projects from tourist hotels to a golf-club factory.

Although the program has had only a miniscule impact on Mexico's $130 billion foreign debt, financial analysts on both sides of the Rio Grande say it is increasing foreign investment in Mexico and helping to enhance that country's image as a good place to do business.

``I tell clients it's a window that's open to their advantage,'' says Arturo Torres, president of Maquilmex, a McAllen, Texas, consulting firm that helps American companies set up manufacturing plants in Mexico. ``No one knows when it might close, but until then it makes investment in Mexico look that much better.''

The Mexican debt-swap plan is modeled after similar programs set up by other indebted third-world countries, including Chile, Argentina, Brazil, and the Philippines. (The IMF tackles third-world debt. Story, Page 8.)

This is how it works: An American company planning, for example, a cassette-tape plant in Mexico, purchases $1 million worth of Mexican debt from an American bank that loaned the money to Mexico. The bank sells the $1 million IOU for just $600,000, happy to wipe the shaky loan from its books rather than wait years in hope of repayment. The company then presents the $1 million IOU to the Mexican government, which, after applying a 10 percent discount, ``buys'' the note for $900,000 worth of pesos, to be spent on the new plant.

In this example, Mexico has been relieved of some foreign debt and of a drain on its foreign-exchange reserves. For its part, the company has realized a 50 percent growth in its investment capital over its outlay to the lending bank.

The amount of discount Mexico applies to repurchasing IOUs varies. The more jobs and exportable products a company plans to create, the larger the percentage of the loan Mexico will pay to retire the indebtedness.

``It makes the [American] bank happy, it makes the investor happy, it makes Mexico happy, and I'd say it makes the person getting a job at a new factory happy,'' says Carolyn Bass, vice-president in the investment banking division of Banco Nacional de Mexico in Mexico City. ``We're getting people to look closely at Mexico again, and much of that looking is from right across the border.''

The Mexican government expects to approve swaps totaling $2 billion by the end of this month, with perhaps another $1 billion worth approved by the end of 1987. Chrysler, Ford, Honda, and Volkswagen are among the major companies that have taken advantage of the program. But such smaller projects as a glue factory, an avocado exporting plan, and a $3 million golf-club factory have been set up using swap funding.

The program is not without its critics. They point out that it is inflationary - something Mexico, with an annual inflation rate of about 100 percent, can ill afford - since the Mexican Treasury prints the pesos to cover the swaps. Others, reflecting the country's historic sensitivity to foreign ownership, say it is selling Mexico short.

``There is a part of the Mexican people who say, `You're turning Mexican industry over to foreigners, and basically for free,''' says William Mitchell, vice-president for marketing of Grupo Bermudez industrial parks in Ciudad Juarez.

Mr. Mitchell, who has extensive experience setting up maquiladoras - foreign-owned factories in Mexico that assemble goods for export - says he does not think the debt-swap program is actually accelerating interest in the already popular maquiladora program.

Yet others say they believe the fledgling swap program has increased interest in Mexico. ``It's a definite incentive to business people in places like San Diego or Laredo, who might be thinking about an offshore plant,'' says Ms. Bass.

Just how long Mexico will continue approving swaps is unclear. There is some indication the program could soon be limited to $100 million per month as a means of dampening the inflationary effect. In the meantime, businesses from Japan and a number of European countries are becoming increasingly interested in the swap option.