WRITTEN QUESTION E-0173/00

by Salvador Garriga Polledo (PPE-DE) to the Commission

(31 January 2000)

Subject: EU cooperation to help Mexico pay off the bank rescue debt

The Mexican authorities will shortly be investing some 840 million dollars in bonds to begin covering the liabilities from the bank rescue programme. The aim is to meet the commitments given to banking institutions under the bank bailout scheme.

After the 1995 financial crisis, the Mexican Government pumped funds into banks to prevent a collapse of the financial system, mainly by purchasing overdue loan portfolios in exchange for debt bonds.

What part has the Commission played in this process, by which Mexico is seeking to pay off its bank rescue debt, and what other Community measures have been devised to help one of the EU's most important partners to overcome once and for all the long-standing financial crisis going back to 1995?

Answer given by Mr Solbes Mira on behalf of the Commission

(2 March 2000)

The Community did not contribute to the package of emergency financial assistance put together by the international financial community in 1995 in response to the financial crisis experienced by Mexico at the end of 1994. This package comprised mainly contributions from the United States, the International monetary fund (IMF) and Canada, although other international financial institutions (the World Bank and the Inter-American Development Bank, in particular) also reinforced their lending operations for Mexico in the aftermath of the crisis.

Since 1995, the Mexican economy has made substantial progress in addressing the macroeconomic, financial and structural problems that contributed to the 1995 crisis and economic growth has resumed. Mexico has also managed to reduce inflation markedly, increase domestic saving, rebuild its foreign exchange reserves, and maintain the budget deficit at moderate levels. As for the banking system, although it remains fragile, its position has been considerably strengthened over the last five years. Regulation and supervision arrangements have been enhanced and various support programmes for banks and debtors have been implemented.

In this context, there does not seem to be an obvious justification for considering at this stage a further round of financial support for Mexico from the international community. The intended issuance by the Savings Protection Institute (IPAB) of floating rate notes to replace bank claims on the institute stemming from the 1995 bank bail-out should strengthen the asset side of banks' balance sheet without a significant

impact on Mexico's budget. This will be a market-based operation not requiring in principle international support. In any case, Mexico can continue to draw until the end of the year on its stand-by arrangement with the IMF.

The best way to help Mexico in the current circumstances is not by providing further financial support but by facilitating its integration into the world economy. The provisions of the economic partnership, political coordination, and cooperation agreement with Mexico, and in particular those on trade and financial services, should provide a suitable framework in this respect. They should contribute to foster trade and investment flows between the Community and Mexico.