Date: 1995-01-26
Speaker: ROBERT RUBIN (republican)
Chamber: H

Secretary of the Department of the Treasury. Washington. DC. DEAR SECRETARY RUBIN: We are writing in regard to the Administrations decision to extend a $9 billion dollar line of credit through the U.S. Treasury and the U.S. Federal Reserve to the government of Mexico in order to stabilize the Mexican peso. The U.S. Federal Reserve has further committed an undisclosed amount of U.S. dollars to the same end. Using uncollateralized loans. .1 major U.S. commercial banks have loaned another $3 billion. The total sum of the peso bailout represents a huge commitment by the U.S.. our taxpayers and our banking system. We are sure that you will agree that American people have a right to know what risk they are assuming in these transactions. With this in mind. please find below a series of specific questions to which we would appreciate answers as expeditiously as possible. 1. In view of the fact that U.S. banks are earning historic profits. why is U.S. government interventionin the form of a currency swap and lines of creditnecessary? When the private sector gambles and loses. shouldnt those losses be borne by the private sector? 2. To what specific banking and corporate interests does Mexico owe the $26 billion in outstanding obligations that come due this year. $10 billion of which is due in the first quarter. and $16 billion of which is allegedly owed to U.S. interests? How much in additional obligations comes due in 1996 and 1997. specifically. to whom is it owed? 3. Of those business entities incorporated in the U.S. to which Mexico is indebted. which hold voting rights at their regional federal reserve banks. and in which regions? 4. Under what conditions is Mexico permitted to draw on the 9 billion U.S. currency swap line and $5 billion line of credit from the Bank for International Settlements. of which the U.S. Federal Reserve is a member? 5. What will be Mexicos "assured source of repayment" if it draws on these funds? 6. What are the explicit terms of this credit facilityfor what period of time. and under what conditions is the facility renewable? 7. If Mexico defaults. is it the intention of the U.S. Treasury to enlarge the assistance? For what period of time. and for what purpose? 8. Under what legal authority was the original swap line negotiated and more recently increased from $6 billion to 9 billion? 9. Why is the commercial bank line of credit in the peso bailout uncollateralized? 10. What financial instruments have been or are being created to carry out Treasurys currency swap and any related transactions? 11. How are these instruments different from Brady bonds. formerly sold to bail Latin America out of its debt crisis? Brady bonds were collateralized by U.S. Treasury securities. 12. What is the current yield of Brandy bonds? 13. What percentage of the interest Mexico must pay its bondholders in 1995 represents interest due Brady bondholders? 14. In the NAFTA agreement. U.S. banks won access to the Mexican financial system. with limits. initially at 8%. rising to 15% by 1999. In view of the peso devaluation. what risks are posed to the U.S. of complete foreign ownership of the Mexican banking system. by the U.S. or other nations? Thank you for your cooperation. We look forward to hearing from you soon. Sincerely.