implications of mexican financial problems
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ACT
DISCUSSION
Current Selling
Against this backdrop, the recent sharp (all in oil price* iiatalyit both to Increase the financial burden oforeign debt and to simulate demands for relief on foreign debt servicing charges, which will beillion in5 billion in interest. At Mexico's current average oil export orice cfer barrel, oil revenues will be roughlyillion less than initially estimatedach additional Si per barrel decline in thc price would result in an additional5 millionn annual receipts at an export level
' THU art llfuir IncludesSSOO million ail ro*nvr leuo urine'menu.
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InltrnationoJ Oil ?nee Ou'teol*
international oil market is in disarray following several month) of high production and OPEC sdecisionefend marker dure Instead of price. Spot ol prices for several key crudes have droppedowr barrel,S3 oer barrel andercent since the beginning of January. Mexican crude prices have followed these pricesstate oil company has retroactively reduced prices several (inies since December. Meiican crude, which soldrd discount from averageor id pricesas tost giOund. Competitive pressures and buyer dissatisfactionith (he retroactive pricing scheme have forced the Mexicans to(heir average price to SI5 per barrel, aboul SS per barrel below the world average. According toreports, earlyexport levels may have fallen to as lowarrels per day compareda ta:ee( level ofillion barrel) per day.
Despite the already sleepil prices, there It Still the potentialsubstantial price volaillliy and further price cuts in the months ahead.fast andfir price* falldepend, in largen the resolve tha( OPEC producers, particularly SaudiIn maintaining their increased market share. Non-OPEC producers so far have not responded to the organic!(ion's call for increased cooperation and are unlikely to voluntarily cut cutout significantly.li selling oillutted marketnilr. could lead to productionin all producing countries.
We en-ijionpossible price scenarios for iSS&
p.i'ce Eronon. Under this most likely scenario, world oil priceser barrel foe the rear, with Mexican crude continuing to selleep discount ai at least S3 per barrelthi) average. OPEC producers limit their market share target lo aboutillion barrels perore than the marketindoil requirements cause o'ices io firm in the second halfexico's financialgive oil buyer) additional leverage, and Meiico is forced in continue offering discounted oil to bring export) up to the tarsel levelillion barrels per day.
p-ice Colicpif-eu likely, but Killscenario, world oil prices continue lo spiralander barrel for (he year. Mexican crude prices tumble lo SIO toer barrel orIn (his case. Saudi Arabia and other OPEC countries aggressively stake ou( an increased market shire and attempt to produceillion barrels per day for the year.
Portion of the Bonks
ebruary announcement that thu veari (jnancina needs would beillionesult of falling oil prices surprised creditors, who believed the figure overstated true revenue losses, gi-en oil pnces that prevailed at that time Previously, the Meneans had5 billion in net new fi-runcing6 of whichillion wou( come from commercial
Table 2
US Commercial Bank Exposure lo Mexico
US J
held b, US banti
money center banks
other Jarre bank.
other
owed by borrowers
bank.
public borro-eri
private nonbank
al distribution
year and under
one to live
ean
Data ai ofS.
nefaaiifted.
US/Mei-con Ties
Meiico il the United Stales principal foreign supplier of petroleum and third-Urxcst trading parrrier
US banks hold over S3 percent of Kleiieo'idrbt, and inveiimcni in the country bv US llrms aceounlsr SO percent cf total foreign investment.
The economies of doiens of cities on bcth sides of the border ir* incieailngly interdependent and the well-being ofeople Interrwited-
The border assembly program, dominated bv US firms, is Mexico's fast-crowing economic ttcfor and already Iscnd-tartest foreign exchange rtinrt
Thousands of US eitiieru "tail Mexico annually, helclng make tourism the third-largest foreignr earner.
Uncl*liifted
KOfQgtf?UOCGNJftACT
ANNEX FINANCIAL PROBLEMS Of OTHER DEBTORS
moit recent attention hai focused on LDC oil exporters, most LDCs that rely heavily on eom-modify export earnings are in serious financial condition.
The price of tin, for example, has fallen by someercent sinceith nearly all of the decline coming since the collapse of the tin mar bet late last year.
Zinc, lead, and phosphate prices have declined iharply over ihe lait year.
Prices of important LDC agricultural exports, including rice, palm oil. and coconut oil also have dropped over the lastonths.
Indeed, of someey LDC primary commodity exports, only five have not experienced falling prices over the past year.
Collectively, theae advene price trends severely damaged the export performance and debt servicing prospects of debtors in Africa and Asia. Egypt, for example, has been hit not only by falling oil prices, but also by lower prices for cotton, second only to oil as an Egyptian export Morocco also experienced falling export earrings due largely to thc drop in the price of phosphate, which accounts for one-fourth of itsWhile lower oil prices will benefit oil importers like Morocco, the effect of the declines in prices of their export products have, in many cases, been greater.
The picture is similar in Asia, with the adverse effects of falling oil prices being accentuated by price trends for other primary commodities that account for the bulk of their nonoil imports. For Malaysia thc collapse of the tin market not only means lower prices for iu tin eiports, but also perhaps having to put up funds to cover the International Tin Council's share of the cost of the collapse.
Original document.
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