VIEWS OF ( DEDETED ) THAT MEXICO' S ECONOMIC SITUATION WILL CONTINUE TO DETERI

Created: 10/26/1976

OCR scan of the original document, errors are possible

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SU3JEC T.

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TH-T MEXICO'S ECONOMIC SITUATION KILL CONTINUE TO DETERIORATE

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SUMMARY t

CONTINUE TO DETERIORATE. AJOR PROBLEM IS Th= MEXICAN

PUBLIC'S LACK OF CONFIDENCE THE PRESENT GOVERNMENT.

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AN AVERAGE OF USS1C3 MILLION HASf T TKE COUNTRY EACH WEEK. Approved tor Release Date ,

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2 AGES UfeXD

ATIONfNFORMATION SUBJECT TO CONTROLS STATED AT BEGINNING AND END OF REPORT

IS RUNNING about 32 pCE ntj PJ ANOTHER DEVALUATION ISOSSIBILITY

Th In THE NEXT TWO TO THREE YEaRS. EXICO WOULD UNDESGO A SEVERE RECESSION IN7 DLECTP EERROBABLY WOULD BE AfiLE tc DOT LE TO STOPE RECESSI ON/!NFLATlON SPIRAL. CRITICIZED PRESIDENT LUIS ECHcVERRlA'S HANDLING CF THE CURRENT SITUATION. O ADDITIONAL major PROBLEMS MEXICO WOULD BE FACING IN THE NEXT TWO YEARS: INSUFFICIENT DOMESTIC FOOD PRODUCTION AND SHORTAGE OF WATER IN MAJOR- CITIES, END SUMMARY.

bleak picture of mexico'S current and long-range economic situation, ajor problem IS the mexican public'S lack of confidence IN the present

since

31 august flotation of the peso, an average of illion has left the country weekly, omment: ThIS Ra te would nearly double the capital loss estimated duringe first ei3ht months6 3u" correspondsther information

page ages

further dissemination and use of this information susjec" to controls stated at beginning and end of report.

THEHIS AMOUNT WAS HIGHER2ANK RUNS CAUSED By RUMORS THAT THE SOVeRNMENT INTENDED TO FREEeE BAN* ACCOUNTS. BUT THE DAILY AVERAGE OF USSILLION CAPITAL OUTFLOW STILL MOLDS TRUE. PEOPLE ARE CONTINUING TO TAKE THEIR MONET OUT OF BANKS" AND ARE EITHER KEEPING IT AT HOKE OR PUT TJ NG IT InTC.

THE FIRST OF THEe NET OUTFLOW. DOLLARS HAS BEEN OVER THEN LOAN MEXICO "ILL RECEIVE FROM THE INTERNATIONAL MONETARY F'JNQ H ME NT : THE

ILLION IHF LOAN WAS REQUESTED BY PRESIDENT LUIS

ECHEVERRILVAREI TO SUPPORT THE FLOTATION OF^

urn

. , expectations

that mexico can pull out of the current ec on oh ic situation

are sum, inflation is running about ercent annually.

after the devaluation, mexico gained theoretically

ercent of the worth of the peso (in terms of increased

iveness) . n: of one year, the net gain hill WW

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EMI NATION ANO USE OF THIS INFORMATION SUBJECT TO CONTROLS STATED AT BEGINNING AND END OF REPORT.

NLY"ES CENT I HE END OF TWO YEARS (AT 3GIN'-.ATICN). IT WILL 36 MINUS IB PERCENT; *T THE END OF THE THIRD YEAR. IT wILL BE MINUSERCENT, ETC. THUS* ERTAIN POINT, THERE HILL HAVE TONOTHER DEVALUATION, JjST TOEVEN.

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DEVALUATION POSSI3LY COULD OCCUR IN FEW MONTHS. BUT WlLL CERTAINLY HAPPEN [N THE TO FOUR YEARS IF STRONG ECONOMIC MEASURES ARE NO BY PRESIDENT-ELECT UQ SE LOPEZ-PORT I ANOTHER THE BEST THING FOR THE COUNTRY IN T S .

WILL NOT BE UNDERTAKEN FORARIETY OF REASONS. FOR ONE. IT WOULD BE POLITICALLY UNWISE FOR LOPEE-PORT ILLO TO START HIS TERM WITHONTROVERSIAL MEASURE AS HE WOULD LOSE THE PEOPLE'S ALREADY SEVERELY SHAKEN CONFIDENCE AND CAPITAL FLIGHT WOULD INCREASE BEYOND WHAT IT IS NO'".

ON THE MEXICO WOULD HAVE TO LIVE THROUGH TWO .YEARS OF AUSTERITY.

MEXICO COULD NOT MANAGE SUCHROGRAM AS IT IS ALREADY*EVERE RECESSION.

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INDUSTRIES OT TK= PRIVATE SECTOR EXICOER5 ON NE _ lARGE NUMBERS. THE MOTOR INDUSTRY HARD HIT< THIS SITUATION HAS COKE ABOUT THE VICIOUS CIRCLE CREATED 3* THE DEV AL UA T] ON', Alt. HAVE TO BE INCREASED IN PRICE BECAUSE OF TH THE DOLLAR, EOPLE WILL BE ABLE TO VEHICLES. FEWER SALES MEAN FEWER PROFITS . ALSO. WILL HAVE TO SAVE MORE MONEY BECAUSE THE PESO LESS WHILE LABOR COSTS HAVE INCREASED. COMPANY LES5 PROFITS AND FEWER SALES MEAN FEWER JOBS. FEWER MORE PEOPLE OUT OF WORK WITHOUT MONEY. THIS. ARGER SEGMENT OF SOCIETY WILLL ETO BUY OTHER ITEMS WHICH MEANS FEWER &LES OF THE GOVERNMENTLL HAVE TO P'JMP MORE MONEY ECONOMY FOR MORE JOBS AND SALES. MORE MONEY MEANS HIGHER INFLATION MEANS THE PESO IS WORTHL0PE2-PORTILLO DC LITTLE TO STOP THIS RECESSION/INFLATION SPIRALPOLICIES TO COUNTERACT THIS PRC3LEM WILL PROsaBLY NOT,THE DcSjRED OR NEEDED

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FURTHER DISSEMINATION AND USE OF THIS INFORMATION SUBJECT TO CONTROLS STATED AT BEGINNING AND END OF REPORT.

nm=nt is handling the situation poorly, the main cause or the problem is president ec he ve rr ia who refuses yfl take th= acvlce of his economic advisers and who changes -is kind on economic policies tor the country froh day jo

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accounts or adopting policies to restrict capital flight aT the time of the peso devaluation were two major blunders committed by ecu ever,

'. of

economichs said that in two years mexico kill be faced with two additional problems of monumental proportions. st, mexico will not raise sufficient food for s growing population it "ill thus have to p or t fo cd products which will increase

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FURTHER DISSEMINATION ANO USE Of THIS INFORMATION SUBJECT TO CONTROLS STATED AT BEGINNING AND END OF REPORT.

and worsen the balance or payments problem, second,

mexico city AND other metropolitan ar=asll faceATgR

crisis 3ECAjSE rural sector poverty will drivepeople

T0 UP5AN centers. primarily mexico ci'y. compounding

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an already deficient Waupply situation. SUCH conditions will increase the illegal immigration of mexicans intoe united states.

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Original document.

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