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Office of the Press Secretary

For Immediate Release January 31, 1995
                             PRESS BRIEFING

The Briefing Room

3:55 P.M. EST

Q How much money was in this arrangement?

SENIOR ADMINISTRATION OFFICIAL: I don't want to get into characterizing it. This is now the program. Obviously, there have been other programs at other points.

Q But I mean just compared to what had been pledged by the BIS and by IMF. And we had already pledged a line of credit ourselves, I believe. So how much of this is additional?

SENIOR ADMINISTRATION OFFICIAL: The BIS had been talking about $5 billion and is now talking about $10 billion.

Q IMF had talked about $7 billion.

SENIOR ADMINISTRATION OFFICIAL: -- had been talking about $7 billion and is now talking about $17 billion. When we had spoken earlier about the use of the Exchange Stabilization Fund and Fed resources, we had spoken of $9 billion and now we are talking about $20 billion and we are talking about medium-term, three to 10 year lending from the Exchange Stabilization Fund.

Q So just to follow up, I make this as $26 billion in new money or guarantees first.

SENIOR ADMINISTRATION OFFICIAL: I don't find that a helpful --

Q Well, why not?

SENIOR ADMINISTRATION OFFICIAL: I just haven't done -- maybe you can add what I just said up to --

Q You can't do the math? If you can't help us with that, I mean, why are you here? I mean, that's a pretty basic question, isn't it?

SENIOR ADMINISTRATION OFFICIAL: Look, you want math, we'll do math. We're talking about $37.5 billion of long-term -- of medium and long-term money, which is what's necessary to provide liquidity in the Mexican situation. Of that $37.5 billion, $20 billion comes from the United States and $17.5 comes from the IMF. We are also talking about additional short-term facilities -- $10 billion from the BIS; $1 billion from Latin American countries; $1 billion from the Canadian government.

The $10 billion from the BIS represents contributions of G-7 central banks.

Q Compare apples and apples -- where you had $40 billion from us before, you now have achieved roughly that with $37 billion?


Q And the other funds that have been talked about here are funds that had previously been pledged in one form or another anyway, with the exception of the Canadian and Latin American contributions. Is that correct?

SENIOR ADMINISTRATION OFFICIAL: The Canadians had been there for a while. The BIS went from $5 billion to $10 billion.

Q It seems like -- $17 billion of the $37 billion had been previously pledged, right?

SENIOR ADMINISTRATION OFFICIAL: I just can't -- I just don't think of -- I think of what is our program. I just am not used to thinking about it in terms of what was previously pledged.

Q Well, the point of what I was trying to ask was --

SENIOR ADMINISTRATION OFFICIAL: I just told you what was -- what the program was. And I told you what had been announced at some previous point. And I assume you subtracted correctly.

Q Of the $20 billion, how much is Treasury and how much is federal money?

SENIOR ADMINISTRATION OFFICIAL: The Fed has -- the Treasury will make available $20 billion for the Exchange -- for medium and long-term lending. The Fed will make some number, I expect it will be in the $5 billion or $6 billion range for shorter- term lending, which ultimately can be taken out by the -- which ultimately can be repaid when a longer-term Treasury security is issued.

Q What kind of cushion have you built into the fund in the case that you need the extra money for defending the dollar?

SENIOR ADMINISTRATION OFFICIAL: This will not interfere with -- we checked very carefully, as Secretary Rubin said, and this will not interfere with our capacity to defend the dollar if that need should arise. We will still be able to access all of the foreign exchange reserves, the marks and the yen, that the Treasury has, which will be warehoused at the Federal Reserve. And they will still all be available to us in order to defend the dollar.

             Q  How big is the Exchange Stabilization Fund overall?
             SENIOR ADMINISTRATION OFFICIAL:  It has approximately $25

billion, plus an additional ability to draw resources of approximately $11 billion from the IMF.

Q Did you ask any individual countries to contribute to this as opposed to --

SENIOR ADMINISTRATION OFFICIAL: We, of course, in the context of developing the BIS facility, we spoke with -- the BIS is -- I want to be clear. The IMF is an institution that itself provides money. The BIS functions as a kind of clearinghouse for major countries. And so each of the major G-10 countries plus Spain will be associated -- has made a contribution to the BIS facility. And we in the Federal Reserve were in touch with other governments in putting together that facility.

             Q  Can you talk about the oil revenues?
             MR. MCCURRY:  I need to make one program note here for the

benefit of multiple-listening audiences. The President's roundtable that he's doing in Boston will be recorded and we will join that in progress at the conclusion of this background briefing. The beginning of that that anybody misses here that they want to follow, we'll replay at the conclusion of this briefing -- or at the conclusion of the roundtable.

SENIOR ADMINISTRATION OFFICIAL: Can you talk about the oil revenue that's serving as collateral for all of this? What is the volume of that revenue? What is the condition tied to it?

SENIOR ADMINISTRATION OFFICIAL: Mexico has approximately $6 billion to $7 billion a year in oil export revenues. Only a very small portion -- less than 10 percent -- even in the first year of those revenues have any prior claimant against them.

We will rely on a mechanism that provides assured means of repayment. In essence, that mechanism involves instructions to be given by the Mexican government's oil company, PeMex, to its customers as to where it is supposed to pay for the oil that they receive from PeMex and ultimately, that money will go into a bank account at the New York Fed where it would not be released in the event of a Mexican failure to meet its obligations.

Q What will determine whether you lend directly or loan guarantee? And does the IMF also exercise the same discretion?

SENIOR ADMINISTRATION OFFICIAL: The IMF provides fiveyear loans along the lines of its standard terms. Our decision will be based on a variety of financial features as the situation arises.

I should clarify that in a strict sense, we will not be lending, we will be engaging in swap operations. In a swap operation, we provide dollars to the other country -- in this case, Mexico -- and they provide their own currency, an account on their central bank, their own currency to our central bank. So, strictly speaking, these are swap operations. They have the effect of allowing one of the governments -- in this case, the Mexican government -- to make use of the dollars that we swap them. But in a strict sense, these are swap rather than loan arrangements.

Q What happens if the peso gains or loses value during that time?

SENIOR ADMINISTRATION OFFICIAL: Well, the swap -- the swap imposes an obligation to unwind. We give back the pesos, they give back the dollars. So there's no currency risk.

Q an agreed price --

SENIOR ADMINISTRATION OFFICIAL: At the agreed price that was the exchange rate when the thing was entered into.

Q What will determine a month or a year from now which you do -- a swap or a loan guarantee?

SENIOR ADMINISTRATION OFFICIAL: Let me -- it will depend on a variety of the financial factors as things unfold. I expect we'll rely primarily, but not exclusively, on loan guarantees.

Q Where is the $10 billion from the IMF coming from? It's very unclear in their press release -- refers to contributions by non-G-7 central banks, or the IMF's own resources. Do you want to elaborate?

SENIOR ADMINISTRATION OFFICIAL: Sure. I would refer you to them, but my understanding is that the IMF has committed to provide this extra $10 billion; that it is their hope that the central banks that have not yet been participants in this effort will be prepared to make available loans on the same basis as the IMF makes available, and if so, they will reduce the size of their $10 billion commitment.

In the event that they are not successful in enlisting those governments, those central banks, they will provide the full $10 billion. So the IMF is, in effect, making a commitment to provide the $10 billion and announcing that it will seek to lay off that commitment on member central banks, outside of those that are included in the BIS facility.

Q You said something about $5 billion to $6 billion the Fed could make available in the short-term.


Q Is that part of the $20 billion, or in addition?

SENIOR ADMINISTRATION OFFICIAL: Yes, that's part of the $20 billion.

Q Okay, so that's short-term swaps?

SENIOR ADMINISTRATION OFFICIAL: Yes, but it would -- it's part of the $20 billion, but it would -- it's as if I made you a short-term loan, and then -- it's like a bridge loan. And in anticipation of the fact that Jeff was going to give you a 30-year mortgage three months from now.

Q How long are these? Are these -- this is a three month?

SENIOR ADMINISTRATION OFFICIAL: No, the Feds are up to a year.

Q Is this the first time the Currency Stabilization Fund has been used to defend a currency other than the dollar?

SENIOR ADMINISTRATION OFFICIAL: No, the Currency Stabilization Fund has been used before on much -- though not on this scale -- to provide support in times of financial distress. For example, in the context of the debt crisis after 1982.

Q To what countries? Mexico, too?


Q But when you said earlier there are no foreign exchange implications on this, do you have all of that $20 billion in dollars held now at the Fed? If not, how can you say there's no foreign exchange implications? Aren't you going to have to be selling other currencies?

SENIOR ADMINISTRATION OFFICIAL: We will do -- let me be absolutely clear. We will engage in a so-called warehousing transaction with the Federal Reserve. That will not impose any obligation on either us or them, to sell any foreign currency -- sell or buy any foreign currency into the market.

Q Which Latin American countries are involved in the billion dollar short term?

SENIOR ADMINISTRATION OFFICIAL: Argentina and Brazil are involved in leading the effort to assemble that, and I expect that there will be an number of others.

Q Can you give us a little more detail on what are the economic conditions we feel Mexico has to come through to?

SENIOR ADMINISTRATION OFFICIAL: Well, I think you can get an indication of those by looking at the IMF program. They cover such areas as domestic credit creation, the money supply, inflation, fiscal policy, the size of the deficit, the role of the development banks in Mexico, the transparency of central bank operations, and a number of other issues.

Q It's been suggested that Mexico will have to provide reports on a quarterly basis about its economy to the U.S. Is that going to be a part of this, or are you going to go through the IMF with all of that?

SENIOR ADMINISTRATION OFFICIAL: I expect that they will make reports to the IMF and that we will also be closely involved in monitoring their economy, yes.

Q And will there have to be a certification process each time a tranche is drawn?

SENIOR ADMINISTRATION OFFICIAL: And the Secretary will have to certify that there is a satisfactory financial plan in place in Mexico before each drawing, yes, absolutely

Q If the IMF had such large resources available today, why didn't you tap them two weeks ago when members of Congress were asking you, why isn't there more international involvement?

SENIOR ADMINISTRATION OFFICIAL: I think that the international community has come to see in the last several weeks what I think the President saw early on -- the profound implications of the financial distress in Mexico. And it was the growing awareness of the great seriousness of this situation that led us to -- that led to the extraordinary efforts of the President is making and to the effort that the IMF announced today.

Q Can you give us any more details on the conversion to the longer-term maturities for Mexico when they convert --

Q Could you just speak more specifically about the interest rates or the fee that will be charged?

SENIOR ADMINISTRATION OFFICIAL: The fee will be intended to cover any risk costs that we incur on our intermediate or longer-term lending, and will exceed the fee that is used for such swaps in the context of as set by CBO and the OMB. So it's to give Mexico the maximum incentive to return to the market and to private sector finance as soon as possible.

Q So what is it?

SENIOR ADMINISTRATION OFFICIAL: It will vary with the length of the swap.

Q What's the range?

SENIOR ADMINISTRATION OFFICIAL: In the general range of 5 to 12 percent.

Q Is it envisioned that Mexico will have to set up a currency board, or is this in the cards?

SENIOR ADMINISTRATION OFFICIAL: There is no condition of that kind in Mexico's economic program. The important thing is that Mexico pursue sound monetary policies directed at the objective of low inflation so that it can have sustained -- so it can return to sustained growth as soon as possible.

Q Do these -- have any possible consequences for U.S. monetary policy?

SENIOR ADMINISTRATION OFFICIAL: You'd have to ask the Fed that, but I don't think so.

Q The President, before the Governors' Association this morning, described this as a more aggressive package than the initial package that failed to get congressional approval. Can you explain why you believe it's more aggressive?

SENIOR ADMINISTRATION OFFICIAL: I think it's a crucial -- I'm not going to get into comparing the approaches. I think what's crucial here is that there's a very substantial amount of longer-term money that should provide assurance that with its sound policy changes, that Mexico is going to be able to build on tremendous economic fundamentals that have been laid in Mexico over all the changes that took place in the last six or seven years.


END4:05 P.M. EST