[Congressional Record Volume 141, Number 15 (Wednesday, January 25, 1995)]
[House]
[Pages H657-H658]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                        PREDICTIONS OF DISASTER

  (Ms. KAPTUR asked and was given permission to address the House for 1 
minute and to revise and extend her remarks and include extraneous 
matter.)
  Ms. KAPTUR. Mr. Speaker, the administration claims it knew nothing of 
the pending financial disaster in Mexico. Mexico's administration 
claims it knew nothing.
  Let me remind both administrations of what they certainly did know. 
Both the Mexican and the United States Governments knew the truth about 
the shaky peso and United States speculators' interests down south for 
at least 2 years before the meltdown. As reported by the Wall Street 
Journal during the NAFTA debate, the two governments went so far as to 
negotiate a secret line of credit worth $6 billion because of the 
pending financial crisis in Mexico. Both governments knew; both 
governments kept it quiet.
  Now Congress is expected to remain muzzled with truncated committee 
hearings and limited debate.
  Congress cannot remain silent. Let the truth come out before we vote 
no on this taxpayer bailout of Wall Street speculators in foreign 
countries.
  Mr. Speaker, the Wall Street Journal article to which I referred is 
as follows:
              [From the Wall Street Journal Mar. 28, 1994]

How Mexico's Behind-the-Scenes Tactics and a Secret Pact Averted Market 
                                 Panic

                           (By Craig Torres)

       Mexico City.--The muted reaction in Mexican stock and 
     currency markets Friday after the assassination of 
     presidential candidate Luis Donaldo Colosio was no accident--
     but it also wasn't guaranteed.
       A panic developed among investors right after the slaying 
     and could have sent the markets tumbling. But Mexican 
     authorities managed to maintain calm through a once-secret 
     agreement with the U.S. Treasury and a complex mix of moral 
     suasion and vague threats to investors who might have 
     profited from a panic.
       This is the story of that effort.
       At 9:30 p.m. in Mexico City last Wednesday--2\1/2\ hours 
     after the assassination, Jose Angel Gurria, head of the 
     powerful development bank Nacional Financiera, and several of 
     Mexico's most senior financial officials were assembling at 2 
     Arturo Street, a colonial mansion converted into Finance 
     Ministry offices.
       Mr. Gurria and everyone else in the room knew Mr. Colosio 
     was dead, even though the government hadn't yet acknowledged 
     that to the world, knowing the panic that could be created 
     when the news was let out, Mr. Gurria reflected that either 
     Mexico was about to prove the strength of its financial team, 
     or the markets would send Mexico into chaos.
       ``It was like Colosio's body was lying on the table'' in 
     front of the group, he says. ``We knew we had a job to do.''
       Mexican financial markets were already fragile. Economic 
     growth in 1993 registered a pathetic 0.4%. The Chiapas 
     peasant revolt, the kidnapping of a well-known executive and 
     surprising rifts within the ruling party 
[[Page H658]] had all raised questions about social stability. Stocks 
had tumbled in recent weeks, and the peso was down 8.1% against the
 dollar this year.
       As calls poured into the Finance Ministry and Banco de 
     Mexico, the central bank, it became clear that there could be 
     a full-fledged run against the peso.
       Speculators were looking for ways to sell the peso short, a 
     bet on its decline. Mexican banks, while friendlier to the 
     government than foreign investors, would clearly dump pesos 
     to protect themselves and make a profit, if they had to. In 
     addition, the Finance Ministry knew that Japanese banks and 
     corporations had already been unloading huge positions in 
     peso securities to raise cash and dress up year-end financial 
     statements. A currency crisis could spark further huge sales 
     by the Japanese.
       However, Hacienda, as the Finance Ministry is know, had a 
     secret weapon.
       Just before the North American Free Trade Agreement debate 
     between Ross Perot and Vice President Al Gore, Hacienda's 
     undersecretary of finance, Guillermo Ortiz, had quietly 
     negotiated a $6 billion swap line with the U.S. Treasury. The 
     idea was to give the Mexican central bank more dollars to use 
     to support the value of the peso if Nafta failed to win 
     approval. But the agreement--which had remained secret 
     because it was never formally signed--was still around, and 
     Mr. Ortiz hoped to invoke it now--Announcing the agreement 
     would give Mexican authorities a crucial psychological boost 
     with investors by showing that anyone attacking the peso 
     would have to take on both Mexico and the U.S.
       But it might take a day to get all the approvals from the 
     U.S. government. Could the Mexican markets be shut down? Mr. 
     Ortiz wondered.
       By 11 p.m., with international investors nervous, and 
     European markets about to open, Mexican financial officials 
     were in discussions about shutting trading in stocks and the 
     currency for a day, to let things settle down. But a full-
     scale argument broke out about the kind of signal the 
     closings would show. The meeting split up into working groups 
     and took until 2 a.m. to decide that at least the currency 
     markets and the banks should be closed. Pedro Aspe, the 
     finance minister, and Miguel Mancera, the central bank head, 
     then left for President Carlos Salinas's offices.
       With at least some decisions made, officials called Roberto 
     Hernandez, the chief executive of Banamex-Accival, Mexico's 
     largest bank, informing him of the bank and currency-market 
     closure. The Hacienda officials said the banks would 
     certainly be free to trade Friday--but they also warned that 
     Hacienda would be watching closely for any speculative 
     challenge.
       At 3:30 a.m. in Boston, Robert Citrone, manager of Fidelity 
     Investment Management's New Markets Income Fund, was back in 
     the firm's warren-like offices. A few hours earlier he had 
     stepped off the train in Acton, Mass., greeting his wife and 
     newborn son.
       ``I have bad news,'' his wife had said.
       The garage flooded with snow-melt again, Mr. Citrone 
     thought. Then his wife told him Mr. Colosio had been shot.
       At home through the evening, Mr. Citrone phoned central-
     bank contacts or anyone else who could give him a reading on 
     the situation. A Mexican central-bank official at one point 
     convinced him that it had enough currency reserves to defend 
     the peso. That was true, but what if other investors 
     panicked? Brokers were already talking about a 300-point 
     decline in Mexican stocks, and that would
      also mean the currency would be in trouble.
       At 4 a.m., Finance Minister Aspe returned to Arture Street 
     with an answer from President Salinas: Thursday would be a 
     day of mourning for Mr. Golosio. Banks and currency markets 
     would close.
       Now it was time to bring out the secret weapon, the $6 
     billion swap agreement. Mr. Ortiz, the undersecretary of 
     finance, picked up the phone and dialed the home in 
     Washington of Lawrence Summers, the undersecretary of 
     international affairs for the Treasury. Mr. Summers thought 
     he could secure the swap line.
       The hope was to close the Mexican stock exchange, too, but 
     Bolsa authorities wanted to make sure that there wouldn't be 
     any trading of Mexican shares in New York, either. Mr. 
     Summers said he would see if that could be done.
       Later, Mr. Ortiz learned that Treasury had asked for a 
     closure of Mexican stocks, but the U.S. Securities and 
     Exchange Commission and the New York Stock Exchange were 
     resisting the idea. It looked like the U.S. markets would 
     open Mexican shares after only a short delay.
       But trading of Mexican stocks in London was turning out to 
     be disorderly, a sign of panic. Shares in bellwether 
     Telafonos de Mexico were down more than 5 percent.
       The Arturo Street team turned to Carlos Mendoza, a young 
     Stanford Business School graduate who runs National 
     Financiera's $1.5 billion Mexican stock fund. Mr. Mendoza had 
     won the respect of international traders late last year when 
     he managed to sell $1 billion of Telmex shares into the 
     markets without anyone's noticing. Sleepless and worried, Mr. 
     Mendoza called Mexican brokers in London, encouraging them to 
     keep markets orderly. To keep things under control, while 
     still not committing much of National Financiera's money, he 
     gave the London trades an indication where he might buy or 
     sell Telmex shares. That hint tightened the spread, or 
     difference between the buying and selling price.
       Less than an hour before the New York opening, Telmex 
     shares had recovered.
       With the Arturo Street meetings finally over as the sun was 
     coming up in Mexico City, the finance officials began trying 
     to win back investor confidence by calling everyone they 
     could think of around the world from traders to chief 
     executives. Judging by the calls, international investors 
     were still scared. But the Mexicans began winning them back, 
     one at a time.
       ``The performance was magnificent,'' says a Trust Co. of 
     the West portfolio manager. ``Almost every investment bank 
     and every investor in the U.S. was on the phones from 8 to 9 
     in the morning and had it all laid out for them by the 
     Mexicans.''
       By Thursday afternoon, the tide had turned. Stories burst 
     across the news wires announcing the ``new'' $6 billion swap 
     agreement, approved by President Clinton. Also, in a rare 
     example of quick agreement, President Salines had managed to 
     gather government, business and labor leaders to announce a 
     re-signing of the country's basic economic pact.
       Telmex shares finished just 5.6% lower on the Big Board, 
     and they rebounded Friday once the Mexican Bolsa reopened. 
     Investor confidence had been restored.
       ``The whole world was grading our ability to manage the 
     unexpected,'' Mr. Curria says. ``Everybody at the Arturo 
     Street meetings said, We have to make this work because we 
     have to make Mexico work.''
     

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