[Congressional Record Volume 141, Number 64 (Thursday, April 6, 1995)]
[Senate]
[Pages S5286-S5287]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                             MEXICO'S DEBT

  Mr. MURKOWSKI. Mr. President, let me speak very briefly about another 
amendment that I was prepared to offer. But, again, because of the 
circumstances on the floor, it is not going to be presented. It is an 
issue that is ongoing. I would like to speak briefly on the merits of 
the issue, although, as I have said, the amendment will not be offered.
  This was to be a very simple and very straightforward amendment. It 
would require the Government of Mexico to provide our Government with 
information relative to the names of the individuals or institutions 
that are redeeming Mexico's debt when the redemptions are made with the 
funds provided by the United States Government. As my friend in the 
chair, the Presiding Officer, will recall, this package is almost $52 
billion.
  It is the contention of the Senator from Alaska that is a bailout 
that has been crafted by the United States through the Treasury 
Department. It is my understanding that Mexico has already used some 
$13 billion to pay off the debt, of which $5 billion initially has come 
from the United States. Another $15 billion of American taxpayer money 
is at risk. That is money that came from the Exchange Stabilization 
Fund that was set up when we went off the gold standard.
  We are all aware of the fact that the administration came to the Hill 
to seek support for the Mexico bailout. But they could not get our 
support and decided that they would find another avenue to bail out 
Mexico. And they came up with the $20 billion that is in the Exchange 
Stabilization Fund, the International Monetary Fund, the Bank for 
International Settlements, and others and the commitment now is some 
$52 billion.
  It is rather interesting to reflect on that because the Senator from 
New York and I had a colloquy some time ago. And both our recollections 
are that the current debt of Mexico, as communicated by the assistant 
to the President of Mexico at a meeting we had, was in the area of $70 
billion. The current debt is debt payable in a year. This debt is to 
meet an obligation issued by the Mexican Government in the form of 
bonds. These are bearer bonds. That means we do not know who holds 
them. It is like a check payable to cash.
  The question my amendment attempts to address is who is being bailed 
out? Is it the Mexican people? Is it Mexican financial institutions? We 
have not been able to get a definitive answer from the Department of 
the Treasury. It is my opinion that the ordinary citizens of Mexico are 
not being bailed out. In fact, the ordinary citizen of Mexico is 
currently facing interest rates that are clearly out of reach, in some 
instances 75 and 100 percent. Mortgage rates are absolutely 
unrealistic. The reality of lost jobs, higher taxes, higher inflation, 
and when we look at the obligation of who pays this back, we find it is 
the citizens of Mexico. It is the economy of Mexico.
  Businesses operating in Mexico are not being bailed out by this 
commitment, which is the first advance of some $52 billion. Mexico has 
already used $13 billion to pay off the debt which comes from the 
United States; hence, the United States taxpayer.
  Companies that have put brick and mortar in the ground for new plants 
and employ Mexican citizens are not the beneficiaries of this money. In 
fact, they are suffering from the havoc caused by the interest rate 
explosion. They cannot borrow for inventory. They cannot borrow for 
expansion. American mutual fund investors--let me repeat that--American 
mutual fund investors whose funds invest on the Mexican Bolsa are not 
being bailed out. In fact, these equity investors have seen the value 
of their holdings drop more than 50 percent, and in some cases the loss 
of these stocks are even larger. So the questions are, Well, where is 
this money going? Who is it going to benefit?
  Mr. President, you know who is being bailed out. So do I. The owners 
of the so-called tesobono debt. Most people do not even know what a 
tesobono is. In fact, this debt really did not exist a year ago. It is 
the Mexican debt which, when it comes due, is paid in pesos.
  It is rather interesting how the financial intrigue of this 
adjustment occurs. However, the important thing to recognize is the 
amount of pesos that the debt-ridden holder receives at maturity is 
linked to the peso-dollar exchange rate. Mexico, unfortunately, made a 
decision to issue this type of debt early last year because it was 
finding it more and more difficult to attract more investors to finance 
its debt.
  That sounds rather curious, does it not, that they have to have 
foreign investors to finance their debt? Yet that is the reality that 
Mexico faced. Canada has to have foreign investors to finance its debt. 
I noted the other day a figure which indicated that 29.6 percent of the 
Canadian budget was to pay interest on the debt. That is almost a 
third. When you get into that area, the ball game is almost over. It is 
almost over.
  Now, the foreigners, of course, in order to invest, when they see a 
situation that is less than stable, demand higher interest rates, and 
they demanded as much as 20 percent from Mexico. Not only that, but 
that demanded that the debt be linked to the peso/dollar exchange rate.
   These are very shrewd investors, Mr. President. They know that money 
goes to the highest return and the least risk. And they must have 
foreseen that the peso could be devalued, and they wanted to ensure 
that they would suffer no currency risk.
  That is exactly what happened, Mr. President. The peso went from 3.5 
to the dollar to 6.5 in barely 2 months, and now that this debt is due 
these investors are completely insulated from the financial crisis that 
is affecting all other sectors of the investment community and the 
working community in Mexico.
  One asks the question why? It is because the United States Government 
has decided to give Mexico these billions of dollars to pay off these 
investors. Now, who are these investors? As I said, they are 
sophisticated investors. They are the investors who went out there and 
took a risk because the attractiveness of 20 percent interest suggested 
that risk was worth taking. These are not the ordinary Mexican people.
  This was done because the United States Government has decided to 
give billions of dollars to Mexico to pay off these investors. If we 
had not come to the rescue, then these investors would have had to 
suffer the financial consequences that everyone else in Mexico must 
face. Why should these investors be bailed out? We do not bail out the 
investors who put money in Orange County bonds. Why are these investors 
in Mexico so very special?
  One of the reasons, obviously, we do not know who they are. That 
makes them special. We know who the investors are who bought Orange 
County bonds. Who bought these tesobonos? We do not know. They could be 
American investors, Japanese or German investors, they could very well 
be some of the billionaires who live in Mexico City and are friends of 
the controlling PRI party.
  What we do know is that whoever owns this debt is really cashing in, 
and they are shipping their money where? They are shipping it out of 
Mexico. In fact, so many tesobono owners were immediately converting 
their proceeds into dollars that the peso began to crash above seven to 
the dollar, and then the Mexican Government decided to stop paying off 
tesobono debt in pesos and immediately paid the debt in dollars. Where 
did the money come from? It came from the United States. Whose dollars 
are they using? They are using U.S. taxpayer dollars. We are bailing 
them out. Why? We are being told it is to stabilize the monetary and 
currency system.
  That is what we are told. If you buy some shares on the New York or 
American Stock Exchange and lose money, we do not bail you out.
  But if we had not bailed out the bond holders and the Mexican 
Government, what would they have done? They would have done as 
everybody else who runs in to credit problem. They sit down and work a 
deal out. You know you cannot get 100 percent back on the investment. 
You might get 40 percent. But that is the way the process works 
[[Page S5287]] in the ordinary debtor/creditor situation. Then we would 
know who the holders of the tesobono debt are. They would have to come 
forth, submit their bearer bonds through investment brokers, 
commercial, international banks. We would know who they are and they 
would sit down and work out a deal. That is what should have been done.
  I believe it is important that the American taxpayers know who the 
recipients of this debt are. Some have said, what difference does it 
make who they are? I think it is important when American taxpayer money 
is used to provide a guarantee on a foreign government debt to a very 
select group of holders of debt. Not only are they going to get their 
principal back; they are going to get the interest back--20 percent.
  You and I, where do we go to get 20 percent? I do not know. Maybe you 
get in line down there and buy some tesobonos. But we ought to know who 
the beneficiaries are because we know that it is not the Mexican 
economy that is the beneficiary. This is not going to do a thing for 
the Mexican economy. Those holders of that debt are moving that money 
out of Mexico. Yet, the Mexican economy, the Mexican citizens are 
expected to pay it back. In the conditions that exist in Mexico that is 
unlikely to occur.
  Now, many of my colleagues make the point that we cannot indicate 
that we are supporting a process and then not follow it through. The 
problem with this sales package, Mr. President, is we did not 
understand it in the first place. We were told continually we were 
going to stabilize the Mexican economy. What we are doing is paying off 
the debt of sophisticated investors who bought those tesobonos who are 
standing in line to get United States dollars and will bail out and 
they are not going to put that money back in Mexico.
  There are assumptions that a large portion of this debt is held by 
Americans, yet the Treasury Department claims that these bearer 
instruments are of a nature where they do not know who owns the debt.
  I do not know who controls the debt. But what if we found out that $5 
billion of the debt was owned by the Bank of Libya or maybe the debt 
was owned by an investment house operating as a front for the 
Government of Iraq or Iran. Would not the taxpayer be curious? Do we 
not have an obligation as we sign off on this money as a Congress to 
know who those recipients are? Is it too much to demand that when 
American taxpayer dollars are used by the Government of Mexico to pay 
off an investor or speculator the identity of that investor or 
speculator be known? Because again, we are being told that this has to 
happen to solidify the economy of Mexico. It is going to solidify the 
holders of those bearer notes.
  What my amendment seeks to accomplish is to try to identify who those 
holders are. Mr. President, reality dictates that if my amendment 
passes and Mexico does provide the information we are seeking, we will 
probably never know who really holds that debt. It will probably be 
reported in the name of the Bank of Panama, the Bank of the Bahamas, a 
couple of major brokerage house firms, but I think it important that 
this body focus on this principle: that it was an unnecessary and 
unwise action taken by this administration at the expense of the U.S. 
taxpayer to favor the holders of an extraordinary type of foreign debt 
that was issued out there to make them whole when we do not do it to 
any other investor when their investments turn bad. But we made an 
exception for these investors.
  The New York Times reported last Sunday:

       Most of those investors, a mix of rich Americans and other 
     foreigners, have swept up their hefty profits and immediately 
     transferred their money out of the country of Mexico.

  Now, if that is true, Mr. President, we have not done Mexico a favor. 
We have put a burden on the taxpayer and the Mexican economy because 
they are the ones we expect to pay that back.
  So that is the extent of my statement and my concern, Mr. President. 
And I urge my colleagues who have anguished over whether or not the 
Congress should take a position on this matter to recognize that we 
have an obligation to the U.S. taxpayer to make an accounting of the 
worthiness of a $20 billion commitment, and that is not what we have 
done.
  I would feel entirely different in this matter if I felt this was an 
investment in the Mexican economy which would benefit the Mexican 
taxpayer.
  It is like, if you borrow money, Mr. President--and I know you are a 
businessman--and you could use that money to make more money, that is a 
good thing. You are employing more people; you are building up 
inventory. But if you borrow money and you have to mortgage your income 
to pay it back, I may be doing you a grave disfavor.
  That is the principle that I think is applicable in this particular 
case of bailing out this select group of investors, whom we have no 
knowledge of at the expense of the Mexican taxpayer.
  Mr. President, I have concluded my statement. I intend to pursue this 
matter at a later date when the opportunity arises with an appropriate 
vehicle.
  In the meantime, I ask my colleagues to consider the merits of my 
statement this morning relative to identifying who the beneficiaries 
are of our $20 billion commitment. This is just a part of the current 
Mexican debt, which will in this year require some $70 billion in order 
to meet the obligations of the Mexican government.
  I thank the Chair and I wish the Presiding Officer a good day.
  I yield the floor.
  Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Mr. FAIRCLOTH. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER (Mr. Murkowski). Without objection, it is so 
ordered.


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