Mexico City – The Mexican government said Thursday it plans to prepay about $7 billion in loans from the World Bank and Inter-American Development Bank by issuing new domestic development bonds.
Deputy Finance Secretary Alonso Garcia Tames told a news conference the move will help Mexico confront volatility in financial markets by reducing its foreign debt from $57 billion to $50 billion.
Mexico’s foreign currency debt will be reduced from 32.5 percent to 28.5 of total government debt, said Garcia, adding that the action would also save the government about $53 million.
“We are confident that the markets will receive this positively,” he said.
Mexico’s foreign reserves have been growing rapidly thanks to high oil prices that have boosted income at state oil monopoly Petroleos Mexicanos, or Pemex. Last week, foreign reserves reached a record $77 billion.
However, in the last month, investors have increasingly been selling stocks and bonds in Mexico because of concerns over a possible hike in U.S. interest rates, which would slow economic growth on both sides of the border.
Garcia said the new development bonds will gradually replace the monetary regulations bonds, or BREMS, that the central bank currently issues. They will have a floating interest rate.
The government will start issuing the bonds within the month.
President Vicente Fox on Thursday said Mexico was able to reduce its foreign debt because of his administration’s effective economic policy.
“Today we have given proof, one more time, that prudent and efficient management of the economy bears fruit,” he said.
The announcement comes less than two weeks before a presidential election in which conservative ruling-party candidate Felipe Calderon is fighting a tight race against leftist Andres Manuel Lopez Obrador. Calderon has defended the fiscal policy of President Vicente Fox’s administration and accused Lopez Obrador of being a free-spending populist who would run up public debts.
Garcia said the announcement had nothing to do with the July 2 vote.
“This government’s debt policy, its financial shield, is not an opportunistic matter,” he said.
