JAPAN: DEBATING NEW LOANS TO MEXICO

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T01017R000606120001-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 7
• Document Creation Date: December 22, 2016
• Document Release Date: March 22, 2011
• Sequence Number: 1
• Publication Date: June 16, 1986
• Content Type: MEMO

25X1
Declassified in Part - Sanitized Copy Approved for Release 2011/11/25: CIA-RDP86TO1017R000606120001-5
FI L&
DATE //7
DOC NO
OCR
P&PD I
Central Intelligence Agency
DIRECTORATE OF INTELLIGENCE
16 June 1986
Japan: Debating New Loans to Mexico
Summary
As its financial troubles have worsened, Mexico has begun to view
Japan, which courted the Mexicans actively during their boom years in oil
production, as an increasingly important source of funds. Mexico City has
requested that Tokyo provide $1 billion in project loans, but Japanese
willingness to do so depends on a number of factors--including the
attitude of the United States and the ability of the Mexican Government to
come to an agreement on a balance-of-payments support package with
the IMF. In our judgment, Mexico's large oil reserves and its proximity to
the crucial US market will work in Mexico's favor as the Japanese consider
the $1 billion request. The Japanese have already agreed to fund some of
the proposed projects, but we do not expect quick action on the
remainder.
This memorandum was prepared by Office of East Asian Analysis.
Information available as of 16 June 1986 was used in its preparation. Comments and
queries are welcome and may be directed to the Chief, Japan Branch, Northeast Asia
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2011/11/25: CIA-RDP86T01017R000606120001-5
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/25: CIA-RDP86T01017R000606120001-5
Mexico Looks to Japan
The Mexican Government is seeking new sources of funds to help it cope with a
shortage of foreign exchange exacerbated by the recent fall in oil prices. According to
our most recent estimate, Mexico's net new money requirements--that is, new loans to
cover their financial needs--for 1986 may surpass $8 billion if oil prices remain low.
Mexico sees Japan--with a current account surplus expected to reach $75-80 billion in
1986--as a likely source of such funds. Moreover, the Japanese hold almost one-fifth
of outstanding Mexican debt, making them the country's second most important creditor.
the key reason for the April trip to Tokyo by
Mexican Finance Minister Silva Herzog was to seek a commitment of $1 billion in new
bilateral credits from Japan. Officially, Mexico is looking for funding for three
projects--$500 million for the Pacific Pipeline Project, $250 million for the SICARTSA
steel plant, and the remainder for an export development program--but Mexico City
probably hopes to redirect some of the funds to help with its cash-flow troubles. The
Export-Import Bank of Japan (EXIM Bank), a semi-independent government lending
institution, would provide about 70 percent of the money and the rest would come from
private Japanese banks.
Declassified in Part - Sanitized Copy Approved for Release 2011/11/25: CIA-RDP86T01017R000606120001-5
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/25: CIA-RDP86T01017R000606120001-5
The current ambivalence within the Japanese Government about making new
loans to Mexico is mirrored by similar uncertainty on the part of commercial banks.
Although not enthusiastic about increasing debt exposure in Mexico (see figure 1),
Japanese banks appear ready to provide more funds to help prevent Mexico from sliding
into a default situation
Notwithstanding the current reluctance to extend new loans to Mexico, we
believe that Tokyo will probably provide additional funding if Mexico City reaches an
agreement with the IMF on a comprehensive package to provide balance-of-payments
support. Japanese officials apparently believe that additional loans, if not accompanied
by major reforms along the lines suggested by the IMF, would do little or nothing to
enhance Mexico's ability to repay its existing debts. In our view, the project most likely
to receive Japanese funding if Mexico and the IMF come to terms is the Pacific Pipeline.
Despite the fall in oil prices, the pipeline remains attractive to Tokyo, which is still intent
on diversifying Japan's sources of energy. An announcement would probably be timed
to coincide with de la Madrid's visit to Tokyo, now projected for this fall.
Declassified in Part - Sanitized Copy Approved for Release 2011/11/25: CIA-RDP86T01017R000606120001-5
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/25: CIA-RDP86T01017R000606120001-5
Japanese Commercial Banks: Outstanding
Loans to Mexico
Declassified in Part - Sanitized Copy Approved for Release 2011/11/25: CIA-RDP86T01017R000606120001-5
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/25: CIA-RDP86T01017R000606120001-5
Even with an IMF agreement in hand, Tokyo's willingness to comply fully with the
Mexican requests will be influenced by Washington's actions regarding the Mexican debt.
(Mexican officials recognize this linkage, according to a recent US Embassy Tokyo cable.)
Tokyo in recent months has indicated willingness to boost aid to countries of strategic
interest to the United States to ease bilateral trade tensions,
Under the guise of supporting US interests, Tokyo in our view will probably
provide substantial sums only to countries that it views as important to its economic
interests. The most recent example of this is the Philippines, which Tokyo considers a
part of its Asian backyard and to which the Japanese Government promised generous
aid--to complement US funding--when President Aquino assumed office. Although the
Japanese Government has only reluctantly supported US initiatives in Central America--
for example, by dragging its feet on reopening its Embassy in El Salvador despite
repeated requests by Washington-- Tokyo may be willing to play ball in Mexico. The
country's large oil reserves, its proximity to the crucial US market, and the admittedly
long-term prospect for sustained economic growth probably place Mexico on Tokyo's
small list of countries considered "strategic."
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2011/11/25: CIA-RDP86T01017R000606120001-5
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/25: CIA-RDP86T01017R000606120001-5
SUBJECT: Japan: Debating New Loans to Mexico
Distribution:
Original - Japan Branch
- Donald Gregg, Assistant to the Vice President
- Tom Hubbard, Director, Office of Japanese Affairs/State
- William Brooks, INR/EAP/Japan
- Jonathan Farrar, INR/EC/RE
- John Malott, State Department
- William Piez, State/EAP
- Bob Glass, State/EB/OMA
- Elliott Abrams, Inter-American Affairs/State
- Lou Pugliariesi, NSC
- Steven Danzansky, NSC
Byron L. Jackson, Office of the
Department of Commerce
Intelligence Liaison
1 - William Barreda, Director Office of International Trade
Department of Treasury
1 - Richard Woodworth,Treasury/Japan Desk
1 - Ciro de Falco, Treasury/IDN
1 - Charles Dallara, DAS Treasury
1 - Randall Fort, PFIAB
1 - Office of Legislative Liaison, 7B-14 1
1 - NIO/EA, 7E-62
1 - NIO/Economics
- Joseph Massey, Assistant USTR for Japan and China
- Doug Mulholland, Office of the Special Assistant to the Secretary
for National Security, Department of Treasury
1 - C/EAj 5E-18
1 - OGI/ECD/IF
1 - ALA/MCD/MX
1 - OEA/NEA/Korea Branch
1 - OEA/NEA/STI Branch
1 - OEA/NEA Division
1 - OEA/China Division
1 - OEA/SEA Division
1 - D/OEA, 4F-18
1 - C/Production/OEA
1 - FBIS Analysis Group
1 - DDI
1 - Senior Review Panel
1 - PDB Staff, 7F-30
5 - CPAS/IMC/CB, 7G-07
1 - CPAS/ILS, 7F-50
1 - C/PES, 7F-24
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2011/11/25: CIA-RDP86T01017R000606120001-5
 Declassified in Part - Sanitized Copy Approved for Release 2011/11/25: CIA-RDP86T01017R000606120001-5
1 - NIC/AG, 7E-47
1 - DDO/EA Division
1 - DDO/E
1
1
1
1 - OCR/EAD/AB, 1H-118
1 - Chrono
1 - Author
OEA/NEA/J1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2011/11/25: CIA-RDP86T01017R000606120001-5