Mexico must use oil as security for rescue

With markets braced for another cliffhanging week for the dollar and the peso, Mexican officials admitted that the country would have to use part of its oil reserves as security for a US-backed rescue package of up to $40bn.

Warren Christopher, the US Secretary of State, confirmed there would be "tough" conditions on collateral for the loan guarantees, an admission that could stoke up opposition within Mexico to the so-far undisclosed terms of the deal.

But Mexican government officials moved quickly to deny that the rescue package amounted to mortgaging the country's future oil wealth.

Foreign ownership of oil reserves is a highly sensitive issue in Mexico, which has long feared that the US would like to reassert its influence over an industry nationalised in 1938.

Mexican newspapers underlined these fears by warning that any oil guarantees backing the package would show "US ambition on Mexican oil". Mexican oil exports are currently worth about $7bn a year.

The finance ministry, confirming that Mexico would use future oil export revenues as collateral for part of the currency support package, said: "The nature of the financial operation . . . is equal or similar to operations carried out by our country for more than 12 years and is of common use in international financial markets." The government would issue securities backed by future oil revenues to raise money.

"These operations do not imply at any moment the granting of liens over the national patrimony . . . the patrimony of the subsoil is not being mortgaged, conceded or transferred," the ministry added.

Mr Christopher, on the NBC programme Meet the Press, said President Clinton's administration was confident that Mexico would repay, and that the loan guarantees would end up costing the US nothing."We have confidence that the fundamentals are sound here and that this is really a short-term liquidity crisis," he said.

"We want to make sure there are tough conditions to protect our interests," he said. "On the other hand, we don't want to use this moment to be so overbearing that we don't act as a good friend to Mexico."

Mr Christopher said the US had a big stake in the rescue of Mexico, citing the possibility that after-shocks could shake confidence throughout the West, and "perhaps even more broadly than that."

The issue of collateral is currently under discussion with congressional leaders and with Federal Reserve Board Chairman Alan Greenspan.