WASHINGTON -- A U.S. plan to save Mexico from its peso crisis, expected to send Mexican interest rates soaring, is in the works and could be announced as soon as today.
The plan, which could push Mexico's already high interest rates to 50 percent or more, was still being negotiated last night after three days of talks between Treasury Secretary Robert E. Rubin and Mexico's Finance Minister Guillermo Ortiz.
A spokesman for Mr. Rubin said negotiators were making progress, but it was unclear whether any agreement would be reached today.
The new conditions, described by Americans and Mexicans familiar with the talks, pose enormous political problems for President Ernesto Zedillo Ponce de Leon. To get the $20 billion in direct American help that the Clinton administration announced last month, Mr. Zedillo's government is agreeing to shrink Mexico's money supply, even if that means charging high interest rates on bank loans to businesses and on home mortgages. Also included in the draft of an agreement is a toughening of a controversial condition that Washington is placing on the Mexicans: The United States would effectively control the flow of the billions of dollars that Mexico earns every year from the export of its oil, starting in the next few months.
Under an earlier plan, the United States would have control of the oil revenue, Mexico's biggest single source of foreign currency, if Mexico defaulted on some of its U.S.-backed obligations.
Clinton administration officials have insisted recently that anything less than severe fiscal control would compel foreign investors to continue pulling money out of the country.
Interest rates, meanwhile, are already running above 40 percent; maintaining or increasing them could touch off a recession and social unrest, analysts said. The stringent conditions seem bound to open Mr. Zedillo to charges that he has permitted the United States to dictate Mexico's economic policy, a sensitive issue in Mexican politics.