The Trials of Job

It will take weeks, perhaps months, to assess the financial toll of last week's earthquakes. But most analysts of Mexican affairs would agree that the disaster could not have come at a worse time for the country's troubled economy. As Peter Bell, a senior associate at the Carnegie Endowment for International Peace in Washington, puts it, "Mexico has been going through something like the trials of Job."

For more than two years, Mexicans have endured the imposition of one austerity package after another. They have watched government food subsidies shrink, unemployment rise, the value of the peso sink (it slid to an all-time low last week of 372 to the U.S. dollar). Yet now, on top of such belt tightening, Mexico City and four coastal states need major reconstruction programs that will consume already tight reserves of capital. "It is a tremendous psychological blow," says M. Delal Baer, an expert on Mexico at Georgetown University's Center for Strategic and International Studies. "You begin to feel that the gods are conspiring against Mexico."

In the weeks ahead, Mexico may ask whether international bankers and Saudi oilmen are conspiring as well. A little more than a month ago, Mexico's Finance Ministry admitted that inflation was running at 59% instead of the 35% prescribed by the International Monetary Fund, and the budget deficit was about 8% of total economic output for 1985, instead of 5.3%. Since Mexico has not met the fund's terms, it would normally not be allowed to draw on a $900 million line of credit that remains from a three-year $3.4 billion IMF loan. "We could never have complied with that deficit requirement, even before this tragedy," Mexican Economist Clemente Ruiz Duran said the day after the first earthquake. "Now it's even less realistic." The IMF may agree. Late last week the U.S. State Department suggested that any suspension of IMF loans would "undoubtedly be held in abeyance" until Mexico had a chance to assess the economic consequences of the disaster.

Other lenders may not prove as flexible. Mexico, which ranks second only to Brazil in the developing world as a debtor, is saddled with a $96 billion foreign debt, of which $77.7 billion was lent by a consortium of 300 international banks. Last month most of those banks agreed to extend through the end of the century Mexico's repayments on $48.7 billion of the total amount due. About 30 banks, however, have yet to sign the accord, and there are concerns among bankers that the impact of the great quake may lead them to withhold their signatures even longer. "Unless all banks sign," says one U.S. financier, "the whole package could come unstrung." Moreover, Mexican officials estimated last month that they would need about $3 billion in new foreign loans in 1986 to keep economic growth at its current rate of about 3% annually. Banks that were wary then are certain to be even more hesitant in the wake of the tremors.

No less troubling for Mexico are indications that Saudi Arabia is taking steps that could lower world oil prices (see ECONOMY & BUSINESS). The consequences would be enormous for Mexico, which draws 66% of its export earnings from petroleum. Last week's devastation is also certain to hurt Mexico's tourism industry, which provides crucial foreign-exchange dollars to help service Mexico's debt. Tourists are likely to stay away until normal conditions are restored in Mexico City and the hard-hit coastal states; accommodations will be tight until the many damaged hotels are repaired or rebuilt. On the bright side, neither oil-refining facilities nor heavy industrial complexes that are located in the northern section of Mexico City appear to have been harmed by the quakes.

President Miguel de la Madrid Hurtado is scheduled to address the U.N. General Assembly this week. If he is able to keep the appointment, he will probably renew an appeal he made three weeks ago during his annual state-of- thenation speech, when he asked for a new round of negotiations to ease repayment conditions. He can only hope that lenders will listen--and respond favorably.