Business Notes MEXICO

The U.S. has long officially kept up the increasingly shaky pretense that the Third World's $1 trillion debt should eventually be repaid in full. But now the Treasury Department has collaborated with the Mexican government and New York City's Morgan Guaranty Trust in devising a novel relief plan. The proposal calls for U.S. lenders to make voluntary concessions that could scale back Mexico's $106 billion in debts by as much as $10 billion.

Under the plan, U.S. banks would swap their Mexican debts at a markdown of as much as 50% for new bonds that pay a somewhat higher interest rate. Despite the loss that banks would take in the trade, the new Mexican paper would be considered more secure and negotiable than the old debts. Reason: before issu bonds that would be worth $10 billion when they mature in 20 years. The U.S. bonds would then serve as collateral for the new Mexican paper. While the proposal may be a breakthrough in the debt standoff, the $10 billion in loan relief would still leave Mexico with a daunting load. Moreover, the scheme may not be readily adaptable for such other debtor nations as Brazil and Argentina, which cannot match Mexico's relatively healthy $15 billion in foreign currency reserves.