CONFIDENTIAL
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38 The likely financing of next year's deficit has yet to take shape but is likely
to require contributions from all classes of creditor. Given the stance of
Mexico's policies it will be a test of the willingness of creditors to back
adjustment efforts in the face of events largely beyond the debtor's control.
39 Carlos Salinas de Gortari was inaugurated as President on 1 December and has
called for immediate talks with the incoming US Administration.
Venezuela
40 The external outlook has deteriorated with the fall of oil prices. Reserves
have fallen rapidly and "operating reserves" (the bulk of the Central Bank liquid fx
assets) were only $2.25bn at the start of November, as against $3.5bn at end-1987
(under the banks' MYRA they must not fall below $2bn). The decline in reserves
forced the authorities into a liberalisation (and effective depreciation) of the
exchange rate regime in late October along lines recommended by the Fund.
41 The financing gap for 1988 of some $2bn has still to be filled. The banks
remain unwilling to provide new money and a rescheduling in 1989 looks increasingly
likely. A loan of $1bn (in the form of bonds issued by two Venezuelan-owned US oil
companies) secured against future oil sales, is being arranged. Commercial bank
creditors are opposed to the loan, which would give the bond-holders preferred
creditor status, and the deal may yet stall. In August and September a $500mn
short-term loan was drawn from the BIS. At end-October a DM100mn, 8.25% eurobond
was sold successfully.
42 On the domestic front annual inflation slowed to 23.3% in September, though it
is still well above the target of 15% for the year. Prospects for containing
inflation are poor: the main trade union is demanding wage increases of 30-40%,
food prices look set to rise rapidly, and the recent exchange rate changes will
increase import prices.
43 The presidential elections resulted in a win for the ruling Accion Democratica's
candidate, Carlos Andres Perez, who will take office next February. The new
President advocates a tougher stance on debt and will probably seek better terms
than gained by Brazil and Mexico, but the officials who will deal with debt under
the new Administration will probably seek consensus rather than confrontation.
Unilateral action on debt in the short/medium-term is unlikely and Perez has already
emphasised the need to develop Venezuela's non-oil economy to soften the impact of
oil price movements.