MEXICO CITY -- The battered Mexican peso plummeted yesterday to its lowest point yet in the current crisis, driven down by mounting doubts that the U.S. Congress would approve the $40 billion in loan guarantees for Mexico proposed by the Clinton administration.
The Mexican currency closed at 6.35 pesos to the dollar, down nearly 10 percent from Friday's close of 5.735. Its continuing decline disrupted financial markets throughout the Americas, and provided ammunition for officials in Mexico City and in Washington who have warned that Mexico needs a rescue package to keep its economic crisis from deteriorating into a financial debacle that could affect the rest of the world.
"This is the type of scenario you're going to see every day if the package doesn't go through," said Eduardo Cepeda, managing director of J. P. Morgan in Mexico City. "For the U.S. to say that maybe Mexico can live without it, today shows the contrary."
In the six weeks since the peso was devalued and allowed to float against the dollar, it has lost 45 percent of its value, pummeling the buying power of most Mexicans and devastating Mexican companies in which many Americans invested.
The peso, worth nearly 29 cents before its devaluation on Dec. 20, is now worth less than 16 cents.
During the dark days of Mexico's worst economic crisis in a decade, neither reassuring calls to key investors by Mexican officials nor the statements of Mr. Clinton and other Washington heavyweights have been enough to stop the peso's slide.
President Ernesto Zedillo has sent his finance officials to Washington and New York on several occasions to participate in negotiations. Mexican officials said yesterday that there was now complete agreement with Washington on the fundamental contents of the proposed legislation, and most of the remaining discussion has to do with the economic and political conditions that are to be added to the support package. But opposition to the package has increased steadily on Capitol Hill.
The Mexican stock market took a beating for the fourth straight day as investors grew pessimistic about passage of the U.S. loan guarantees. The market index plunged 3 percent, to close at 1,898.9, its lowest level since October 1993.
Mexican stocks traded in New York were hit hard. The bellwether stock, Telefonos de Mexico, dropped 6.1 percent, to close at $30.75. Markets in Brazil, Argentina and Chile also tumbled, in part because of Mexico's problems.
U.S. mutual funds investing primarily in Latin America also declined by 6.1 percent. The funds have fallen 19.9 percent so far this year.
As the peso tumbled, new doubts arose about Mexico's assertions that it was experiencing nothing more than a short-term liquidity problem. The Bank of Mexico denied a report in the International Herald Tribune quoting unnamed U.S. officials as saying that Mexico's international currency reserves had fallen to as little as $2 billion, which is far less than the $5.5 billion it reported on Jan. 9. If true, Mexico would be far closer to a technical default than had been believed.
Officials from Mexico's central bank called the report false but would not give the level of reserves. A spokesman said yesterday that the size of the reserves would be announced tomorrow or Thursday.