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Press Briefing by Secretary of State Warren Christopher and Secretary of the Treasury Robert Rubin

January 31, 1995

The Briefing Room

3:26 P.M. EST

MR. MCCURRY: Good afternoon, everybody. I'm going to start, before I introduce the two Secretaries, start with a statement that is now being issued by President Clinton, by Speaker Gingrich, by Majority Leader Dole, by Minority Leader Gephardt and Minority Leader Daschle. This statement is in the name of all five, and it reads as follows:

We agree that in order to ensure orderly exchange arrangements and a stable system of exchange rates, the United States should immediately use the Exchange Stabilization Fund to provide appropriate financial assistance for Mexico. We further agree that under Title 31 under the United States Code, Section 5302, the President has full authority to provide this assistance. Because the situation in Mexico raises unique and emergency circumstances, the required assistance to be extended will be available for a period of more than six months in any 12-month period.

The U.S. will impose strict conditions on the assistance it provides with the goal of ensuring that this package imposes no cost on U.S. taxpayers. We are pleased that other nations have agreed to increase their support -- specifically the International Monetary Fund today agreed to increase its participation by $10 billion for a total of $17.8 billion.

In addition, central banks of a number of industrial countries, through the Bank for International Settlements, have increased their participation by $5 billion for a total of $10 billion. We must act now in order to protect American jobs, prevent an increased flow of illegal immigrants across our borders, ensure stability in this hemisphere and encourage reform in emerging markets around the world.

This is an important undertaking, and we believe that the risks of inaction vastly exceed any risks associated with this action. We fully support this effort, and we will work to ensure that its purposes are met. We have agreed to act today.

With that statement, I'd now like to introduce Secretary of State Warren Christopher and Secretary of the Treasury Bob Rubin who will brief you further on today's developments.

Secretary Christopher.

SECRETARY CHRISTOPHER: Good afternoon. By some ancient tradition, as you know, the Secretary of State is the Senior Cabinet Officer. It happens that, chronologically, I am, too. But I think you all know that Secretary Rubin has been the President's point person on this subject, and so I will not deprive you of him very long.

I did think it might be useful to give you some background of the situation. As you know, yesterday the peso had a very bad day. It dropped more than 10 percent. The prospects of default by the Mexican government on their obligations became very real. Last night, the White House was told by the Congressional Leadership the prospects of passage of the loan guarantee legislation were quite poor, especially in any time frame in the immediate future.

As we looked at the markets today in anticipation, we felt that it would be a very disorderly day, much more disorderly than yesterday if nothing were done. As a result, the President had urgent meetings last night and again early this morning. I think he faced a dire situation where he felt it was necessary to take firm leadership.

As you know, the President met with the Congressional Leadership this morning and, essentially, he laid out to them the two alternatives that he thought that he faced at the present time. One alternative would be to go forward with the loan guarantee legislation, but to do so, he would do it in the face of their statements to him that they felt it was impossible to do this in the very near future, that it might be done over time with a long period of persuasion, but it was not possible to do it in the next short time -- period of time.

The second alternative that he had was to take executive action under the Exchange Stabilization Fund. That is a fund of about $25 billion which was created more than 50 years ago, and has now grown from its initial fund of about $20 billion to around $25 billion.

It is felt that $20 billion of that could be used for these purposes. In the last 24 or 48 hours, the IMF, recognizing the seriousness of this problem, has increased the amount that they could make available and that would make available $17.8 billion, so there is now availability of almost as much through this combination of the IMF and the Exchange Stabilization Fund as the earlier $40 billion of loan guarantees.

In his meeting this morning with the Congressional Leadership, the President said that while he initially had preferred to go the congressional route in order to have their full participation, he thought based upon their advice that time no longer permitted that, and so he was determined to go ahead and exercise when a President has to exercise at some point: firm executive leadership. He was prepared to go ahead with the second alternative, he asked for their support. He said he felt the chance of the program succeeding would be greater if he had their support, and I think during the course of the day it's been quite apparent that the markets would receive favorably, indications of support from Capitol Hill.

As Mike McCurry just indicated to you, the four congressional leaders have now signed a statement endorsing the President's action.

My judgment is that this was one of those moments of executive leadership. Time did not permit the education process that might have permitted congressional action, although the President had, about two weeks ago, received expressions of congressional support that had not ripened into congressional action; the situation was dire in Mexico. There was the risk of default and the problems that would involve for not only Mexico, but the United States and the world economy. The President took the action that he felt was necessary in this situation.

I think I would just say before I conclude that from my standpoint, the interests of the United States here are absolutely clear. We have a very strong interest in the stability of Mexico for a wide range of reasons. First, because they support -- their economy's purchases support about 700,000 American jobs. They are critical to us from the standpoint of many issues, such as narcotics, law enforcement, migration. So Mexicans' future is very important to the United States.

Second, this particular matter has ramifications well beyond Mexico. It affects not only Latin America, but the emerging economies of the world. The situation in Latin America has vastly improved in the last several years to the point where we have 34 democracies now. Much of that progress, particularly the economic progress, could be jeopardized if there were a situation in Mexico of the kind that I've described here. So I think it's important from that standpoint.

Finally, and perhaps most importantly, this was a critical test of American leadership. It will be read as that around the world. I think the President has grasped that test today and the action he's taken, I think, will be reflected over time as the right decision to take in a difficult situation, but where he -- perhaps going against the grain in the face of some public opinion polls that seem to be adverse -- took the action that he concluded was in the best interest of the American people. And from my standpoint as Secretary of State, it was an action that the United States will long regard as favorable.

Now, Bob Rubin can -- Secretary Rubin will be glad to spell out many more details than I have, and we'll both be glad to answer whatever questions you have. Bob.

SECRETARY RUBIN: Thank you, Chris. Secretary Christopher has exceedingly well expressed to you what this is about and what happened last night and this morning in what was really quite a dramatic and, I think, important set of meetings culminating, as Secretary Christopher said, in the meeting in the Cabinet Room at 8:45 a.m. this morning with the Bipartisan Leadership.

The program that we have today was really motivated by three considerations. One has just been explained to you: the bipartisan leadership informed the President that the Congress could not act in a timely fashion -- timely, relative to the circumstances that were developing in Mexico. Number two: financial distress in Mexico had reached proportions that were exceedingly troubling. The peso hit an all-time low yesterday; the stock market was down 8 percent. It was our view that if this was not dealt with and dealt with quickly, it would reach dire proportions very quickly. And thirdly, through the extraordinary good work of Under Secretary Larry Summers last night, the IMF increased its participation to $17.5 billion -- a multiple of the largest amount they have ever committed to any undertaking in the past. That expressed both their concern about Mexico -- concern parallel to ours with respect to its significance to the world's economies; and it also was, obviously, an enormously important component in being able to put together the package that we now have.

The package itself consists of the following elements: $20 billion from the Exchange Stabilization Fund, a fund first created in 1934. It's an existent fund. That will be used for either loan guarantees or loans, it will be subject to stringent conditions, and it will be supported by the oil facility that we have described with respect to the previous package.

There will also be a fee, and the fee will reflect the risks that we feel are associated with this enterprise, plus a supplemental amount to make sure that this is not a low-cost funding mechanism for the Mexican government.

Number two, it will be $17.5 billion from the IMF, and that will be intermediate term money, just as our own money is intermediate term money, also subject to stringent conditions with respect to the kinds of financial issues that created the problem that we now face.

Number three, there will be $10 billion from the BIS, which is basically a short-term stabilization facility. There will be $1 billion from a consortium of Latin American countries, and $1 billion from Canada.

Put together, the $37 billion of intermediate term money that we now have is the economic equivalent of the $40 billion loan guarantee that we originally contemplated. We will begin working immediately with the Mexicans to finalize the conditions so that the economic integrity of our loans, or loan guarantee -- whichever direction we take -- are protected, and we feel there is a very high probability this will be successful and reestablish the confidence in Mexico, causing private capital markets to again work, and allowing the strong fundamentals of the Mexican economy to reassert themselves, which was the premise of this entire effort to begin with.

Q: Does this mean that the United States has now moved from a position of seeking to guarantee loans to actually making loans?

SECRETARY RUBIN: We have it within our discretion to either extend loans or use the loan guarantee mechanism; we will do what we think is in the best interest of this country in choosing between the two.

No matter what we do, however, the maximum exposure that we can now have, whether in the contingent liability form of a loan guarantee or an absolute loan is half of what it would have been before when we had a $40-billion proposal.

Q: Well, why did you propose guarantees before and this now?

SECRETARY RUBIN: The prior program was envisioned as a loan guarantee program which, if put in place, we thought -- and I believe correctly thought -- would cause the private market to begin to flow -- private capital flows to begin in Mexico. I think this program will have exactly the same effect.

What we decided to do in this instance -- we could structure this as loan guarantees if we wanted to. The decision we made was to leave ourselves the discretion to do what we thought would work best.

Q: Is this a better plan than --

SECRETARY RUBIN: I would say that this plan, in terms of the likelihood of success -- and I think the likelihood is very high -- is the approximate equivalent of the prior plan; the prior plan was $40 billion, this is $37.5 billion. The big difference here, I would say, is that in this case, almost half of the money is non-U.S. money.

Q: Why didn't you do this the first time?

SECRETARY RUBIN: We didn't do it in the first instance for several reasons which Secretary Christopher explained. Number one, the President felt that a matter of this sort should be brought to Congress, and I think that was the right decision. But he then came to the point yesterday where three things happened: Number one, he was informed by the Bipartisan Leadership that Congress could not act in a timely fashion; number two, market conditions in Mexico had reached the point where we felt that financial distress was getting to a dire and, in fact, perhaps -- well, they're words secretaries of the Treasury should never use, so I will just say that we were getting to the point where we were very troubled; and, number three, we now had $17.5 billion of IMF commitment, which was a multiple of the amount that we had before.

So the President decided about 11:30 p.m. last night that he would act under the executive authority that he has to deal with what he viewed as a matter of grave national interest, and then he called the Bipartisan Leadership down this morning, they agreed on the gravity of the concern, and all four are now supporting this action and this plan.

Q: This $10 billion figure that you say is coming partially from the central -- this $10 billion figure is not a sure thing, that may be something that you'll get along the way?

SECRETARY RUBIN: I'm not sure -- you're talking about the BIS money?

Q: Yes. You say financial assistance -- is, they're considering providing it.

SECRETARY RUBIN: There are three essential pieces of money in here. There's our $20 billion, and the IMF piece, which will be approved at a board meeting tomorrow.

The $10 billion of BIS money is, I think, for practical purposes, assured. They had assured us of $5 billion and they're now increasing it to $10 billion. But the important thing to remember about the BIS is that while on the one had it's important, it's a short-term facility. The only intermediate term money we have is the rough equivalent of the $40 billion of loan guarantees that we were originally recommending.

Q: Mr. Secretary, is there enough unencumbered funds left in the Exchange Fund to support the dollar?


Q: In the past year we've said that support --

SECRETARY RUBIN: I can assure you -- yes, we thought of this ourselves. (Laughter.) We have focused very carefully on making sure that we have preserved the capability of doing anything that we think we will need to do, if we decide to do anything, which me may or may not decide to do, and we don't comment on anyway.

Q: How close was Mexico, and how close is Mexico to defaulting on loans, in terms of days?

SECRETARY RUBIN: In our judgment, the financial distress had reached the point that it was absolutely imperative that the President act, and act now. And that was very much the President's view and the view of the bipartisan leadership this morning.

Q: What was the answer to his question? How many days?

SECRETARY RUBIN: That was the answer to the question. It was close enough so we thought it was imperative that we act now as opposed to the length of time it might have taken to get congressional legislation.

Q: Why was the administration having so much trouble to persuade both members of Congress and the public to support this bailout?

SECRETARY RUBIN: I think Secretary Christopher said it very well. This is a situation that needed time for explanation. It's a situation that, in our judgment and in the judgment of the bipartisan leadership, was clearly very much in the national interest. It was very interesting, when you've spent time on the Hill -- and I have done it every day since we've gotten started in this thing -- you consistently ran into two kinds of reactions, often within the same person -- almost always within the same person: On the one hand, a general sense that this in fact was a matter of grave national interest to this country -- jobs, standards of living, immigration, security; on the other hand, it was a very difficult situation politically. And I think Secretary Christopher said, it was simply a question of having enough time to work our way through the latter issue.

Q: If the Exchange Stabilization Fund works, what happens to the $20 billion specifically? Has it been used before for any such purpose within the last 50 years?

SECRETARY RUBIN: The Exchange Stabilization Fund has never been used for anything precisely like this, although it has been used for all sorts of stabilization activities. I think it's fair to say that this is unique in terms of the use of the Exchange Stabilization Fund. But there's absolutely no question that it's in the authority of the President.

In terms of how it will be done, it will be done tranches and no tranche will be released unless very stringent economic conditions are being satisfied.

Q: The political conditions that were being discussed on the Hill -- immigration, drugs, extradition. None of that was --

SECRETARY RUBIN: The conditions that will be involved here are the conditions that will protect the economic security of the taxpayers with respect to our funds. There are a whole host of bilateral issues that need to be dealt with, and perhaps Secretary Christopher would like to address that.

SECRETARY CHRISTOPHER: Well, we have had and will continue to have very close consultation with the Mexicans on the bilateral issues that you mentioned -- narcotics, law enforcement, migration. Indeed, within the next 30 days we'll be meeting in working groups with the Mexicans on border issues and on law enforcement issues.

My own judgment is that today's action will enhance our ability to achieve good results in those areas. I can tell you that just a few minutes ago, President Clinton spoke to President Zedillo, informed him of his decision today and also urged him to take action to give us their continued support on these bilateral issues. So we'll be going forward on these issues, but I think in an atmosphere where we have an enhanced opportunity to make real achievements.

Q: What are the conditions? Are you going to loan American taxpayers' money without revealing, in specific, what the conditions are?

SECRETARY CHRISTOPHER: There will be strong, tough economic conditions to support the integrity of the loans. With the IMF now in the matter to the extent they are, you can be sure the IMF conditions, sometimes critici zed for being too stringent, would be appropriately stringent in this situation.

Now, with respect to the non-economic issues, both Secretary Rubin and I have frequently said that this particular transaction should not be encumbered by non-economic conditions. At the same time, we're going to be working very closely with the Mexicans on these political -- if you call political issues and non- economic issues and making steady progress on them as we have over time, enhanced by today's action.

Q: You had said that this is a test of the President's leadership. But why shouldn't people think that what this really shows is the President didn't have enough clout to get this deal passed through Congress?

SECRETARY CHRISTOPHER: No, the President, as soon as this issue arose, called the Congressional Leadership down here, obtained their support. We've been working for two weeks on Capitol Hill. The leaders of Congress concluded that it could not be accomplished on a timely basis, although they thought with continued presidential action it could be accomplished. But the timing was really urgent in the situation. So the President did what presidents often have to do, and that is, take the responsibility for protecting American interests, and I think that's the best test of American leadership.

Q: Chairman Greenspan said no plan will work unless Mexico alters its fiscal policies. He said that on the Hill today. I mean, what guarantees do you have from the Mexicans?

SECRETARY RUBIN: We have obviously spoken to the Mexicans at length today, and they will be saying something to the effect that it is Mexico's job to deal with their own problems and to put themselves on a sound basis. To help them do that and to augment their own determination to do that, there will be conditions dealing with the growth of domestic credit, with the growth in money supply, with the fiscal deficit -- although, as you know, they're in a surplus position, unlike some other countries -- and external borrowings by the public sector. There will also be transparency conditions, and there will be conditions with respect to reinforcing the independence of the central bank.

These conditions, as Secretary Christopher said, are in the process of being worked out by ourselves with the IMF. The IMF will impose these -- the IMF has the reputation for being exceedingly tough with respect to conditions. Some of these conditions will probably flow independently from the United States as well.

Q: Don't you usually work out the conditions before you put up the money?

SECRETARY RUBIN: We are going to have the conditions worked out before -- before any of the money is put up in the intermediate term facility, yes.

Now, we have, as you know, a short-term facility which is an exchange support system, and we probably will release some money from that today. But that -- it will be a relatively small amount. We have not had a history of disclosing the amounts involved in the Exchange Stabilization. But that is a short-term stabilization; that's not what this program is about.

Q: That's the $18 billion?

SECRETARY RUBIN: No, no, we're talking about a very small amount of money relative to anything we've been talking about.

The program we're talking about today is the program that is designed to reschedule their short-term debt to long-term debt, and that money will not be made available until the agreements have been worked out on the conditions.

Q: The final decision about whether the conditions have been met -- will those ultimately rest with the Treasury Department, or will they rest with the IMF?

SECRETARY RUBIN: The IMF, the Federal Reserve Board and the Treasury will all oversee compliance with conditions. We have the unilateral right to terminate if we feel in our own judgment that the conditions are not being satisfied.

Q: Have you asked Canada for any additional contribution besides the $1 billion which was previously announced?

MR. MCCURRY: I just want to thank Secretary Rubin and Secretary Christopher. We're going to take about a two-minute break, and I've got people who can get into some of these more detailed questions who will brief you ON BACKGROUND, although you've had the two Secretaries on the record.

Q: off Air Force One, or --

MR. MCCURRY: I'm not sure. Sandy Berger just came in and passed that on, and I asked him to check and see if that was off Air Force One or not. I'm not sure if the President has landed yet at Boston.

Q: Just one other thing. The education process the Secretaries talked about -- this having been done now, does the President still have to go out and do something to overcome these polls that have been saying that massive --

MR. MCCURRY: The President feels -- having taken this very firm action today, the President feels a continuing responsibility to help Americans understand why it was in the interest of the United States and why he judged it to be in the interest of the United States to take this action, and will continue to help Americans understand why he acted as he did today.

Q: Did the President personally talk last night to members of Congress on the phone, or was that just Leon and other people?

MR. MCCURRY: I don't know the answer to that, Rita, we'll check on that.

THE PRESS: Thank you.

END3:50 P.M. EST

William J. Clinton, Press Briefing by Secretary of State Warren Christopher and Secretary of the Treasury Robert Rubin Online by Gerhard Peters and John T. Woolley, The American Presidency Project

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