Announcement of World Bank Supports Second Phase of Trade Liberalization in Mexico on November 12, 1987

FOR IMMEDIATE RELEASE ~NorldBank 1818 H Street, N.W., Washington, D.C. 20433, U.S.A. BANK NEWS RELEASE NO. 88/18 Contact: Ciro Gamarra (202) 676-1217 WORLD BANK SUPPORTS SECOND PHASE OF TRADE LIBERALIZATION IN MEXICO WASHINGTON, November 12 -- The World Bank approved a $500 million loan to support the second phase of Mexico's trade liberalization program, which aims at achieving greater domestic efficiency and international competitiveness. This loan is the second World Bank adjustment operation to support the Mexican government's strategy for trade liberalization. It is an important part of the external financing package in the period 1986-1988 linked to the implementation of Mexico's economic reform. The initial phase of Mexico's trade liberalization program was successfully implemented in 1986. It was supported by the first World Bank trade policy loan, also of $500 million, approved in July 1986. The second phase, to be implemented in 1987, will focus on further elimination of discretionary, non-tariff barriers to imports including quantitative restrictions and official reference prices, along with the continued reduction of the level and dispersion of the tariff structure according to a pre-announced calendar. By September 1987, the government had achieved virtually all the liberalization envisaged under the second trade policy loan. Non-tariff barriers production coverage had fallen below the target set. The maximum tariff was also reduced to 35 percent. The trade reform program is making a major contribution to the recovery of substantial growth and Mexico's creditworthiness. By stimulating greater efficiency and competitiveness, the program can also help reduce inflationary pressures in the economy. Mexico's program of growth-oriented adjustment is being supported by a comprehensive financial package intended to provide up to $10.7 billion in net new disbursements through the first quarter of 1988. The financing package includes planned increases of $2.7 billion and $1.6 billion, respectively, in the exposure of multilateral (in particular the World Bank) and bilateral creditors; about $6 billion from coIIIIllercial banks; and $400 million net from an International Monetary Fund stand-by credit. The package also contains several contingency facilities -- backed by the coIIIIllercial banks and the IMF. NOTE: Money figures are expressed in U.S. dollar equivalents.  - 2 - ' The second trade policy loan will be disbursed in two tranches, the first one of $300 million and the second one $200 million. The first tranche will be available for disbursement at the time of loan effectiveness. The second tranche will be released upon fulfillment of specified conditions, including the reduction of non-tariff barriers coverage by 20 percentage points of domestic production from the level which prevailed in November 1986. The second tranche is expected to be authorized by March 1988. The loan proceeds will be used to reimburse 100 percent of the foreign exchange cost of eligible imports, in categories freed from non-tariff barriers on or after July 25, 1985. Ineligible imports include goods subject to official import reference prices or quantitative restrictions of any kind, goods financed from other official multilateral or bilateral sources, luxury goods, and goods intended for military or paramilitary use. The loan was made to the Banco Nacional de Comercio Exterior (BNCE) with the guarantee of the United Mexican States. It is for 15 years, including three years of grace, with a variable interest rate, currently 7.76 percent, linked to the cost of the Bank's borrowings. It also carries an annual conunitment charge of 0.75 percent on the undisbursed balances. - 0 -