Announcement of World Bank Assists Restructuring of Mexico's Steel Sector on March 3, 1988

FOR IMMEDIATE RELEASE World Bank 1818 H Street. N.W., Washington, O.C. 20433. U.S.A. BANK NEWS RELEASE NO. 88/52 Contact: Ciro Gamarra (202) 676-1217 WORLD BANK ASSISTS RESTRUCTURING OF MEXICO'S STEEL SECTOR WASHINGTON, March 3, 1988 -- Mexico's comprehensive reforms in the steel sector will be assisted by a World Bank loan of $400 million. The loan will support policy reforms and the restructuring of public and private steel plants to make them more efficient. It is part of the Bank's assistance to the government's adjustment program to liberalize trade, decontrol prices and promote a greater role for the private sector in agriculture, industry and parastatal (steel and fertilizer) enterprises. The steel industry, with a capacity to produce 9 million tons of crude steel a year, is an important part of Mexico's manufacturing sector, contributing 4.2 percent of industrial production and 1.3 percent of the gross domestic product in 1986. "The loan is designed to back the government's modernization of the public and private steel sectors. It supports a 20 percent reduction in public sector steel-making capacity, improvement of competitive segments of the Mexican steel industry and the opening of the Mexican steel market,• Rainer B. Steckhan, World Bank Director of Country Programs for Mexico and Central America, said today. "The loan is one of several operations that the Bank is processing as part of its commitment to the government's 1986-87 growth-oriented adjustment program. These operations would allow Mexico to draw down the remaining balance of roughly $1.1 billion of the 1987 commercial bank facility for the country,• Mr. Steckhan added. The restructuring project has an estimated cost of more than $1 billion and will finance input materials and steel product imports during Mexico's economic adjustment period. It will also provide funds for investments in plant and equipment to rehabilitate and modernize Altos Harnos de Mexico (AHMSA) and the facilities of Hylsa, a private company; production increases in Carbon y Minerales Coahuila (CMC) iron ore and coal mining operations; and enhancement of the strategic planning capacity of SIDERMEX, the public sector steel holding corporation. NOTE: Money figures are expressed in U.S. dollar equivalents.  - 2 - The project includes implementation of policy reforms involving elimination of domestic price controls and completion of trade liberalization measures such as reduction and rationalization of tariffs on steel products and elimination of official reference prices. A broader policy framework for the sector will also be prepared. Overall, the restructuring process is expected to result in a reduction of Mexico's steel-making capacity of approximately 20 percent (including the closure of uneconomic plants), virtually all in the public sector, while allowing the industry to raise the use of existing capacity and concentrate its product lines in competitive markets. The project will be implemented over a four-year period. It will help local users of steel products to be more efficient as high-quality steel products become available at internationally competitive prices. The new World Bank loan was made to Nacional Financiera (NAFIN) with the guarantee of the Mexican government. NAFIN will onlend the proceeds of the loan as follows: $100 million to the Government of Mexico in support of the steel sector policy reform program; $170 million to AHMSA, $50 million to CMC and $5 million to SIDERMEX in support of the restructuring program; and $75 million to Hylsa in support of the rehabilitation and modernization program of its facility in Monterrey. The loan is for 15 years, including three years of grace, with a variable interest rate, currently 7.72 percent, linked to the cost of the Bank's borrowings. It also carries an annual couunitment charge of 0.75 percent on the undisbursed balances. - 0 -