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August 23, 1998
 

                  Mexican economic team tries to halt peso plunge

 
                  MEXICO CITY (Reuters) -- President Ernesto Zedillo's economics team
                  and worried legislators were to meet Monday to discuss the Mexican peso's
                  dramatic plunge against the dollar last week and ways to prevent further
                  market bloodshed.

                  The peso, battered to a new historic low of 9.78 per dollar on Friday, was
                  being quoted at a sliver under 10.0 to the U.S currency at foreign exchange
                  booths in Mexico City airport over the weekend, raising the prospect of
                  further hemorrhaging.

                  The shock waves that swept through Mexican and other Latin American
                  markets all last week, culminating in a sharp outflow of funds on Friday,
                  came from jitters over Russia and fears Venezuela could be forced to follow
                  Moscow's lead and devalue.

                  President Boris Yeltsin unexpectedly fired his entire government on Sunday
                  and reinstated former prime minister Viktor Chernomyrdrin, an abrupt move
                  that came with no explanation and which could rattle spooked markets
                  further.

                  Mexico's El Financiero newspaper said senators of Zedillo's ruling
                  Institutional Revolutionary Party (PRI) planned to tell his economic officers
                  on Monday not to spend foreign reserves defending the currency against
                  panic selling.

                  "PRI senators Jose Manuel Toraya Baqueiro and Melchor dos Santos ...
                  said that in the closed door meeting they will have with the economic team ...
                  they hoped to reach agreement, because they did not think it reasonable to
                  inject more dollars from the reserves to support the exchange rate," the daily
                  said.

                  Economists say the unexpected peso weakness is throwing already
                  ambitious inflation targets even further out of reach. When the peso
                  weakens, imports become more expensive, forcing local prices upward.

                  Finance Minister Jose Angel Gurria has so far declined to revise Mexico's
                  1998 inflation target of 12.0 percent although few analysts foresee inflation
                  coming in below 14.0 percent for the calendar year.

                  Labor Minister Jose Antonio Gonzalez Fernandez said on Friday the
                  meeting would focus on how to limit the damage to ordinary Mexicans from
                  the battered markets.

                  President Ernesto Zedillo appealed for "serenity" during a visit to the Gulf
                  Coast state of Veracruz on Friday.

                  Other members of the government recognized that world events meant
                  Mexico would have to adapt its policies.

                  Mexico, a major oil exporter, has already been forced to cut $4.0 billion in
                  spending from its 1998 budget because international crude prices have sunk
                  to 10-year lows.

                  Oil prices have not yet recovered to the point that would allow Mexico to
                  avoid further budget adjustments.

                  Santiago Levy, undersecretary for revenue in the Finance Ministry, said the
                  1999 budget was likely to be "austere" as a result.

                  Quoted in Saturday newspapers, Levy virtually ruled out further budget cuts
                  this year because of the lack of time. The 1999 budget has to be sent to
                  Congress by mid-November.

                  ted in Saturday newspapers, Levy virtually ruled out further budget cuts this
                  year because of the lack of time. The 1999 budget has to be sent to
                  Congress by mid-November.

                  Copyright 1998 Reuters Limited. All rights reserved.