ZEDILLO: AID REPAYMENT SHOWS RECOVERY UNDER WAY

ZEDILLO: AID REPAYMENT SHOWS RECOVERY UNDER WAY

An announcement Thursday that Mexico will use a $700 million debt issue in German marks to begin repaying a portion of emergency U.S. aid shows the country is on the road to recovery, President Ernesto Zedillo Ponce de Leon said in an interview.

Mexico announced the debt re- structuring initiative just days before Mr. Zedillo makes his first visit to Washington as head of state. In an interview Thursday afternoon with the Journal of Commerce and a select group of other newspapers, the president said the announcement should help silence critics of a $20 billion U.S. aid plan."It provides further evidence that we are achieving the objectives of our stabilization program," Mr. Zedillo said, citing debt placements in dollars, yen and now deutsche marks.

Mexico tapped $12.5 billion of President Clinton's controversial $20 billion rescue plan earlier this year. The German debt issue will be used for the first repayment of the U.S. aid package.

"This is proof that the money lent us was put to good use," the president said.

Praising Mr. Clinton for providing the aid and preventing an international

financial crisis, Mr. Zedillo said the repayment plan is profitable for the U.S. government. Reuters reported Thursday that Mexico has paid $435 million in interest to the U.S. Treasury Department and $33.4 million to the Federal Reserve Bank.

Mr. Zedillo meets Mr. Clinton on Tuesday. His visit follows a roller-coaster week for the Mexican stock market and a slide in the peso's exchange rate against the dollar. It closed at 6.52 on Wednesday after hovering between 6 and 6.3 for months.

Despite the rocky week, Mr. Zedillo said Mexico now has a fundamentally different economy. He cited near equilibrium in the current-account deficit - which helped trigger the crisis - replenished foreign reserves, a free- floating exchange rate and a banking system that avoided the collapse many were predicting.

He dismissed this week's peso's slide as "short-run behavior of markets" and joked that the markets are putting "higher and higher standards on my government."

The burden of Mexico's tough austerity effort has fallen on ordinary citizens who will have seen fuel prices jump up by more than 42 percent by year-end as well as an increase in the value-added tax. Mr. Zedillo said the austerity measures will remain in place into next year and that his government will do whatever necessary to keep a balanced budget.

"It means we will have public finances in equilibrium," he said.

Mr. Zedillo anticipated a return to economic growth in the fourth quarter of this year and expected next year's growth rate to be modest.

"Anything above 3 percent - it will be difficult to see anything substantially higher than 4 percent."

There have been nagging questions about how Mexico can continue to finance its growth without a return to large current-account deficits. The president ruled out such a return and said Mexico will strive to keep current-account deficits at $1 billion to $2 billion.