Mexico Repays Bailout by U.S. Ahead of Time

President Clinton said today that Mexico had repaid all of the $12.5 billion it borrowed from Washington to stave off a financial collapse two years ago, ending one of Mr. Clinton's riskiest overseas ventures and releasing Mexico from tight economic controls imposed by Washington.

The repayment of the loan -- three years ahead of schedule -- was marked by a celebration at the White House today presided over by Mr. Clinton and Treasury Secretary Robert E. Rubin, who had warned that a default by Mexico could bring down economies around the world.

''Two years ago helping our friend and neighbor in a time of need was quite controversial,'' Mr. Clinton said today, a reference to his decision to do an end run around Congress, which refused to act on an emergency package for Mexico, and to lend the cash from funds under the President's control.

''Some said that we should not get involved, that the money would never be repaid, that Mexico should fend for itself,'' Mr. Clinton said. ''They were wrong.'' He stopped short of naming those opponents, who included Ross Perot, Patrick J. Buchanan and Senator Alfonse M. D'Amato, the New York Republican.

Mr. D'Amato made several attempts to stop the transfer of funds to Mexico, declaring in March 1995 that ''the Mexican bailout is a failure'' and that the Administration had made the economic climate in Mexico ''far worse than it needed to become.''

Today, Mr. D'Amato issued a terse statement saying that he was ''pleased'' and attributed the quick repayment to ''vigilant Congressional oversight.''

In the end, Mr. Clinton said, the United States ran a profit of more than half a billion dollars on the loans.

That money, which American officials said would go toward deficit reduction in the United States, is above the interest the cash would have earned had it remained in the Federal Reserve's emergency stabilization fund, which was originally designed to steady the dollar rather than the currencies of allies.

In Mexico City, the news prompted a rally in the stock and bond markets -- in part because paying off the loans meant that the country no longer needed to put up its oil production revenues as collateral. The Mexican stock market rose 2.66 percent today and is up more than 12 percent this year.

President Ernesto Zedillo declared that the Government had made a ''bold step toward the economic recovery of Mexico.''

In fact, what Mr. Zedillo did today was what most prudent homeowners do when interest rates dip: he refinanced. In the seven months that followed the collapse of the peso in December 1994, and the ensuing dance with national bankruptcy, private lenders refused to go near Mexico, only worsening its troubles.

For that reason, Mexico secured a credit line from the United States of $20 billion, but only needed to borrowed 60 percent of that. But now, with renewed confidence in the Government's reforms -- confidence that some economists warn is premature -- investors around the world are once again rushing to lend Mexico all that it needs.

So Mr. Zedillo's Government is exchanging high interest loans from Washington with new bonds issued by Mexico. While those bonds carry relatively high interest rates, Mexican officials said today that they would save Mexico about $100 million a year in payments.

''Some predicted that our country would collapse, that the foreign aid would be unpayable and infringe our sovereignty, and that in the short term we'd be in a worse crisis,'' Mr. Zedillo said in a morning speech in Mexico City. But the early retirement of the debt to the United States Treasury demonstrates, Mr. Zedillo said, ''the coherence and responsibility the Mexican people and Government have shown in these tough times.''

The Mexican debt crisis produced some of Mr. Rubin's tensest days at the Treasury, and in private he hinted that he worried throughout the spring of 1995 that it could fail. ''This was Bob Rubin's Bosnia,'' one of his top aides said today. ''And today he got the troops out.''

The usually understated former investment banker was clearly reveling in the success of the bailout today.

In the Roosevelt Room at the White House, Mr. Clinton sidestepped a question about a recent decline in the value of the peso and deferred to Mr. Rubin, explaining ''you've made so much more money than I have.''

''There is a point to that!'' said Mr. Rubin, who usually makes no references -- even in jest -- to his huge fortune.

Back at the Treasury later in the day Mr. Rubin raised an eyebrow when his deputy, Lawrence H. Summers -- who was the first to recognize the possible ripple effects of the crisis in emerging markets and who organized much of the loan effort -- joked that he would settle for just 1 percent of the Treasury's $580 million profit on the deal.

''Larry, anything you can negotiate, I'm happy to split with you,'' Mr. Rubin shot back.

While the Administration was eager to describe Mexico today as a patient in recovery, the cost was high for Mexican workers who lost their jobs during the austerity program imposed as a condition of the loans, for homeowners who were unable to pay their mortgages and for businesses that suddenly found themselves caught in a severe recession.

Crime has soared in Mexico City, the pay of Mexican workers is still badly depressed, and the peso has stabilized but failed to return to its earlier values. While Mr. Clinton made much of the fact that American exports to Mexico were higher today than they were in 1994, before the crisis struck, he failed to mention that the trade deficit with Mexico had surged by nearly $18 billion.

Mexico's Finance Minister, Guillermo Ortiz, said in an interview today that Mexico had assembled the funds for its final payment to the United States -- previously it had paid off about 70 percent of its debt -- by selling bonds denominated mostly in foreign currencies in European, Asian and American markets.

The most recent bonds, which had terms of five to 10 years, generally longer than Mexico had on the United States debt, had yields of 3.35 percent more than United States Treasury securities.

''That's a lot lower than we were paying a year ago,'' Mr. Ortiz said. The rates, which are also generally lower than those Mexico was paying to the United States, reflect the recovery of international confidence in Mexico's solvency made possible by Mexico's tough economic program and the American bailout, he said.

''Obviously the crisis took a toll in terms of economic welfare, and incomes are still down from their 1994 level,'' Mr. Ortiz added. ''Consumption has not completely recovered yet. But had we not had the support of the international financial community and of the United States, the consequences would have been much worse.''

Nonetheless, average Mexicans will still have difficulty understanding today's debt-retirement celebrations, said Rafael Fernandez, a professor at the Autonomous Technical Institute in Mexico. ''The left will argue that in order to pay off these debts so quickly, Zedillo has had to impose tough austerity, and those that are suffering are the poor,'' he said.

One of the byproducts of the Mexican crisis was a move by the United States to press for far more extensive disclosure of critical financial information by countries around the world -- data that had they been published by the Mexican Government in 1994 would have made it clear that the country's foreign exchange reserves had dwindled to dangerously low levels. That meant Mexico was unable to pay $29 billion in short-term debt that was denominated in dollars.

Mr. Rubin and Mr. Summers worried during the bailout that they were creating a ''moral hazard'' -- that other countries around the world might see the United States as a lender of last resort in financial crises.

''I'm not as concerned about that today,'' Mr. Rubin said this afternoon. ''This experience has been enormously painful for the Mexican people. Countries are unlikely to decide that if worse comes to worse, we'll do what Mexico did.''

Mr. Rubin and Mr. Summers have also worked to set up international emergency funds, to which all nations would contribute, to handle further Mexican-style crises.

Today Representative James A. Leach of Iowa, the Republican chairman of the House Banking and Financial Services Committee, praised the success of the bailout but warned that ''great caution is going to have to be exercised in assuming that this is the only or best way to proceed.'' American taxpayers, he said, cannot be ''placed disproportionately in jeopardy.''