Pre-election Mexico says it will slash foreign debt

MEXICO CITY - Mexico said on Thursday it will use record foreign reserves to prepay US$7 billion ($11.4 billion) in debt, soothing investors in the last days of a presidential election race leaning in favour of a feisty leftist candidate.

Deputy Finance Minister Alonso Garcia said the payback of World Bank and Inter-American Development Bank debt would save about 600 million pesos ($85 million) in interest payments and better protect the country against future crises.

The operation was meant to underscore Mexico's financial strength ahead of the July 2 election.

"This allows us to guarantee that the electoral process and the transfer of power take place under the most favorable conditions for the country," President Vicente Fox said in a televised address.

Mexico will issue floating-rate peso bonds in July to pay for the dollar debt payback, reducing federal foreign debt to US$50 billion, Garcia said.

He said the operation will lower the country's foreign debt to 28.5 per cent of total debt from 32.5 per cent.

The country has debt of about US$13 billion with the World Bank and the Inter-American Development Bank, Garcia said.

Mexico has often suffered economic turmoil at the end of presidents' six-year mandates.

- REUTERS