Mexico Repays Nearly 9% of Its Foreign Debt : Third World: The amount owed is expected to tumble to 29% of gross domestic product by the end of the year, compared to 74% in 1988.

MEXICO CITY â€”  Mexico, which set off the Third World debt crisis nearly a decade ago, Monday became the first debtor nation among developing countries to pay off a significant portion of its international debt--eliminating more than $7 billion, nearly 9% of what it owes international bankers.

“This debt will no longer weigh on the shoulders of Mexicans,� President Carlos Salinas de Gortari said at a press conference. “We will be less vulnerable to changes in international markets, and we will have more to spend on social programs.�

Mexico has been burdened by debt since September, 1982, when officials revealed that the country could no longer make payments on the $86 billion the government and private sector owed international bankers.

The announcement set off a panic about loans to developing countries that stifled lending, investment and growth in Latin America for the rest of the 1980s.

Mexico has been a leader in overcoming that stagnation, with a dramatic economic restructuring that has included selling off hundreds of government-owned companies, easing restrictions on foreign investment, opening up to international trade and now canceling a major part of its foreign debt.

The repayment will reduce the Mexican government’s foreign debt to $73.6 billion from $80.8 billion, according to Finance Secreatry Pedro Aspe Armella.

Total foreign debt--including corporate borrowing--will drop to 29% of gross domestic product by the end of the year, Aspe predicted, compared to 74% in 1988. U.S. foreign debt is two-thirds of GDP.

“We owe less, and what we owe weighs less heavily in comparison with what we produce,� Salinas said.

Economists and investors praised both the debt cancellation and the timing of the announcement.

“This is a very smart move by the authorities that will have a good impact abroad,� said Javier Maldonado, an economist at the Mexico Econometric Research Center in Philadelphia.

“This will increase confidence, and confidence is the name of the game in Mexico,� said a foreign investor, who spoke on the condition his name would not be used.

Monday’s announcement is the culmination of a 2 1/2-year effort that began with the 1990 debt renegotiation that included provisions for swapping debt for equity. It also created a new type of bond, backed by U.S. Treasury bonds and allowed Mexico to buy back its own debt on the secondary market, where banks that hold Mexican debt sell it at a discount to speculators.

Mexico combined those provisions, buying the discounted debt with proceeds from new, lower-interest loans, using the old, U.S. Treasury-backed bonds as collateral for the loans.

The sale of government shares in the telephone company, Telefonos de Mexico, on international markets earlier this year provided funds that allowed the government to buy back the new bonds, eliminating the need for collateral and permitting cancellation of both the old and new bonds Monday.

Most of the debt was eliminated in this way although portions were canceled through debt swaps and transactions relating to privatization.

Smaller countries, such as Bolivia and Costa Rica, have canceled smaller amounts of debt through swaps, but mainly as part of renegotiations with banks.

Further cancellations will hinge on whether the government has any more windfalls, such as the sale of the Telmex stock, said a senior official. Mexican officials have been adamant that money from Mexico’s $18 billion in international reserves will not be used for debt reduction.