Mexico unveils emergency spending to combat crisis

MEXICO CITY -- President Felipe Calderon on Wednesday unveiled plans for 53 billion pesos ($4.4 billion) in emergency spending on infrastructure next year in a bid to help Mexico combat the world financial crisis.

In a televised address, Calderon assured Mexicans the nation's banks are solid and haven't slowed lending to companies or individuals, despite a global credit crunch that has sent stocks here tumbling and seen the peso weaken to a record low against the dollar.

The $4.4 billion in additional investment for 2009, which must be approved by congress, would be used "to build infrastructure projects that will bring direct social benefits to millions of Mexicans and help keep our economy on track," Calderon said.

He said the emergency spending "is not a financial rescue package, but will focus on strengthening the motors of our economy."

Earlier Wednesday, Mexico's central bank moved to auction off $2.5 billion in reserves to prop up the struggling peso.

Bank of Mexico President Guillermo Ortiz said the bank received 59 bids of US$1.7 billion. Of those, 31 were accepted for a total sale of US$998 million. The bank will continue auctioning off the rest of the designated reserves on Thursday.

Ortiz said Mexican currency markets on Monday had fluctuations not seen since 1995, when the country was mired in its own banking crisis. But he emphasized that today, "Mexico's banking institutions are solid."

Wednesday's dollar auction came hours after the peso dropped below a record 14 to the U.S. dollar. It recovered to around 12 to the dollar after the bank's announcement, but was still down significantly since closing last week at 11.1 to the dollar.

If the peso falls more than 2% in value from the day before, the bank said it will auction off an additional US$400 million more a day. Mexico's international reserves were at US$84 billion on Friday.

Treasury Secretary Agustin Carstens said that the peso's recent fall has been speculative and "exaggerated."

Mexicans should "have confidence that our financial system is healthy and that our currency is, I would say, one of the best options for investment," he told a news conference.