by the Bank of Mexico. Foreign Exchange Mexico has no exchange control, and foreign investors, therefore, are permitted freedom in foreign exchange operations. Capital profits and dividends may be readily transferred to and from Mexico. The rates at which foreign exchange may be bought and sold are those quoted by Mexico's central bank, the Banco de Mexico, S.A. The Mexican monetary unit is the peso, which is equivalent to US$0.08. The par value of the peso is defined as 0.071 grams of fine gold, or 12.5 pesos equal US$1.00. The peso has never been subject to exchange controls and is used by the International Monetary Fund in its international transactions. Parity of 12.5 pesos to the dollar has not changed since April 1954. During the past 17 years, successive administrations have successfully held inflation to about 3 percent annually until very recently when inflationary pressures increased throughout the world. Monetary Policy The principal objective of Mexico's monetary policy is to maintain internal stability, while avoiding any pressures that might affect the exchange value of the peso. The central bank of Mexico has a number of instruments at its disposal, such as authority to vary the discount rate, grant loans and rediscounts, open market operations, modify the rate of obligatory deposits, and fix maximum and minimum interests rates at which private banks may borrow and lend money. It is also authorized to determine percentages for various items of liability in relation to its capital and reserves. Legal reserve requirements have a broader application in Mexico than in other countries, in that they apply to private investment banks as well as deposit banks. Mexico's long-term external debt is about $3.4 billion to $4.5 billion, of which $2.9 billion is in the public sector. Through continued renogiation of this debt, however, the pressure from foreign governments has eased slightly. Nevertheless, the cost of servicing the debt poses a critical problem because some 26 percent of foreign exchange earnings amounting to more than $450 million annually is required as interest payments. If the present trend continues, Mexico will have a foreign debt of about $5 billion by 1975, with an annual debt service of $600 million. Over the 1960-70 period, the current account (goods and services) of Mexico's balance of payments has deteriorated. Deficits have been covered by increasingly heavier foreign indebtedness which, in turn, has created a growing external debt servicing burden in relation to the total foreign exchange generated by the export of goods and services. For 1970, the ratio of debt servicing to total exports was 23.7 percent, which is considered too high by most financial experts. To improve trade and the balance of payments situation, the President hopes to expand total exports, especially in the area of manufactured products, by at least 35 percent in 1972. Similarly, a drive is under way to expand tourism to accomodate more American visitors. Fortunately, cotton, which is Mexico's principal export product, is not affected by the 10 percent import tax recently imposed by the United States. 14