Zedillo Replaces Finance Chief, Outlines Plan : Mexico: Technocrat Ortiz is named to post. President will unveil his emergency economic package on Monday.

President Ernesto Zedillo, seeking to restore confidence in his management of Mexico’s economic crisis, on Thursday replaced his embattled finance minister with a technocrat widely respected in international finance circles.

Guillermo Ortiz, who was transportation minister, will replace Jaime Serra Puche, who resigned under fire for his handling of Mexico’s peso devaluation after less than a month in office.

In an address to the nation, Zedillo also outlined an “economic emergency plan” that he will unveil Monday in a bid to regroup his nation’s badly shaken finances. The package is expected to include billions of dollars in foreign loans, stepped-up privatization of government assets and a sharp cutback in government spending to hold down inflation.

Meanwhile, the Mexican peso continued to stabilize, gaining value for the second straight day. It closed at 4.875 pesos to the dollar on Mexico’s market, up from a previous close of 4.975 but still off about 40% since last week’s devaluation. Mexican bond prices fell but Mexican stocks moved up strongly, with the Bolsa index closing at 2,411.06, up 73.34 points, or 3.1%.

Despite positive reaction to Zedillo’s talk, the outlook for Mexico’s economy over the next few months darkened as economists predicted a 1995 fraught with higher inflation, a possible recession and growing unemployment.

Ortiz, 46, a deputy finance minister under former President Carlos Salinas de Gortari, is a Stanford University-trained economist and colleague of Zedillo’s since the 1970s, when both worked as young researchers at Mexico’s central bank. He was formerly Mexico’s representative to the International Monetary Fund and enjoys excellent relations with international finance officials, something his predecessor lacked.

In his television address, Zedillo said he would accept a financial support package from abroad to help stabilize the peso, but offered no specifics. The package is expected to include $10 billion or more in loans and credit support from the United States and possibly other developed nations making up the so-called Group of Seven. That package could be in addition to a $6-billion credit-swap arrangement that the U.S. government has already made available but which the Mexican government has yet to use.

The financing is critical to help Mexico pay off an estimated $10 billion in short-term dollar-denominated government bonds, called tesobonos, that are coming due over the next three months, said Nora Lustig, research fellow at the Brookings Institution.

Without the financing, Mexico will have trouble meeting its obligations because its dollar reserves are severely depleted. Lacking outside help, Mexico would be forced to either convert investors to other instruments or force them into longer maturities, which would have disastrous effects on Mexico’s standing in the financial community, Lustig said.

U.S. government officials, who asked not to be named, confirmed talks were underway with Mexico and other Group of Seven nations but gave no hint as to when and how much financing would be offered. At a White House briefing for reporters, President Clinton said he was aware of a possible financial package.

“We’re talking to the Mexican government about what we can do,” Clinton said.

Zedillo also indicated in his speech that he will likely cut government spending in 1995 to keep inflation down. That could cause him political problems among social activists who were expecting the Mexican government to invest more in public works after a six-year austerity program instituted by Salinas to get Mexico’s finances in order.

Zedillo also indicated that he would battle inflation by getting labor groups and businesses to hold down prices and wage hikes.

Reaction was favorable in and outside Mexico.

“This was expected and we support it,” said a spokesman for Grupo Financiero Bancomer, Mexico’s second-largest bank conglomerate. “We believe this is a way of relieving pressure on the currency market and to increase the credibility of the government.”

* PROFILE OF ORTIZ: D3