Mexico's Recovery: Is It in Peril?

LEAD: On the eve of a landmark loan agreement to ease Mexico's debt burden, economists and business executives here warn that the nation's fragile economic recovery is threatened by Government spending on new social programs and a scarcity of private investment funds needed for sustained growth.

On the eve of a landmark loan agreement to ease Mexico's debt burden, economists and business executives here warn that the nation's fragile economic recovery is threatened by Government spending on new social programs and a scarcity of private investment funds needed for sustained growth.

A slowdown in growth, they add, could well give Mexico trouble in meeting even its reduced debt obligations, raising the prospect that it would eventually have to go back to the banks to negotiate for new repayment terms once again.

The significance of Mexico's struggle to avoid further repayment difficulties extends well beyond the country's borders. The Mexican economy is the first testing ground for Treasury Secretary Nicholas F. Brady's plan to manage the $400 billion Latin American debt problem. With President Carlos Salinas de Gortari scheduled to sign the debt accord with Mexico's foreign lenders here on Sunday morning, the crucial Mexican test will begin in earnest.

Mexico and its 450 bank lenders agreed in principle to a debt-reduction package last July, and the announcement provided an important foreign vote of confidence in the Salinas Government's free-market program to curb inflation and put more of the economy in private hands.

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Market Place; Debt Still Threatens to Prevent Airlines' Recovery from Taking Off.

THE oft-recited bullish formula for airline stocks typically points out that many carriers are cutting costs by means like grounding planes and shedding unprofitable routes. With a little boost from the economy and a break from heavy fare wars, this lean approach should translate into quick profits.

Or so the argument goes.

Yet there is one nettlesome issue, apart from the unpredictability of the economy and airline pricing, that threatens to weigh on the industry's much-anticipated recovery: the debt carried off the airlines' balance sheets, covering leases for things like airplanes and buildings, a common practice in the industry. In some cases, this debt is more than twice the debt on their balance sheets.

That additional debt points up the daunting challenge many airlines face in regaining investment-grade status, which would help them drive down their stubbornly high costs.

"Earlier this year, the market seemed to think that any kind of earnings recovery would put the airlines on a path to much healthier financial condition," said Philip Baggaley, a transportation analyst at the Standard & Poor's Corporation. "But it is a much longer road back than they may realize."

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