Opinion: It didn’t really work out for Lopez Portillo

Mexico’s outgoing President Jose Lopez Portillo obviously thought that dramatic action was needed to try to calm the spreading panic caused by his country’s economic crisis. His decision Wednesday to nationalize the country’s banks was such a step, but it remains to be seen whether it will work. Economists and other observers disagree about the main cause of Mexico’s economic turmoil. Was it the drop in world oil prices, too much borrowing and spending by the Mexican government or the flight of investment capital from the country? Lopez Portillo chose to blame the flight of capital, and he hopes that a government takeover of the banks will put an end to it. In his final state of the union speech, delivered this week in Mexico City, Lopez Portillo used strong language to condemn Mexico’s private banks for helping depositors take their money out of the country to be put into foreign banks or to buy real estate in the United States. He estimated that well-to-do Mexicans have invested or deposited almost $39 billion abroad -- money that Mexico badly needs to continue the economic progress that it has made in the last few years, thanks to profits from its oil discoveries. In the short run, Lopez Portillo’s action had one salutary effect. It encouraged foreign bankers, including many in the United States, who feared that some private Mexican banks might fail as a result of the economic crisis, which has seen the value of the Mexican peso fall from 27 per dollar to more than 100 to the dollar in less than seven months. The chief uncertainty now is whether the government can persuade Mexicans with money abroad to repatriate their investments. There seems little that the government can do to force those cautious and perhaps even cynical investors to act. Any steps toward freezing their assets or imposing confisccatory taxes on their earnings could well start a new surge of capital flight -- and a new panic. Whether you approve of Lopez Portillo’s action or not, you must hope that it succeeds, because the economy of Mexico is so intertwined with thtat of the United States. Any worsening of the situation south of the border has harmful side effects in this country, as evidenced by the drastic dropoff in business in U.S. border towns in recent weeks, and the increase in illegal border crossings by unemployed Mexicans looking for work. We wish that there were some similarly dramatic gesture that the Reagan Administration could now make to help the Mexicans. So far, the Administration has acted properly and promptly -- if quietly -- in reacting to the Mexican crisis. The U.S. has offered loan guarantees to the Mexican government and has prepaid for purchases of Mexican oil, and is supporting a Mexican request for emergency loans before the International Monetary Fund. There have been reports of a possible meeting later this month between President Reagan and Mexico’s President-elect Miguel de la Madrid, who will succeed Lopez Portiollo on Dec. 1. The meeting should take place as soon as possible, and Reagan should use the opportunity to ask Mexico’s incoming president what further assistance this country can offer to see its neighbor through the crisis.