Mexico Has the Will, Not the Way : Progress Requires That U.S. Help on Debt, Then Stand Aside

There are indications that Mexico may soon limit or suspend payments on its nearly $100-billion foreign debt. One of the ironies surrounding this step is that the recent round of Mexico-bashing by U.S. officials has made it almost inevitable. Standing up to the U.S. government and its allies in the international financial community on an issue that profoundly affects the well-being of all Mexicans has become not only politically attractive, but imperative for a Mexican administration whose credibility at home has been battered by the lack of progress in debt-restructuring negotiations.

For more than two years, President Miguel de la Madrid has resisted rapidly growing demands that he unilaterally cap or suspend interest payments on the external debt. But he has been backed into a corner by the combination of falling oil revenues, creditors’ intransigence and U.S. government criticism.

In the view of many Reagan Administration officials and members of Congress, Mexico’s problems are getting worse and may soon become unmanageable. These critics charge that top Mexican officials are unwilling to make the hard choices, pay the domestic political costs and take the risks involved in launching bold new reforms. As a result, they are rapidly losing control of the situation.

Both this analysis and the new, more activist U.S. policy toward Mexico that flows from it are dangerously flawed. The lack of dramatic progress in resolving Mexico’s problems is being viewed in Washington as a failure of political will. Actually, it is mainly a lack of capacity.

Since the day it took office in 1982, the De la Madrid government has cut deeper and stuck longer with a an austerity program than any of its predecessors.

But the effects of the conservative, pro-business, pro-U.S. policies have been swamped by a 55% decline in world oil prices (costing the Mexican government $6 billion to $8 billion this year alone), last September’s devastating earthquakes in Mexico City (causing more than $4 billion in damage), a $10 billion-per-year interest bill on the external debt (now consuming nearly 75% of Mexico’s foreign currency earnings) and capital flight (Mexicans have pulled at least $16.2 billion out of the country in the past three years, depositing 70% to 80% in the United States).

De la Madrid’s International Monetary Fund-style adjustment program has caused considerable social and political pain. It has boosted unemployment and pushed real wages down to 1965 levels. Government subsidies to consumers and producers have been slashed, causing the prices of many basic goods and services to double. The program’s failure to restore economic health has fueled an increasingly bitter national debate over the country’s development strategy. It has also weakened De la Madrid’s hand in dealing with his political opponents, making it far more difficult to make concessions to them in the electoral arena and continue the process of political liberalization that began--then was suspended--in 1983.

Nevertheless, Mexican officials complain that they are being pressed by the U.S. government, foreign bankers and the IMF to launch the kind of all-out supply-side counterrevolution that has proven politically impossible to carry out in the United States during the 1980s. They argue that Mexico’s development model cannot be fundamentally recast to encourage unfettered capitalist accumulation in a country where the problem of income inequality is so severe, at least within the confines of the present Mexican political system.

Many Mexicans suspect that the hidden agenda behind Washington’s “campaign against Mexico” is not to get the nation to clean up its domestic policy act, but to force changes in its foreign policy. The De la Madrid administration has little or no ideological affinity with Nicaragua’s Sandinista government and has ceased to supply it with oil. But it has also taken the pragmatic position that open alignment with Reagan’s policy toward Nicaragua would deprive Mexico of one of its few remaining claims to legitimacy--the independent conduct of foreign policy--while creating a new source of conflict within the Mexican political system. Yet Washington hard-liners, led by CIA Director William Casey, continue to insist that Mexico be a “team player” on Central America.

Conservative elements both in Mexico and in the Mexican “economic exile” community in the United States see their country’s maverick policy toward Central America as an obstacle to closer U.S.-Mexican ties. But the real obstacle to better relations between Mexico and the United States is a stagnant, high-inflation economy in Mexico.

The United States can do more than it has to help Mexico recover by devising and aggressively promoting in the international financial community a truly realistic strategy for easing Mexico’s external debt-service burden, not just adding to it through new lending (the “Baker plan”). An alternative approach must reflect more accurately Mexico’s structural ability to pay, as well as the enormous domestic political pressures on the De la Madrid government.

Indicative of De la Madrid’s plight is the public demonstration of hostility toward him at the opening ceremonies of the World Cup soccer matches. His speech was drowned out by booing from the predominantly Mexican crowd--something unprecedented in modern Mexican history.

The De la Madrid government today probably lacks the political strength that would be necessary to move faster with the present economic restructuring program, much less a more sweeping version of it. If it tried to do so, especially under pressure from the United States, the danger of a highly destabilizing split within the Mexican ruling class would increase greatly.

Mexico is already on the brink of far-reaching changes in its economy and political system. If the U.S. government is genuinely interested in reducing the potential for social and political unrest in Mexico, it should focus on the debt problem and otherwise stay out of the way.