Top Candidate Asks Overhaul of Mexico Economy

In a move to alter drastically Mexico’s economic landscape, Carlos Salinas de Gortari, the all-but-certain winner of the next presidential election, is proposing to reduce the role of government in the economy and increase foreign investment.

The changes would overturn long-held policies of Mexico’s ruling Institutional Revolutionary Party. Government business has been a medium of power for the PRI, as the party is widely known. Calls for increases in foreign investment have been virtually taboo for most PRI politicians in nationalistic Mexico.

“Mexico is entering an enormous process of transformation--economic, with more competition, fewer subsidies, less paternalism, and social, with more of a plurality of groups, more competition in the political arena,” Salinas said last week in an interview with The Times.

Salinas also said Mexico’s willingness to keep paying interest on its $108-billion foreign debt will depend in large part on the United States and other countries opening their domestic markets to Mexican exports. During his campaign for the presidency, Salinas has said he will limit the debt payment if he sees that it inhibits growth. A moratorium could cause havoc in the U.S. banking system.

“We need to grow at a rate that is double the population growth--that is, at about 4%--with intensive investment in employment,” Salinas said. “We want an economy with an export dynamic to create jobs in Mexico so that Mexicans do not have to look for jobs in other countries.”

60-Year Rule

As candidate for the PRI, which has ruled Mexico for the last 60 years, Salinas is all but guaranteed victory in the race that ends on election day July 6. His six-year term would begin in December.

But his march to the presidential palace has been anything but easy. The sad state of Mexico’s economy has been the major issue in the campaign. For the last five years, the economy has shrunk while prices have skyrocketed. Half the country’s workers are without steady jobs. The value of the Mexican peso has dropped sharply against the dollar.

Salinas, 40, was secretary of budget and planning in the current administration of President Miguel de la Madrid and as such was responsible for many of the government’s economic policies. De la Madrid handpicked Salinas as his successor.

During an hourlong interview on a campaign swing through northern Mexico, Salinas touched on a range of topics involving Mexico and the United States:

-- Drugs. The fight against illegal drug traffic will be one of the most important issues between the two countries in the next six years. He promised to increase government funding, police and community involvement in the fight against narcotics and joint efforts with the United States. “Each country has to assume its own responsibility, but I am aware that coordination between countries is required to combat drug traffic,” he noted.

-- Immigration. The recent U.S. immigration law, which allowed some illegal immigrants to seek legal residency, is “unrealistic. U.S. producers need that labor.” He proposes talks with Washington to organize a legal flow of workers from Mexico to the United States.

-- Trade. “I have said no to a common market (with the United States and Canada), but I would be interested in talks on a bilateral agreement,” Salinas said.

Salinas says his party represents a “progressive center” on the political spectrum, but his basic economic program represents a significant right turn for his party. A Harvard-trained economist, Salinas said he plans to “redefine” the role of government in the economy by selling off costly state-owned businesses.

“In the past decades, Mexican state intervention (in the economy) grew and lost its force. I am convinced that we need a state that is democratically strong, but smaller, doing well what it should do and not getting involved where it has no responsibility,” Salinas said.

De la Madrid’s Policies

Salinas’ proposals would continue policies initiated but barely put into effect by De la Madrid. This year, De la Madrid permitted the government-owned airline, Aeromexico, to go out of business. It was the most significant divestiture of a state-owned enterprise during the current administration and was seen as a sign of things to come.

Sources close to Salinas say the new president will sell Mexicana Airlines, the national bus and truck factory, Dina, and the national telephone company, Telefonos de Mexico. He also would allow private investment in the petrochemical industry and in the operation of bus and collective cab companies in the capital. The national oil company, Pemex, and the electric company would remain in government hands.

The sources said that Aeromexico and Dina together have absorbed $1 billion a year in subsidies, money that would be used for new government investment under Salinas.

Foreign investment has always been a sensitive issue in Mexico, which traditionally has viewed alien ownership as a threat to its sovereignty. Mexican business has long enjoyed high profit margins and little foreign competition.

Salinas said he would encourage “all foreign investment that allows us to penetrate more foreign markets and generate more jobs in Mexico.” Perhaps in anticipation of the negative response at home, he added, “When I see that in Spain a Socialist government last year welcomed $8 billion in direct foreign investment, I perceive that we are missing out on important resources.”

Currently, 5% of all investment is from foreign sources. Salinas would not put a figure on how much more he would allow. He said the areas open to new foreign investment are tourism and export industries.

At the same time, Salinas said the United States must open its borders to Mexican exports such as beer, agricultural products, heavy machinery and goods from the foreign assembly plants along the border.

Border Jobs

“We have almost 500,000 jobs in the assembly plants on the border. If the United States puts limits on the products that the assembly plants export, we will have serious problems retaining more Mexicans in Mexico,” he said.

Salinas said he would have to study the condition of the Mexican economy in December before deciding how much interest the government can afford to pay on its foreign debt. Mexico currently pays about $9 billion to $10 billion a year in interest.

The sagging economy has forced Salinas to run an aggressive presidential campaign against two strong competitors, the left-leaning PRI dissident Cuauhtemoc Cardenas and the rightist National Action Party candidate, Manuel J. Clouthier. Cardenas has proposed a debt moratorium and a halt to oil exports; Clouthier calls for privatization of the economy.

Last March, De la Madrid implemented a wage and price control program to control runaway inflation. The program has been effective but many Mexicans fear it could lead to a double jolt of inflation and devaluation when it is lifted in December.

Gradual Recuperation

Salinas said he will keep the lid on inflation by cutting government spending and increasing government income through the sale of state-owned enterprises. He said he will pursue a policy of gradual economic growth.

“I propose a gradual recuperation because we lack investment and infrastructure. If we force the recuperation, inflation could shoot up again,” he said.

Despite the unusual heat of the presidential campaign, Salinas insists he will win the election with an absolute majority.

“We are competing on the basis of platforms and the capacity for organization. We have the most serious program. They have not presented a consistent or coherent program. Not them or the others,” Salinas said.

Salinas denied charges by the opposition that the PRI uses the state apparatus and resources for his campaign. He said the party pays for the fleet of planes and helicopters it uses and for the time on state television for its campaign propaganda. Critics say his campaign receives disproportionate coverage in the Mexican press, but Salinas said that is not by his design.

“Every day I see the opposition on the front pages of the newspapers, whatever they say and whatever they do, no matter what electoral weight they might have. Every day I see them on television saying tremendous things about us. Their campaigns have a large presence, and no one bothers them,” Salinas said.

PRI officials have declined to say just how much money is being spent on the campaign.