Salinas’ Achievement: Staying Afloat : Mexico: The president’s promised reforms haven’t come true, but the consumer class is newly optimistic.

As Carlos Salinas de Gortari approaches the end of his first year in office, his record remains contradictory and open to dispute. In his state-of-the-nation address last Wednesday, Salinas spelled out an ideological blueprint for the future, as most Mexican presidents do at the beginning of their terms, but cleared up few of the ambiguities that have surfaced in his administration.

The ambivalence of the past year’s performance can be summed up in the president’s own terms. Salinas, in a sense, declared the Mexican Revolution and its welfare state obsolete; presidents before him have done the same, but he provided a more specific justification. In his view, modern states cannot own or administer large swaths of the economy and at the same time provide basic services; they cannot administer justice and produce goods and services. In a nutshell, according to Salinas, “the dilemma is between ownership or justice, between a state that owns more, and one that is more just.”

Arguable in the abstract (it is far from clear why one thing detracts from the other, per se), this radical alternative clashes with the prevailing situation in Mexico today. The problem with Salinas’ policies is that while they may reflect the first term of the dichotomy, a leaner state, at least in the intent to privatize important parts of the state-owned sector, the second term, more justice, remains absent. The Salinas administration is doing less in one area, but it is not doing more in others.

The new federal budget for 1990 will be released this month. If the president’s philosophical views were to be reflected in this essential instrument of a country’s economic life, one would see fewer transfers of funds to inefficient state-related enterprises and significantly higher expenditures to more “just” areas: education, health, housing, drinking water, sewerage, etc.--all necessary items that have been neglected for the last seven years. For instance, education spending has been cut in half during the 1980s, which explains why several hundred thousand elementary schoolteachers are on strike, yet the new budget will not show any important increases in education spending--or in health or housing. There will be some additional spending for the so-called utterly poor, but much of it is administrative, budgetary rearranging; the net increment will not be significant. Thus while Salinas may get rave reviews abroad for his philosophical conversion to free-market policies, the benefits in Mexico, for now, are meager.

Salinas was right when, at his inauguration, he said that the Mexican people’s standard of living could not improve without major relief of the country’s debt. But the debt agreement he signed with Mexico’s creditors barely modified the existing situation. This will be reflected in the new budget. Once again, about 68% of total expenditures will have to be devoted to servicing the foreign and domestic debts.

More important, perhaps, July’s debt agreement has not yet produced any of the indirect effects originally expected. Foreign investment is up only in statements and promises; in fact, by midyear the actual flow was almost 50% below the midyear 1988 figure. Mexican capital in the United States began to return in significant quantities--up to $2 billion; that has stopped since interest rates fell. Thanks to bridge loans and new lending from the World Bank and the International Monetary Fund, Mexico’s external accounts are still manageable, but barely.

This is the second contradictory aspect of Salinas’ first year in office. His popularity among important sectors of the country’s middle class has risen, and there is a certain sense of optimism in some areas. The question is whether this is due chiefly to Salinas’ policies, media coups and personal prestige, or whether it stems from something more prosaic: the consumer boom that relatively affluent Mexicans are enjoying, thanks to the virtual freeze in the price of dollars over the last two years. Between an obviously overvalued dollar and an across-the-board trade opening, middle-class consumers can now purchase foreign goods at prices below those of the countries of origin. Trips to Florida or New York cost less than similar excursions in Mexico. Goods manufactured in Mexico with mostly imported contents are unbelievably cheap.

All of this, of course, is showing up in the trade balance. The country is now running a small monthly trade deficit: Imports continue to skyrocket and exports are stagnant. This is all being paid for with new loans and reserves. Perhaps this is economically absurd, but it is a politically savvy way to defuse the widespread middle-class discontent that led to last year’s electoral disaster for Salinas and the Institutional Revolutionary Party (PRI).

Making the consumer class happy has also allowed Salinas to avoid fulfilling his other promise to the Mexican people: authentic electoral reform. New legislation approved two weeks ago by the PRI and PAN (National Action Party) factions in Congress leaves the PRI government’s traditional majority intact in the Federal Electoral Commission, although it will now be achieved in an indirect fashion. It also guarantees any party with at least 35% of the vote a majority of the seats in Congress, thus artificially prolonging the one-party system. No reforms took place with regard to the election of the Senate, or in giving Mexicans abroad the right to vote, or in drawing up new registration rolls, or in forbidding indiscriminate use of federal funds by one party (the PRI), or to ensure equal access to the media for all political parties. With the middle class under control, the urgency for the electoral reform has dissipated.

The larger question is whether the new administration’s first year can be extended indefinitely. Many in Mexico believe that the United States will do whatever is necessary to keep Salinas solvent. Under these conditions, it is not impossible that, with time, something will break the right way, and the artificial economic and political honeymoon will become self-sustaining. If, however, when Mexico’s reserves run out, the Bush Administration is not willing, or able, to come up with more money, there will be the devil to pay. But that will be later, which is better than now.