Free-Market Acceptance : Support of Ernesto Zedillo Is Seen as Endorsement of Reform Policies in Mexico

Investors and the business community on Monday celebrated the apparent election of economist Ernesto Zedillo to the Mexican presidency, sending stocks soaring nearly 51 points and driving the peso to its strongest position against the dollar in three months.

In a victory that echoed through Latin American markets, the choice of Zedillo was widely seen as an endorsement of this nation’s free-market economic reforms and an assurance that those policies will continue into the next century.

Economists, brokers and investors were in broad agreement that the orderly outcome will hasten bricks-and-mortar investment in Mexico, and there were indications that dollars have already been sprung loose.

Sean Doyle, a broker with Cushman Realty in San Diego, said he heard from three clients giving him the go-ahead for new plants and offices in Mexico. “It’s a vote of confidence that the momentum is going to continue,” Doyle said.

The momentum also appears to be moving south. The Mexican election is the latest indication that the free-market reforms that have swept Latin America during the past decade are gaining political acceptance.

In Brazil, prices rose sharply, reacting to the Mexico vote and to new polls favorable to free-market presidential candidate Fernando Henrique Cardoso. The Sao Paulo Stock Exchange set a record for cash volume on a single day and gained 2,476 points, or 4.8%.

A stock broker said investors in Brazil were encouraged by public opinion surveys released over the weekend that show Cardoso could win a majority Oct. 3 and avoid a second ballot.

“Free-market policies have been successful throughout the region,” said Miguel Valenzuela, co-manager of the Emerging Mexico Fund, a New York Stock Exchange-listed fund of Mexican securities.

The election of Zedillo, who as budget minister was one of the principal architects of Mexico’s free-market reforms, is viewed as an endorsement of those policies, which include the sale of government-owned companies, cutbacks in government subsidies and the slashing of import tariffs.

“It creates confidence and confirms the direction that Mexico is going and that the people are going along with Zedillo,” said Kristie King Etchberger, who follows Latin American securities for Santa Monica-based D.A. Campbell.

The Mexican stock market had been rising for a week on expectations that Zedillo or Diego Fernandez de Cevallos, who also supports free-market economic policies, would win, Valenzuela said. “This was just a confirmation,” he said.

The Bolsa market index soared 50.79 points, or 1.9%, to 2,758.97, its highest close since Feb. 17. American depositary shares of Telefonos de Mexico, which accounts for a quarter of the index, gained 1 to 66 1/2 and ranked as the most active issue on the New York Stock Exchange.

Roberto Hernandez, chairman of the Mexican Bankers Assn. and a strong Zedillo supporter, said, “The election returns are a clear mandate from the citizens to persevere with economic reform.”

In the medium term, Valenzuela said, Zedillo’s election reduces uncertainty and risk.

“I have 10-plus clients who were slowing decisions, key business decisions, pending the outcome of the election,” said Timothy Tuggey, a San Antonio attorney who represents both U.S. and Mexican companies looking to expand trade across borders. “Now you’ll see a gradual increase in investment. These players will now seriously get into the ballgame.”

U.S. companies already in Mexico feared that a new administration would have created the need to forge a new set of relationships, a time-consuming process, said Marlene Martin, a lawyer experienced in trade who now heads the trust department at Frost National Bank in San Antonio.

“A new administration would have created years of delays in understanding the system in Mexico,” said Neil Whiteley-Ross, vice president of the San Diego Economic Development Corp. “Now people know that the way of doing business last month will be the way of doing business next month,” he said.

However, other observers worried that Zedillo’s huge margin and early returns indicating that his Institutional Revolutionary Party will continue to dominate the Mexican Congress could slow efforts to make this nation more democratic, causing problems over the long term.

“There is nothing worse than a stalemate in the political process when the economy is in the process of modernization,” said economist Rogelio Ramirez de la O. “This is not a stable equilibrium.”

He added that Zedillo’s mandate will assure the continuation of the current economic policies, but warned, “If it continues in the same style, ignoring the need for more comprehensive concessions, there will be increasing social tensions, and it will be difficult to appease quasi-guerrilla groups like those in Chiapas.”

Darling reported from Mexico City and Kraul from San Diego.

* MAIN STORY: A1

Viva Mexico

Most major Latin American stock markets rose sharply Monday, responding in part to the ruling party’s apparent victory in Mexico’s presidential election and continuing a hot streak that began in late July.

HOT LATIN MARKETS

Mon. Percentage change: Market/Index close Mon. Since 7/29 Brazil/Bovespa 53,858.00 +4.8% +28.2% Mexico/Bolsa 2,758.97 +1.9% +12.0% Chile/General 4,627.77 +1.4% +7.6% Argentina/Merval 570.68 +0.7% +4.6% Venezuela/Merinvest 143.17 -0.6% +18.5% U.S./S&P; 500 462.32 -0.3% +0.9%

U.S.-TRADED MEXICAN STOCKS

1994 Mon. Percent Stock high-low close change Coca-Cola Femsa 36 3/4-21 5/8 34 1/2 +1 1/2 Empresas ICA 34 1/2-19 1/2 31 3/8 +1 3/8 Grupo Televisa 73 3/4-42 3/4 61 1/4 +1 7/8 Grupo Tribasa 40 1/4-19 34 5/8 + 5/8 Telmex 76 1/8-50 66 1/2 +1 Vitro 25-17 1/4 22 3/4 +1 1/2