The Falling Peso Shows Limits of Technocrats

Was there in Mexico anything more foreign for the American tourist than the marketplace? The lovely piece of pottery had a price tag of 500 pesos. But the price was negotiable--that, as the guide book told us, was the distinguishing thing about Mexico for the American tourist. With a wink or a shrug, quien sabe? “For you, senor, 400 pesos.”

Last week, Mexico’s President Ernesto Zedillo shocked the international financial markets, astonished especially his trading partners in Ottawa and Washington, by allowing the Mexican peso to float against the U.S. dollar.

Mexico is a country of secrets and shadows. Rumors in Mexico City at week’s end were that the devaluation crisis was the result of conflicts within Zedillo’s own ruling party, the Institutional Revolutionary Party. Others in the capital claimed that the government has been under pressure from the south--the continuing Indian rebellion in Chiapas.

Indeed, the Zapatista rebels were on the move last week. But if Mexico has lately been the scene of insurrections and political assassinations, Mexico also is a country of new shopping malls. Since the North American Free Trade Agreement was signed last year, millions of Mexicans have been charging their way into the First World, buying everything they saw at Wal-Mart, transforming Mexico’s trade surplus with the United States into a huge trade deficit.

The United States had been counting on a new postwar generation of Mexican politicians, the Ivy League-trained “technocrats,” to hold Mexico together. Yes, America recognized that there were baroque aspects of Mexico that we knew nothing about. Yes, we knew there were political intrigues and layers of corruption that were hidden by shadows. But we trusted the technocrats.

Harvard-educated Carlos Salinas de Gortari was the first of the new generation. His successor, Zedillo, is a Yale-trained economist. We Americans thought that because we educated these Mexicans, we could count on them to play by our rules.

Octavio Paz, the eminent poet-philosopher of Mexico, has for a longer time been writing about the masks behind which Mexicans hide and the corridors of her ancient labyrinth. Mexico, along with Russia, never had an 18th Century, Paz wrote prophetically a few years ago. Last week, Mexicans told me that what the devaluation proved was that Zedillo was more concerned with national politics than with his reputation in the international financial markets. There were forces at play in the Mexican capital that outsiders did not understand. Finally, Zedillo belongs to Mexico City more than to Yale University.

In recent months, American optimism was fed by the spectacular performance of stocks like Telefonos de Mexico. At week’s end, Telefonos had fallen sharply. Critics of NAFTA in the United States are now quick to say that Mexico is an unreliable trading partner. Pro-NAFTA forces feel betrayed. Clearly, what is needed is a moderate course between the I-told-you-so negativity of the NAFTA opponents and the boom-years optimism of those Americans who thought they could make a killing in Mexico.

Mexico and Russia are essential economic partners of the United States. And it is in our interest to want their experiment in free-market democracy to succeed. But Mexico, like Russia, is lurching toward the 21st Century absent an 18th Century--the great age of democracy and capitalism. Both countries are more medieval than the professors at the Harvard Business School, with their case-study methods, care to believe.

In the dusty mercado , you did business over time. You got to know your trading partner. You got to understand the way his body communicated. You understood his smile. You understood his handshake.

What was clear last week is that it will take time for us to understand our Mexican trading partner. But for the United States, as for Mexico, there is no turning back. We find ourselves in the same labyrinth--in the same dusty marketplace, haggling over the piece of pottery with a price tag of 500 pesos.