Sacrificial Lamb in Peso’s Plunge : Effort to calm Mexico’s crisis demands resignation of finance minister

Mexican President Ernesto Zedillo has finally moved to calm a crisis of confidence in his nation’s currency. Unfortunately, shoring up the peso required more than the announcement of various financial measures to assure foreign investors that Mexico will pay its debts and otherwise remain a sound investment. He also had to find a sacrificial lamb whose political ouster would show that Mexico’s new president is firmly in control.

Zedillo’s logical, but no doubt painful, choice was Finance Minister Jaime Serra Puche. In announcing the outline of his new fiscal policies, Zedillo said he was also accepting Serra’s resignation and replacing him with Guillermo Ortiz, a Mexican economist who once headed the International Monetary Fund.

Serra was a logical sacrifice because he so clearly mishandled the decision that set off Mexico’s economic crisis. When Serra announced the peso would be devalued on Dec. 20, it came as no surprise to the many financial analysts who had been warning that the Mexican currency was overvalued in relation to the dollar. But the announcement stunned some big foreign investors who had been assured by Serra several days earlier, during a visit to New York, that the peso would not be devalued. The sudden change of signals set off a panic that sent the peso into a free fall from which it is only now starting to recover.

The choice was painful because Serra is close to Zedillo and, like Mexico’s new president, is a young, U.S.-educated technocrat of the same generation that produced former President Carlos Salinas de Gortari. In fact, when Serra was named to Zedillo’s Cabinet last month--after having been Salinas’ minister of trade--Mexican pundits pegged him as the front-runner to be Zedillo’s successor.

Now those same pundits say Serra fell victim to his generation’s hubris. Like the other young technocrats, Serra was so convinced of the rightness of his strategy to open and modernize Mexico’s economy that he failed to realize how vulnerable his nation was to the whims of foreign investors. If they are right, then Serra’s generation learned a hard lesson--one that Ortiz, another member of that generation, should keep in mind.