More Than $40 Billion Is at Stake in Bailout Vote : Mexico: Which type of uncertainty--political, economic or financial--can the North American partnership bear?

In many ways, the debate taking place in Washington over the $40-billion rescue package for Mexico is not about Mexico; it is about U.S. politics. Republicans and Democrats are using the Mexican morass created by the recent devaluation as a pretext to bolster their own positions in a tug-of-war between parties and the presidency. Shortsighted and narrow-minded, the politicians manipulating the Mexican crisis to their own advantage show no sign of understanding that the future of the North American region is at stake.

Advocates of the bailout allude to the apocalyptic impact that Mexico’s economic collapse would have on American jobs and American borders. Critics of the bailout argue that taxpayers on both sides of the border should not have to pay for the risks undertaken by speculative investors who made millions and lost millions in the Mexican meltdown.

Both sides are essentially correct, but both fail to taken into account the much broader and deeper implications of the bailout.

Defeat of the proposal, in which the U.S. government would cover loans if Mexico defaulted, would create a level of uncertainty that might bring down the Zedillo government, thus ending 65 years of rule by the Institutional Revolutionary Party (PRI). This outcome might pave the way for democratic experimentation, such as a coalition government of opposition forces.

If democracy is indeed the outcome, the devaluation of the Mexican peso may be a rather small price to pay.

However, worsening economic chaos could just as likely place the country in the hands of hard-liners, narco-politicians, proto-caudillos and the like. Zedillo’s demise then would not be a harbinger of democratic evolution but of dictatorial decline. Repression, violence and political turmoil would ensue, prompting even more Mexicans to cross the border in search of safe haven.

On the other hand, if the bailout is approved, the Mexican economy could be back on track after two or three years. An improved economic profile would then buy time for the PRI and alleviate pressures for a thorough democratic transition. Economic health would once again feed complacency among New York financiers and their Washington allies. Mexico would limp down the gradualist path until another financial crisis or indigenous rebellion shatters the country’s fragile stability and brings Wall Street to its knees.

Thus the real issue at stake in the bailout debate is what kind of uncertainty-- political or economic or financial--are governments on both sides of the border willing to live with. Should Mexico’s tarnished technocrats surrender the state-owned oil monopoly and restore their credibility abroad only to lose it at home? Should Mexico militarize its borders to stem emigration and risk strengthening the hand of the military merely to obtain a loan guarantee? Should the United States let Mexico flounder on its own until it implodes, taking with it other emerging markets in Latin America? Should the United States bail out a country led, according to one New York banker, by “liars,” or gamble on an unknown, non-PRI government?

These are not easy choices; they underscore the intricacies of interdependence between trade, capital flows and the domestic policies of Mexico and the United States. They are common concerns for which there can be no unilateral or imposed solutions--not by the U.S. Congress on Mexico and not by the Zedillo government on the Mexican people. However, unscrupulous U.S. politicians are busily assembling a lengthy “laundry list” of conditions that they would like to impose on an allegedly mismanaged and messy neighbor to the south. In other words, the Mexican people may have to pay a pound of flesh to buy political points for members of the U.S. Congress.

The debate over the bailout should really be a debate over the future of a North American identity and about the role that governments and financiers and politicians will have in forging that identity. Mexico is a troubled and crisis-ridden partner, but a partner nonetheless in an inextricably interdependent North America.