THE WORLD : Aiding Mexico Is Not Just Economics--It’s National Security

The debate over the $40-billion loan guarantee to Mexico is being conducted mostly in economic terms. Yet, the economic argument pales before the importance to the United States of helping to maintain a benign, democratic and market-oriented Mexico.

The United States, which has never had a powerful neighbor, will soon have to deal with a Mexico whose population approaches 100 million and whose economy, whatever its ups and downs, will in the early part of the next century achieve advanced status. Twenty million U.S. residents of Mexican descent create a dramatic Mexican influence within the country, while, throughout the Western Hemisphere, the fate of free markets and democracy will be heavily influenced by the evolution of the country that has been the vanguard of the Latin American economic and political revolution.

To formulate assistance to Mexico as some kind of multilateralist boondoggle devised by besotted internationalists is to misunderstand that, in helping Mexico, the United States is helping itself. Support for Mexico is not required by the North American Free Trade Agreement, as is often alleged. Quite the contrary. NAFTA grew out of the community of interests imposed on Mexico and the United States by geography, history and mutual opportunity.

Nor is it fair to accuse the administration of President Carlos Salinas de Gortari of a vast confidence game that lured an unwary United States into a trade agreement whose benefits were quickly annulled by our wily neighbors.

The Mexican financial crisis is the result of short-term policy errors. Its principal victims will be the Mexicans, not American investors. The proposed stabilization program will cushion some of the shocks, but it will not obviate Mexico’s need for painful adjustment and accelerated reform. A long-term disaster will occur only if a return of isolationism in the United States, and of nationalism in Mexico, are allowed to tear asunder the close relationship of our two nations.

A financial crisis might have been avoided had not a series of unexpected events--most notably, the uprising in Chiapas and the assassination of Luis Donaldo Colosio--began to gnaw at the political and psychological underpinnings of the Mexican evolution. A slowdown of foreign investments followed, draining Mexican financial reserves.

That financial problems emerged during a Mexican presidential election, caused Salinas to defer the issue until after the new president was sworn in. That Salinas was a candidate for chairman of the World Trade Organization compounded the procrastination. The devaluation of the peso was bungled by the new Mexican administration, producing a flight of foreign capital and a potentially global crisis for emerging markets reminiscent of the debt crisis of the 1980s.

U.S. financial institutions cannot avoid some responsibility for the crisis, however. For the second time in two decades, they made multibillion-dollar loans and investments based on their projections of a precarious status quo indefinitely into the future. As a result, they tempted Mexico (and perhaps other countries) into risky financial shortcuts.

Ironically, the status quo being projected in the 1990s was the opposite of an earlier period. In the 1970s, the lenders, mostly banks, relied on autocratic governments to remain in power and to stand behind projects of dubious economic merit. In the 1990s, investors assumed that the dramatic Mexican economic reforms were permanent without considering that they would require a change in political institutions that might imperil them.

It is difficult to comprehend how so many warning signs could have been missed. Nevertheless, it is important, above all, to restore perspective: Mexican economic reforms were, on the whole, overwhelmingly positive; U.S. investment, on balance, fueled unprecedented, real progress. Therefore, Mexico’s financial crisis must not be permitted to turn into a vehicle for extorting domestic transformations in Mexico unrelated to overcoming the immediate crisis. U.S. assistance should be tied to an effective stabilization program and continued structural reform.

We have before us an unprecedented opportunity. For the first time, the governments of all the countries in the hemisphere, except Cuba’s, are democratic and committed to market principles.

Among the larger countries, Mexico led the way. Should it abandon this course or should its efforts to sustain reforms lead to financial and economic chaos, repercussions would be felt throughout the hemisphere, putting at risk the vision of a Western Hemisphere community.

This danger is particularly acute because we have been witnessing in Mexico the beginning of a political revolution that is moving into uncharted territory. For 60 years, Mexico has been essentially governed as a one-party state by the Institutional Revolutionary Party. During the last two Mexican administrations, the PRI has been obliged, step by step, to bring its performance closer to its democratic rhetoric. The most difficult part of the process may still be ahead. If political evolution followed theoretical designs, the economic liberalization of the De la Madrid and Salinas eras would have been followed by gradual political liberalization so that, by the end of Ernesto Zedillo’s term, pluralistic institutions would be fully in place.

This may still happen, but the current financial crisis has accelerated the process to the point where the entire system could rip at the seams.

Zedillo has cut himself loose from the PRI, turning it into just another political party; announced that he would not select the next PRI candidate, and agreed to end preferential government access to the media and to create a fully pluralistic political system. Since many of these transformations have been brought about by public demonstrations, economic crisis and guerrilla uprisings, some groups may consider pressure, perhaps even violence, the best way to political advancement. Moreover, the practical result of Zedillo’s renunciation of traditional prerogatives was to open, in his first year in office, a contest for the presidency for which institutions have yet to be developed.

At this critical moment, it is crucial that the United States appear as a sympathetic friend of the Mexican people. Of course, U.S. economic assistance should carry with it economic conditions. But these should be geared to a realistic program for Mexican growth and developed by consensus with the Mexican government. Austerity is inevitable, but the ultimate way out of the crisis is growth, and this cannot wait for the long-term impact of stringent austerity. A decade ago, the debt crisis was not overcome until priority was given to growth and U.S. creditors made to accept a share of the burden for reckless risk-taking. The challenge is to provide support while Mexico stabilizes. If U.S. support is grudging or if humiliating conditions are extorted, Mexican leaders will blame their difficulties on Washington and return to their nationalist past.

While such a course--sentencing Mexico to long-term stagnation--would be self-defeating, the Mexican government may perceive no realistic choice. And an ideologically and politically hostile Mexico will, in the long run, cost more throughout the hemisphere than any current U.S. program to stabilize the Mexican economy.*