NEWS ANALYSIS : Opposition to Rescue Erodes U.S. Credibility

Congress’ fierce opposition to the Mexican rescue package originally proposed by President Clinton signals that the United States has yet to come to terms with the fact that the economies of the neighboring nations are now irretrievably joined at the hip.

The 1993 passage of the North American Free Trade Agreement forever transformed U.S.-Mexican economic relations, and yet Congress and the American public seem unwilling to acknowledge the new responsibilities that the trade pact has imposed on the senior partner.

Indeed, Clinton’s failure to sell the deal to the new Congress has seriously eroded the credibility of the United States as a world leader on international economic and financial issues, and it raises new worries in foreign capitals about what is perceived to be a rising tide of isolationism in Washington--especially within the Republican Party.

“The refusal by Congress to deal with this issue really suggests we could be seeing a very worrisome withdrawal by the United States from its traditional leadership on a wide range of economic, financial and trade issues,” said John Williamson, an analyst at the Institute for International Economics in Washington.

“I think you have to look at this peso crisis as the latest in a series of debates over the degree to which we are willing to confront our new economic and social integration with Mexico, as well as the rest of the world,” said Alan Stoga, an analyst with Kissinger Associates, a New York-based international consulting firm. “We have had debates over NAFTA, GATT (the General Agreement on Tariffs and Trade), Proposition 187 in California and now this. It is clear that America is not anywhere close to resolving how it feels about our role in the hemisphere.”

Clinton’s last-minute decision Tuesday to turn to the international community has salvaged aid to Mexico, immediately buoying financial markets by eliminating the uncertainty over whether Congress would agree to an aid package.

Most economists hailed Clinton’s decision to turn to the International Monetary Fund and other international organizations to join with the United States for quick action on a $49.8-billion Mexican rescue package, agreeing with Treasury Secretary Robert E. Rubin that it will ultimately soften the blow to the U.S. and Mexican economies that a prolonged crisis might have dealt.

Yet many analysts criticized Clinton for not using the same approach several weeks ago and for failing to recognize mounting opposition among both Democrats and Republicans to any kind of taxpayer-funded bailout of Mexico.

Clinton originally had sought a congressional package of loan guarantees, apparently to get bipartisan support--and political cover--for his rescue plan. But the Administration failed to make a good sales pitch for the package either to Congress or among voters. A Los Angeles Times Poll after Clinton’s State of the Union Address found that only 18% of Americans supported the plan.

“I think the Administration was caught by surprise by the depth of the opposition among rank-and-file members of Congress, especially since they had already won support from the congressional leadership,” said C. Fred Bergsten, an international economist who often advises the Clinton White House.

“But at the same time, I think you have to criticize this new Congress for not recognizing that the United States needs to back up the commitment we made in NAFTA to provide support for Mexico when necessary. After all, what we are seeing today is essentially the financial leg of our free trade deal.”

The delays that have resulted from Clinton’s congressional strategy already have proved costly. The prolonged uncertainty over the rescue effort during the past few weeks can be blamed for worsening the crisis that began when the peso was first devalued Dec. 20.

Tuesday’s accord is likely to moderate the long-term economic consequences from the peso crisis but clearly will not be able to eliminate them. With interest rates in Mexico up to 30% as a result of the peso’s plunge against the dollar, economists said a severe recession in that country now seems certain.

For the United States, that means a decline in exports to Mexico of as much as $15 billion over the next year, many analysts estimated, which could cut U.S. economic growth by 0.3% to 0.5% in 1995 and perhaps 1996. As many as 200,000 U.S. jobs are likely to be lost, some analysts predicted.

The economic and political upheaval that has beset Mexico is seen largely as a byproduct of the nation’s sharp turn over the last five years or so toward free markets, private ownership of formerly national assets and open trade.

“The way this has been handled doesn’t cover anyone in great glory, not Bob Rubin, not Clinton and certainly not the new Congress,” Bergsten said. “And it raises questions about whether we can get much leadership on a whole host of international issues out of Washington, now that we have a kind of coalition government between a weak President and a conservative Republican Congress.”