NEWS ANALYSIS : U.S. Aid Comes With Political Risks for Zedillo

In this bustling but debt-laden land, where annual interest rates on automobile loans already top 60%, Mexicans have watched home mortgages soar as high as 80%, family food bills jump almost 50% and the nation’s stock market plummet to record lows.

As negotiators have battled over a tough, $20-billion U.S. credit package, initially greeted as a rescue for Mexico’s economic crisis and a boost for President Ernesto Zedillo’s image, the financial lives of most Mexicans have gone from bad to worse.

And now, the package that Zedillo secured from the United States--but with strings attached that could compound the fiscal problems for the average Mexican--probably will help his opponents far more than him in the short run.

Politically, the package that President Clinton delivered Tuesday--with its restrictions that will tighten money supply, keep interest rates high, help fuel a Mexican recession and give the United States a claim to future Mexican oil sales in case of default--could not have come at a worse time for Zedillo and his long-ruling Institutional Revolutionary Party (PRI).

Just 10 days ago, and a mere 10 weeks into his six-year term, Yale-educated Zedillo and the PRI suffered the party’s worst defeat in 66 years of continuous rule. In the strategic state of Jalisco, the conservative National Action Party (PAN) swept the gubernatorial race, the state legislature and mayoral contests in more than a dozen key cities and towns, including Mexico’s second-largest city, Guadalajara.

Fueled by the tough economic times and the prospect of even tougher ones ahead, the opposition PAN is running strong in Guanajuato and Yucatan, two other key states with elections scheduled for May 28.

Opposition sweeps there would be devastating blows for the governing party, and analysts said they could well weaken Zedillo’s hand against conservative factions in his campaign to reform his party and the presidency from within.

Tight money and government commitments to austerity budgets are also likely to hamper Zedillo’s effort to bring lasting peace to the southernmost state of Chiapas.

At a time when Zedillo and his economic team know they must launch massive development projects to win back the hearts and minds of peasants and indigenous Mexicans now torn between a populist, armed rebel group and the government, the president will have less to spend across the board.

Through it all, the PAN and Mexico’s left-leaning opposition Democratic Revolutionary Party (PRD) have made it clear they will keep the pressure on Zedillo in the difficult weeks ahead.

As a dramatic illustration, on the eve of Tuesday’s signing ceremony, a familiar bearded face suddenly reappeared on Mexico’s political horizon. For the first time since he finished second to Zedillo in historic elections last August, Diego Fernandez de Cevallos again took center stage for the PAN and launched a timely attack on the president’s performance before a group of institutional investors in the capital Monday night.

“Ernesto Zedillo and his team of advisers are people of good faith, and they’re striving very hard to improve the political and economic conditions of Mexico, but the fact is that they have failed to achieve either one,” the charismatic rancher-turned-politician declared. “There are stutterings, equivocations, erratic decisions, disharmony among the citizens, all of which makes this an extremely dangerous political moment for Mexico.”

Cuauhtemoc Cardenas, the PRD’s former presidential candidate, also weighed in to underscore that this is a dangerous moment for Zedillo, for the PRI and for now-angry, embittered Mexicans who believe the $20-billion U.S. credit package Zedillo’s Treasury minister signed Tuesday may well help the government and the nation’s economy in the short term but will serve only to make their own lives worse. “We are going to give a tiny bit of time to Ernesto Zedillo and hope that the facts show he is making good on his efforts,” Cardenas said.

But if Zedillo and his technocratic team don’t stabilize Mexico’s economy and restore its fast-fading sense of well-being, as taxi driver Ricardo Pino Martinez, 54, showed all too well Tuesday, there is plenty of fertile ground throughout Mexican society for the opposition to cultivate--on both the political left and right.

“For Mexico, (this deal means we’re) just getting even deeper in debt,” said Pino, who like most middle-class Mexicans took on his own hefty financial obligations well before this nation’s worst economic crisis in more than a decade forced Zedillo to seek U.S. aid. “The crisis is going to get worse.”

As his car radio, like millions around the city, blared the news that the U.S.-Mexico credit deal finally was official, Pino shook his head. Echoing the sentiments of many of his countrymen, he said: “For the country, who knows? But for me, as a worker, I don’t see any benefit at all. The bank just keeps increasing my debt. I feel like I’m in a boiling pot and I just can’t find the way out.”

In interviews here, as the credit package was being signed Tuesday afternoon in Washington, Mexicans displayed a deep cynicism--and a high awareness of the implications of the high-finance deal that analysts said will work against Zedillo and the PRI.

Berta and Javier Dabila--middle-class entrepreneurs who were among Zedillo’s bedrock of support at the polls in August--tried mightily to find a bright side.

They own a small, import-driven jeweler-supply shop that has gone into a tailspin in the eight weeks that the Mexican peso has lost at least 40% of its value against the U.S. dollar and interest rates on their debt have quadrupled.

“Well, with this loan, supposedly the economic situation of Mexico as a whole is going to improve a little bit,” Javier Dabila said. “But the situation right now is very bad for merchants. The (peso) devaluation has affected all of us. Hopefully, this loan will help the economy stabilize, and that will be useful. It could also be useful in other ways if the government applies it well. But if they don’t apply this loan correctly, things will get worse.”

A young typewriter mechanic at a nearby repair shop reflected the greater anger that is likely to bolster populist parties such as the PRD, which has staged recent demonstrations here--some drawing as many as 100,000 people--against the government’s economic and political policies.

The young man identified himself only as Alejandro, 19, and said of the U.S.-Mexico deal: “It’s an excuse from those in government to get rich. They’re not going to use it in a good way. . . . Each time a government leaves, the peso devalues. Why? Because the last government took all the money with them. I don’t see any other explanation. OK, so we have the loan now. But someone has to pay for it. How are they going to do that? It’s always the people. The people are the only ones who pay for it.”

Indeed, that topic--just how Mexico will secure its credit package with the United States--touched a raw, nationalist nerve here. Officials have said future oil sales will be pledged as collateral on the U.S.-Mexico package.

Such an arrangement wounds national pride here, shopkeeper Berta Dabila noted. “That’s the patrimony of everyone. That’s the patrimony of the nation. It’s for us and our future generations. The only thing we have left is our oil,” she said, first with anger and then sadness as her voice trailed off.

Susan Drummet of The Times’ Mexico City Bureau contributed to this report.

* FINANCIAL IMPACT: What aid plan means for Mexican economy, investors. D1, D7.