Zedillo Plan Draws Lenders’ Praise but Public’s Scorn : Mexico: Citizens are furious about program that politicians on left and right describe as Draconian.

President Ernesto Zedillo’s economic stabilization plan got rave reviews Friday from financial markets and international lenders that have offered nearly $50 billion to stabilize the peso.

But ordinary Mexicans were furious about the program that politicians on both the left and right are calling Draconian and that the labor minister said will cost 250,000 jobs over the next six months.

In a crippling blow to the system of government by consensus that has kept this country politically stable for decades, the new plan caused an open rift among business, labor and government leaders who had formed the pact that saw Mexico through its last economic crisis.

The day after the government announced an economic plan that calls for drastic cutbacks in already lean government spending and sharp tax increases that the administration admits will force the economy into the deepest recession in a decade, the peso rebounded from five days of record lows to close at 6.25 to the U.S. dollar.

The Mexican stock exchange index rose above 1,600 for the first time in two weeks, before closing at 1,590.00, up 3.21%, or 49.46 points.

While analysts suspected that the market reaction may have come as much from government intervention as investor enthusiasm, the praise from U.S. and international officials was unquestionable.

“We do welcome the tough monetary and fiscal measures that were announced by the government of Mexico,” White House Press Secretary Mike McCurry said. “They demonstrate Mexico’s resolve to restore financial stability and to restore confidence in the markets.”

The International Monetary Fund, which has offered Mexico $18.6 billion in standby credit to ease the crisis, used almost the same language in a prepared statement, saying: “The management of the IMF welcomes the substantive measures adopted by the Mexican authorities to strengthen their economic program.”

But those who must live with those measures were livid.

“We feel cheated and betrayed,” said Angelica Ramirez, 32, an unemployed communications specialist. “Every day, the future is looking grayer. What are we going to do?”

Despite the government’s own reckoning that a 35% gasoline price hike and a 20% rise in electric bills will push inflation to 42% this year, the minimum wage will increase just 10% under the plan.

“These are drastic measures that are going to mostly affect the middle and lower classes,” said Julio Gutierrez, 23, an electronics technician. “In my family, we are going to have to budget to be able to cover costs like food and clothes. Leisure and entertainment are practically out of the question.”

Labor Minister Santiago Onate said Friday that, judging by payments into the social security fund, the most accurate measure of employment, employment shrank by 235,000 workers in the first two months of 1995. He predicted that at least that many more will lose their jobs in the next six months.

“There are a lot of professionals who are out of work,” Ramirez said. “I am one of them. Every day, thousands of young people go out and look for work and come home with nothing. Now, it is going to be harder than ever.”

Under the economic program, government funding for restructuring business debt will cover only 12% of bank loan portfolios.

The program makes massive business closures inevitable, said Fernando Cortina, president of the National Manufacturing Industry Chamber.

Francisco Hernandez Juarez, head of the powerful telephone workers union, openly washed his hands of the program, saying he hopes that the Mexican people will not blame unions for measures the government has taken.

Such comments contrast sharply with nearly eight years of negotiated economic pacts, in which business and labor leaders shared responsibility for austerity with the government.

The government needed to announce an economic program this week to have any hope of halting the plunge of the peso, which had dropped to less than half its value at the time the economic crisis began in December. In a sharp break with tradition, though, officials sacrificed consensus for expediency when business and labor leaders balked at the measures the government proposed.

But without their support, analysts question whether an austerity plan is workable.

“The risk of the program is that is does not have the necessary consensus,” economist Rogelio Ramirez de la O said. “It’s a program that demands a lot of sacrifice.”

By announcing his plan, despite resistance from business and labor, Zedillo is undertaking the same authoritarian approach that failed in the southern state of Chiapas, Ramirez said.

There, the president backed the former governor long after it was clear his popular support had evaporated, then was forced to ask for his resignation. Last month, he sent troops into rebel-held territory, then had to tell them to halt their advance after a public outcry.

Labor unions and industrialists had agreed to wage controls that were a key component of the fight against inflation. Now they will be under no obligation to limit wage hikes. Further, the administration’s inability to negotiate an agreement acceptable to two major constituencies could have significant political effects.

Similar austerity measures stemming from an economic crisis a decade ago pushed entrepreneurs into the camp of the conservative National Action Party, or PAN. That party has been gaining ground ever since, now governing four states and commanding enough votes in the Mexican Congress to block constitutional amendments.

PAN leader Vicente Fox, a businessman campaigning for governor of the farming and mining state of Guanajuato, called Thursday’s economic plan Draconian.

PAN Sen. Emilio Goicoechea noted that government should cut taxes during a recession, not raise them. Business leaders in the state of Chihuahua, which is governed by PAN, threatened to withhold taxes if the program is implemented.

The left-leaning Democratic Revolutionary Party, or PRD, criticized the program as cold-hearted.

While U.S. officials praised the plan, economists warned that American exporters may soon be far less enthusiastic, once they feel the impact of Mexico’s decision to slash its trade deficit.

“This is going to come down very badly on President Clinton,” Ramirez said. “You are going to hear screaming U.S. exporters by midyear saying, ‘Perot was right,’ ” referring to Ross Perot, an outspoken opponent of the North American Free Trade Agreement.

In Washington, Treasury Secretary Robert E. Rubin and Federal Reserve Board Chairman Alan Greenspan praised the Mexican plan, with Rubin saying “the stringent measures . . . are a major step forward, and we should recognize the political courage involved in taking these steps.”

Rubin made the comment in an appearance before the Senate Banking Committee, as the Clinton Administration released $3 billion in aid to Mexico, the first segment of a $20-billion assistance program.

The Administration’s aid package came under sharp attack from Senate Banking Committee Chairman Alfonse M. D’Amato (R-N.Y.), who said the money is being used to support “a corrupt dictatorship.”

But the fact that the Treasury made the funds available even as the Senate plunged into its investigation of the program underscored the difficulty its angry critics will have in bringing it to a halt.

The plan was originally endorsed by Republican congressional leaders. But D’Amato read to the committee excerpts of a letter Senate Majority Leader Robert Dole (R-Kan.) is sending to Rubin, indicating that he is having second thoughts about the aid.

At the hearing, Greenspan delivered a gloomy assessment of the difficulties facing Mexico in rebuilding the confidence of foreign investors--confidence that is considered a crucial ingredient to Mexico’s prospects for long-term economic recovery.

“It will be extremely difficult to build it up, step by step,” Greenspan said, in a reference to the political turmoil and emerging evidence of corruption seizing the attention of would-be investors.

Times staff writer James Gerstenzang in Washington and Susan Drummet of The Times’ Mexico City Bureau contributed to this report.

* BAD BUSINESS: U.S. exports to Mexico have ground to a virtual halt. D1