Next Step : Pride, Politics and the Peso : With currency bailout, is Washington becoming a ‘probation officer’ to its southern neighbor?

“Poor Mexico,” that country’s 19th-Century President Porfirio Diaz famously observed. “So far from God and so close to the United States.”

Whether they like it or not, the United States and Mexico just got a lot closer--and their new intimacy is transforming an already-tricky relationship into something like a high-risk marriage: It will either be a marvelous success or a permanent crisis.

By launching an economic-support plan based on $20 billion of U.S. Treasury loans and loan guarantees, the United States has taken on a complex role it never wanted: guarantor of Mexico’s economic and political order--or, as one knowledgeable observer of the deal put it, “Mexico’s probation officer.”

As a result, Mexico’s government must henceforth draw up its budgets and its economic plans in discreet consultation with officials of the U.S. Treasury Department and the Federal Reserve, who will be jetting more often between Washington and Mexico City. Mexico’s international oil revenues will flow through the Federal Reserve Bank of New York, collateral that the United States can seize if a future Mexican government reneges on its debts.

The economic rescue plan is wildly unpopular in Congress and with the U.S. public; in House hearings last week, it was roundly denounced by both conservative Republicans and pro-labor Democrats who are less convinced than President Clinton that the marriage of the two economies is a union made in heaven.

But the economic rescue plan is only the beginning. Mexico has plunged into its most serious political crisis in half a century, and Clinton Administration officials are looking for ways they can discreetly help President Ernesto Zedillo move his country from the one-party rule that no longer guarantees stability to a genuine democracy that just might.

At the same time, the United States and Mexico must still do business every day on a long list of practical problems that occur when a developing country in the throes of upheaval shares a 2,000-mile border with the richest nation in the world: trade, crime, drug smuggling, immigration, labor standards and environmental problems.

Already, members of Congress are asserting a right to demand performance from Mexico on these other issues as the price of American economic help. But Administration officials say they are trying to resist the impulse to demand an explicit quid pro quo --for fear of causing a backlash in Mexico, where U.S. domination has been feared ever since the James K. Polk Administration took California and the Southwest by conquest in 1848.

“We’re extraordinarily sensitive to this,” said a State Department official who has been helping to manage the relationship. “We don’t want to kill the patient with an overly interventionist policy.”

The good news, senior U.S. officials said, is that Zedillo doesn’t need much prodding; his program of political, economic and judicial reform is largely what the United States would like to see happen in any case. And in the flurry of U.S.-Mexican negotiations over the past two months, U.S. aides say they have been pleasantly surprised at Mexican officials’ open expressions of gratitude for American economic help and their willingness to cooperate on other issues.

A series of meetings in Zacatecas last month on joint efforts to pursue narcotics smugglers--held in the wake of the economic rescue plan--was “the best we’ve ever had,” a senior official said.

“This (Mexican) government has been remarkably complex-free about cooperating with the United States,” he added, noting that Zedillo has repeatedly declared drug trafficking his top national security concern.

Administration officials said they were also pleasantly surprised that the economic-support plan, with its explicit lien on Mexico’s oil revenue, provoked relatively little backlash from nationalists and leftists in Mexico City. The Mexican Congress passed a resolution approving the plan with little trouble.

Not so in Washington. Clinton’s first proposal, a $40-billion rescue plan that would have required congressional approval, went down in flames. His current plan, which combines $20 billion in U.S. funds with about $30 billion from the International Monetary Fund and other international donors, requires no approval from Congress--but that hasn’t made it any more popular.

“No amount of U.S. taxpayer money will solve Mexico’s problems, which are rooted in deep-seated political corruption . . . and mismanaged economic programs,” charged Rep. Marcy Kaptur of Ohio, one of several Democrats who have opposed the plan. She said aid to Mexico would be a quagmire like the Vietnam War. “As in Vietnam, the mistakes of elites are being paid for by the ordinary people of both countries--lost jobs, lost incomes, lost homes.”

“The (American) people will say no money for a country in which its president’s brother was willing to participate in an assassination,” thundered Rep. Steve Stockman (R-Tex.), referring to Raul Salinas de Gortari. Salinas, brother of former Mexican President Carlos Salinas de Gortari, has been arrested and charged in the killing last year of Francisco Ruiz Massieu, No. 2 man in the ruling Institutional Revolutionary Party.

Administration officials say the opposition in Congress won’t derail the economic plan. Nor, they insist, will its unpopularity with the American public. A Times Mirror poll last month found 55% opposed to the plan and only 30% in favor.

But the issue, unexpectedly, has become a vulnerable point for Clinton and Treasury Secretary Robert E. Rubin, who have now staked not only $20 billion but their own political reputations on Zedillo’s success in stabilizing the Mexican economy. Treasury officials fumed with frustration last week as members of Congress charged that the flagging Mexican peso was a sign that the Zedillo administration’s policies weren’t working--and, worse, was pulling the U.S. dollar down with it. Nonsense, the Treasury insisted.

Clinton acknowledges the risk. “I think everyone would admit . . . that the (Mexican economy’s) problem has turned out to be more difficult, of more duration (and) more thorny than had originally been thought,” he said in a recent news conference. “But . . . I believe it’s in our interest to support that movement toward democracy and openness throughout Latin America, beginning with Mexico.”

Under the bailout plan, the United States effectively acts as a guarantor for loans to Mexico, allowing it to protect the value of its currency, encourage foreign investment and stabilize its economy. In exchange, the Mexicans have pledged as collateral the revenues of the national oil company and, some say, ceded some of their national sovereignty.

In the United States, opposition to the plan has come from two camps joined in an uncomfortable alliance: Republicans seeking to bloody the Administration and pro-labor Democrats who opposed the North American Free Trade Agreement, which was adopted in 1993 and lowered tariffs and trade barriers between the United States, Mexico and Canada.

On a deeper level, the opposition also reflects a developing mismatch between the two countries’ political cultures. Over the past decade, Mexico’s new technocratic elite, schooled in the United States and admiring of its prosperity, has harnessed its future to the integration of the two economies. But many Americans haven’t yet gotten used to the idea.

“NAFTA was a lot easier to get through the Mexican Congress than the U.S. Congress, and that’s true in this case too,” said Peter Hakim, director of the Inter-American Dialogue, a Washington think tank. “Mexicans think about their relationship with the United States all the time. For them, foreign policy means the United States.

“The Mexican elite has largely abandoned anti-Americanism,” he said. “But for us, the NAFTA debate isn’t over; we ratified the treaty, but we never resolved the larger question of what kind of relationship with Mexico we want.”

As Mexico’s political crisis deepens, with reports of drug-related corruption and shocking assassination investigations, some U.S. officials say a positive resolution is possible.

“In a sense, the economic-support plan is the financial integration equivalent of what NAFTA did for trade,” one official said. “And it’s possible that the political crisis could lead to Mexico’s political modernization. . . . Yes, it’s crisis-driven; but good things sometimes come out of crises.”

But as Americans nervously watch Mexico’s scandals and political soap operas, they will be forced to confront their own complexes about living with Mexico more intensely than ever--and their responses will not always be so optimistic.

“There’s a natural emotional reaction to think that, with Mexico looking like a mess, maybe we can back away from that relationship,” said Abraham F. Lowenthal, director of the Center for International Studies at USC.

“But it’s not in the cards. We debate (U.S.-Mexican relations) as if we had a choice: whether we want to have an increasing economic, social, demographic and political relationship with Mexico.

“In fact, we don’t have a choice. There is such a high degree of interconnection that we can’t disconnect. All we can decide is how we want to manage it.”

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Cooperation and Conflict

Like many neighbors, the United States and Mexico have both squabbled and worked together over the years. Some key dates:

1836: Texas Secession

Texas declares independence from Mexico and defeats Mexican armies that oppose the action.

1846-48: Mexican-American War

Texas formally joins the United States in 1845 but is still regarded as Mexican territory by the Mexican government. The dispute leads to a declaration of war against Mexico by the United States.

1848: Treaty of Guadalupe Hidalgo

In the pact that ends the Mexican-American War, Mexico cedes nearly half its territory to the United States in exchange for $15 million. This includes present-day California, Nevada, Utah, as well as parts of Arizona, Colorado, Wyoming, New Mexico and Texas. The Rio Grande is established as the U.S.-Mexico boundary.

1853: Gadsden Purchase

Mexico’s leader, Gen. Antonio Lopez de Santa Anna, sells Southern Arizona and the remainder of New Mexico to the United States for $10 million, which he uses to finance his regime.

1914: Veracruz Occupation

About 200 Mexicans and 19 Americans die when U.S. troops bombard the Gulf of Mexico seaport and occupy it for seven months. The action, resulting from a dispute with Gen. Victoriano Huerta over the arrest of U.S. sailors, caps several moves by President Woodrow Wilson to oppose Huerta during the Mexican Revolution.

1923-41: Oil Rights

Washington withholds recognition of Alvaro Obregon’s government until he exempts pre-1917 oil concessions--including U.S. contracts--from state ownership. In 1938, President Lazaro Cardenas finally nationalizes the industry. Compensation to expropriated U.S. companies is negotiated three years later.

1940s: World War II

Mexico joins Allies in declaring war on Axis powers in 1942. With U.S. technical aid, it expands industrialization. By 1944, foreign capital is permitted to own up to 49% of stock in any Mexico venture.

1942-64: Migrant Workers

Bracero (migrant Mexican worker) agreement between the United States and Mexico is established in 1942 to supplement war-depleted U.S. labor force. In 1954, the United States embarks on deportation of “illegal” Mexican workers, and in 1964, bracero program is ended.

1960s-80: Foreign Investment

Increased investment in, and control of, Mexico’s economy by foreign interests, mainly American, develops. With its national Pemex oil company riding a boom in oil prices, Mexico assumes large foreign loans. At the same time, it opposes Washington on key issues by maintaining diplomatic relations with Communist Cuba and recognizing leftist rebels in El Salvador.

1980s: Debt Crisis

When oil prices plunge, Mexico becomes a leading debtor nation, struggling to make payments on foreign loans. The peso is allowed to float and plunges in value. Migration of Mexican workers to United States becomes an increasing concern.

1985-1990: Drug Disputes

The 1985 murder of Enrique Camarena, an agent of the U.S. Drug Enforcement Administration by drug traffickers in Mexico, followed by the abduction of a Mexican doctor wanted in the case by DEA agents, strains relations. In 1989, tensions are eased when the two nations sign a cooperation agreement on fighting the drug trade.

1992: NAFTA Trade Pact: The presidents of the United States, Canada and Mexico sign the North American Free Trade Agreement, eliminating many trade barriers and tariffs to create one large free-trade bloc.

1994-95: Peso Bailout

The peso plummets in December, 1994, after Mexico, facing dwindling reserves, allows the currency to float. President Clinton, after failing to rally congressional support for $40 billion in U.S. loan guarantees to rescue the peso, announces he will act unilaterally to provide Mexico with $20 billion from a fund normally used to defend the U.S. dollar.

SOURCES: The Latin American Political Dictionary, ABC-Clio Inc., 1980; World Book Encyclopedia; Encyclopedia Americana; Webster’s New World Dictionary; The Columbia Encyclopedia, 5th ed.; Los Angeles Times files; World Book Encyclopedia; The Penguin History of Latin America