Zedillo Faces Challenge From His Party’s Deputies : Mexico: Angry legislators demand president slash government as price for vote on unpopular tax hike.

In a last-ditch move Thursday to avert a rebuke to President Ernesto Zedillo from his own Institutional Revolutionary Party, PRI legislators sought sweeping cuts in his government as a condition for congressional approval of the most unpopular cornerstone of his harsh emergency economic plan.

As angry protests mounted and Mexico’s financial markets continued to fall, key PRI legislators in the Chamber of Deputies called on Zedillo to eliminate or radically restructure four Cabinet ministries and to slash his government’s budget to blunt the deep opposition to his proposed 50% across-the-board increase in sales taxes.

It is the most painful of the president’s measures designed to reverse Mexico’s worst economic crisis in modern history.

Thursday’s proposal came after legislators from the left, right and even members of a pro-labor faction in the PRI indicated that they would try to defeat Zedillo’s proposed tax increase in a vote scheduled for today.

It was unclear as the Chamber debate began late Thursday if pro-labor PRI legislators would keep their vow to vote as a bloc against the tax increase; that would be the first such ruling party rebuff for a Mexican president.

Closed-door meetings continued into the night Thursday. But one member of the PRI labor coalition asserted that the group will leave the decision “up to the conscience of each legislator.”

“Each one will decide in the moment of the vote,” said Abelardo Carillo Zavala, one of about 50 members in the pro-labor PRI faction. “What comes first is to keep our jobs.”

The legislators’ demand for government sacrifice was added to the draft of Zedillo’s proposal to increase sales taxes from 10% to 15% on all goods sold in Mexico. It sought to address Mexicans’ rejection of that measure, which the government estimates would raise $5.7 billion in badly needed revenue.

Legislators called the tax increase “the most painful but necessary” of the measures in Zedillo’s austerity plan and “an enormous sacrifice.”

But, “as society is making this effort, the government also should make an effort to better spend the resources the society is sacrificing so much to provide them,” said Francisco Suarez Davila, a PRI deputy and Finance Committee chairman. He called on Zedillo to reduce the budgets for, or eliminate, the ministries of agrarian reform, tourism, energy and general accounting.

Three opposition parties also have indicated that they will work as a group to oppose the sales taxes.

Meantime, protests and threatened strikes against Zedillo’s economic plan continued to spread throughout the country.

Horacio Sanchez Unzueta, the PRI governor of San Luis Potosi, broke ranks with Zedillo and announced a new “Common Front” made up of small and medium-sized businesses to oppose the economic plan.

Thousands of students protested against Zedillo at a university in Guerrero and on the streets of Mexico City. Almost 20,000 businesses staged a two-hour work stoppage in Oaxaca. And the 2,100 miners at the Cananea copper mine near the Arizona border--where a 1906 strike helped start the Mexican Revolution--threatened to walk off the job next Monday.

As for international investors, to whom Zedillo’s emergency package was largely addressed, they continued Thursday to show a lack of confidence in Mexico’s economic prospects. The value of the peso fell again in trading, closing at 7.12 pesos to the U.S. dollar. The Mexican stock market fell 1.37%.

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So fierce was the opposition on the streets and even within the ranks of the PRI, which has ruled Mexico through a succession of authoritarian presidents for 66 years, that Zedillo found himself lobbying key ruling party members of Congress well into Wednesday night.

Before the debate began Thursday afternoon, the president appealed for support from PRI legislators representing 12 states and the Federal District. Then he left for the state of Veracruz, where he addressed a group of industrialists in the state capital.

“Undoubtedly, there always will be critical voices and opinions that, with total freedom, enrich the public debate,” Zedillo stated, trying to balance his commitment to democracy with the government’s forced new austerity. “But in the crisis our country is living through, those voices would be even more welcome if they accompany their criticisms with proposals that are realistic, viable and assure the best results.

“A moderate and transitory recession is preferable to resigning ourselves to a prolonged paralysis that would hurt society even more,” he added.

The increase in sales taxes--the only element of Zedillo’s bitter economic medicine that is subject to congressional approval--was one of a series of austerity measures he and his economic ministers announced last week. They also include immediate price increases of 35% for gasoline and 20% for electricity and a ceiling of 10% on wage increases.

Thursday’s congressional debate, which was expected to continue today, had deep implications not just for Mexican consumers and the economy. Analysts said it may foster a fundamental change in the way this nation is governed, giving the national legislature its first taste of real power in decades.

The lawmakers’ debate and their vote today will provide an acid test for Zedillo: His government desperately needs the additional revenue from higher sales taxes, and it must persuade international investors that Mexico’s economy is stable enough to put their money here.

But, at the same time, he has committed himself to casting off Mexico’s authoritarian presidency and seeing that government power is better shared between the executive and legislative branches.

As for PRI legislators, they must now balance their party loyalties against their novel commitment to a new system of representative democracy: Do they vote, as the Mexican people are clamoring, to kill the tax increase? Or do they support Zedillo, their party’s president?

Zedillo’s situation has been further complicated in that PRI governments have always managed to win allies on controversial issues from the opposition, either the leftist Democratic Revolutionary Party or the conservative National Action Party.

But this time, both parties have made clear they oppose him. The smaller Workers Party also opposes him.

Confronting such odds, several analysts suggested that the PRI--which holds a commanding majority in the Chamber of Deputies--may yet close ranks with a last-minute compromise.

But even the unlikely defeat of the increase in sales taxes might still turn into a victory for Zedillo, some analysts said.

“The best thing that could happen for Ernesto Zedillo’s government . . . would be if Congress throws out the 50% sales tax increase,” analyst Sergio Sarmiento said. “This decision would enforce . . . independent legislative power, and it would eliminate the most unpopular aspect of the emergency plan.”