Mexican Tax Hike Wins Key Congress Vote

President Ernesto Zedillo’s beleaguered government advanced on two fronts Friday after armed rebels formally agreed to resume peace talks in the embattled state of Chiapas and the lower house of Congress approved his plan to impose a painful, 50% sales tax increase to bail out his government.

But neither advance gave Zedillo or his promise of a new democratic era a clear triumph.

After hours of bitter debate, the Chamber of Deputies passed the universally despised sales tax increase late Friday night, with ruling party legislators voting as a virtual bloc for legislation they tied to a requirement that Zedillo sharply reduce the size of his government.

In what was billed as a key test for representative democracy after 66 years of authoritarian rule, scores of ruling party deputies had indicated that they would fight the new tax on behalf of their electorate. But, in the final 290-173 tally, just one member of Zedillo’s long-ruling Institutional Revolutionary Party voted against the measure.

Mexican Senate approval appeared imminent. The sales tax increase would take effect April 1.

As for the rebels, the Zapatista National Liberation Army responded with conditions of its own to congressional approval last week of a sweeping law seeking a new dialogue on peace in Chiapas.

The rebels agreed to Zedillo’s offer to negotiate and said they will resume direct talks with the government.

But they noted that they will do this only if the Mexican army pulls back to positions it held on Feb. 8--before Zedillo cracked down on the armed peasant movement.

The army has begun removing roadblocks and other symbols of its five-week occupation in towns where the Zapatistas formerly held sway.

But Zedillo has vowed never again to cede an inch of Mexican territory to an armed group, and it was unclear after rebel leader Subcommander Marcos issued his communique welcoming the new peace law when--or whether--the new negotiations will begin.

Still, the government greeted Marcos’ communique with optimism.

“Simply maintaining permanent communication will be able to solve whatever points merit agreement among the parties,” a government statement said.

Later, the president, as he flew to the north-central state of Durango, told reporters on his plane that Friday’s moves were “an important step, but much more has to be done.”

The Zapatista response defused some of the tension surrounding the rebels’ simmering, 15-month uprising--which, in turn, helped trigger Mexico’s worst economic crisis in modern history.

The rebel communique did little, though, to calm Mexico’s roiling financial markets. The peso opened down for the fourth straight day Friday, plunging to 7.45 to the U.S. dollar; the government then apparently was forced to intervene, and the peso closed at 6.91.

In the Chamber of Deputies, the bitter 12-hour debate, which lasted until nearly 11 p.m., gave an indication of just how deep runs the anger that has greeted Zedillo’s austere emergency economic plan.

That plan also included an immediate 35% increase in the price of gasoline and a 20% hike in the cost of electricity. Even Zedillo’s ruling party called for five minutes of silence to mark the “tragedy” of the nation’s economic disaster. And the sole ruling party legislator who voted against the measure, Alejandro Rojas Duran, said his conscience could not permit him to support the tax increase.

But legislators signaled that they would approve the much-loathed measure as they voted on an opposition motion earlier in the day to suspend Friday’s rancorous debate and reduce Zedillo’s proposed sales tax increases.

That motion failed, signaling that members of the ruling party ultimately would put party loyalty to the president over populist opposition to Zedillo’s plan to increase sales taxes to 15% from 10%.

The government says the sales tax increase will bring in an estimated $5.7 billion this year and help compensate for the more than 40% devaluation of the peso since Zedillo took office last December. The sales tax increase is the only part of the president’s austerity plan subject to congressional approval.

The three major opposition parties--and even some ruling Institutional Revolutionary Party, or PRI, members--blasted the government’s tax plan, saying it forces Mexicans to pay the price for the government’s economic failures.

“We cannot say, as this legislation says, that we demand new sacrifices when we are not taking into account the opinion of those who are going to be sacrificed,” declared Victor Manuel Quintana, a deputy of the leftist Democratic Revolutionary Party, or PRD, who appealed for the suspension of Friday’s sessions. “What is at stake in this moment is whether this Chamber is democratic or not. What is at stake is if there is a true separation of powers and legislative autonomy in Mexico.”

The three main opposition parties voted against the tax increase.

Even in supporting the unpopular measure, the PRI majority in the Chamber added to the legislation an eleventh-hour demand that Zedillo eliminate or restructure four Cabinet ministries as a sign that he is willing to share Mexico’s economic pain.

Specifically, the Chamber’s PRI action sought the elimination of the ministries of tourism, agrarian reform, energy and general accounting. Those agencies together employ more than 18,000 people and have budgets exceeding $140 million a year.

“Why is it necessary” to force the reductions in government? Chamber Finance Committee Chairman Francisco Suarez Davila asked rhetorically as he lobbied for Zedillo’s tax-increase package. “It’s necessary because the government’s income has fallen as a result of business losses through the devaluation, as a result of the serious decrease in import taxes and the reduction of income.

“The tax increase compensates these losses and strengthens public and national savings,” he said. “It’s wrong to think that this is to benefit the government and not the people. This is false. . . . More income permits social spending, public investment, and it sustains employment.”

Zedillo did not comment specifically Friday on the ministry-cutting proposal or the tax increases, which are more likely now to be approved by the Senate after the Chamber’s passage. But Zedillo continued to tour the country in an effort to sell his harsh recovery plan to an increasingly desperate and angry nation.

“These are actions that don’t deserve applause,” he told workers in the north-central state of Durango. “The profundity of the crisis we are living through has forced us to take tough measures, but ones that are indispensable to avoid higher social costs.”

Despite the government’s commitment to austerity, Zedillo unveiled a program to invest more than $200 million in federal funds in the next six months to create up to 600,000 temporary jobs maintaining roads, highways, irrigation and reforestation projects in the poorest rural and urban areas of the nation this year.

“Certainly, we are faced with a crisis, but this crisis is transitory and we are going to conquer it with the unity of all Mexicans,” he told the crowd. Later, in a ceremony at a new Durango university library, Zedillo renewed his commitment to higher education.

“We will overcome this difficult situation in some months,” he said at Juarez University.

But he conceded that his government will face great challenges. “The government has much to do to improve the application of the resources that the Mexican people command,” he said. “We must do much more to better administer those resources and avoid corrupt practices. And, in that, the promise of my government is firm, decisive and unshakable.”