Fiscal Crisis Is Small Change to Mexico Elite

As the sun sank into the Pacific, the terrace bar filled up fast at one of Mexico’s finest beach resorts.

The new arrivals one recent Saturday came in groups of half a dozen or more from nearby villas and condos--the seaside centerpieces of this isolated paradise built two decades ago as a playground for the rich. Outfitted with cellular telephones, designer sunglasses and plenty of cash, they soon outnumbered the U.S. and European hotel guests on hand for the sunset. Not one of them looked older than 21.

“They’re from Mexico City, the children of the richest,” a waiter said. “The economic crisis? What crisis? You won’t find it here in Ixtapa.”

At a time when Mexico’s worst economic crisis in more than a decade has made most of its 90 million people poorer overnight, the richest of Mexico’s rich have yet to feel even a pinch on their personal fortunes.

To be sure, the crisis was jarring for the elite: Not only do they mourn the stain on their national pride, but they are also coming to realize that under the current administration, wealth no longer guarantees political influence.

But the rich have been spared the personal financial pain that threatens to wipe out much of Mexico’s emerging middle class along with more than 500,000 blue-collar jobs this year. In fact, many of the nation’s high-rolling elite have actually profited.

Badly burned during Mexico’s last financial calamity, in 1982, they took most of their assets out of the country. With their family fortunes largely in U.S. dollars, French francs and German marks, the sudden devaluation of the Mexican peso that detonated a national economic emergency Dec. 20 increased their personal net worth and spending power here as fast as it impoverished most other Mexicans.

“Everyone thinks of Mexico as a sinking boat, but the boat is not sinking evenly,” said Emilio Zebadua, an economics professor at the Colegio de Mexico graduate school. “The poor are underwater, but some people are in a higher position than they were before the crisis.”

As Vladimir Brailovsky, head of a private economic consulting firm, explained: “The richest 5% have a good part of their fortunes in foreign currency, which means they benefited from the devaluation. They’re buying Mexico cheap; everything is a bargain.

“For the top 5%, everything is fine.”

So fine, in fact, that sales of Mercedes-Benz luxury sedans, which retail here for about $50,000, were up more than 25% during the first three months of this year--263 cars compared with 209 sold during the same period of 1994, according to industry figures. That increase came at a time when total automobile sales in Mexico have collapsed by more than 60%, and when some middle-class families have had cars repossessed.

The elite’s good fortune helps explain the weekend crowds in Ixtapa and other chic Mexican resorts, where hotel occupancy rates have fallen with sharply reduced middle-class travel but where the high-end real estate market remains strong.

And it helps account for swarms of diners in Mexico City’s most elegant and expensive restaurants during a year when the nation’s restaurant association estimates that 10,000 medium-priced and fast-food establishments will go bankrupt.

Forbes magazine includes 10 large Mexican families with combined personal assets of $33 billion on its international billionaires list.

The top 10% of income earners represented 38% of all economic activity in the country in 1992, largely through manufacturing and banking conglomerates, the government said.

But Mexico’s old-money elite accounts for only some of those still in the country’s fast lane. A lesser-known group of nouveaux riches have attained wealth by more questionable means--much of it from drugs.

A recent U.N. report on crime said Mexico’s economic crisis has been a boon to narcotics cartels and regional drug kingpins. Smuggling cocaine from Colombia through Mexico and into the United States, they have generated billions of dollars in illegal profits in recent years.

Since the crisis began, the report stated, Mexican drug lords have laundered large portions of their dollar profits through cheap peso purchases of luxury goods here.

“In possession of enormous quantities of dollars that suddenly acquired an additional value of 30% relative to the peso, these people began to buy pesos and, with them, purchased movable Mexican assets, such as works of art and luxury automobiles,” the report said. “They then sold them in other countries for dollars. Those dollars, in turn, were converted again into pesos, and the process repeated itself.”

Outside the shadowy underworld dubbed the “narco-culture,” in Mexico’s staid, established elite, there is a flip side to any gains the economic crisis may have brought.

The crisis and the government presiding over it have hurt the rich on a psychological, emotional and social level, according to several independent economists and a top expert on the nation’s elite.

“They are in a psychological state of shock,” said Guadalupe Loaeza, author of three books on Mexico’s wealthy. Loaeza acknowledged that the shock is unlikely to generate much sympathy for the rich, particularly for the younger generation seen partying with impunity at weekend resorts such as Ixtapa.

“It’s true that everybody is suffering very much right now except the rich. With the rich, it’s only their mood that’s different,” she said.

But she stressed that the mood shift has profound implications for President Ernesto Zedillo and the future of the Mexican economy.

Behind it, she said, is “a deep sense of betrayal and despair” after the now-apparent failures of former President Carlos Salinas de Gortari. The Harvard-educated Salinas, himself the product of a wealthy family, had imbued the elite with a sense of pride in Mexico’s international stature during six years of economic reforms that put the country on the map of global finance. Now his policies are widely blamed for December’s financial fiasco.

Compounding the humiliation of the economic collapse is the rich’s sense of alienation from the current government, say sociologists and economists.

Despite an economic emergency plan that appears to favor the private sector and rich families still willing to invest here, Zedillo is seen as no friend of the elite.

One story heard around the capital recounts a dinner that Zedillo and his wife attended last fall at the home of Carlos Hank Gonzalez, a billionaire industrialist with financial holdings throughout Mexico and the world--a man with traditional influence on the government. At one point, several sources recounted, Zedillo’s wife, Nilda, chided Hank for the prized collection of famous paintings covering his walls.

“They should be in a museum,” the first lady is said to have told the host.

“My impression is that she hates the rich,” Loaeza said of Zedillo’s wife. “And Zedillo himself feels very uncomfortable with them. He is not from a traditional family. And that’s historic.”

Zedillo, in fact, was raised poor. He had to shine shoes after school to augment the family income in the border town of Mexicali--a background he emphasized during his presidential campaign.

Mexicali residents recall that Zedillo was approached during a campaign stop there last summer by a young boy who offered to polish his shoes. Zedillo refused. The future president then stooped and shined the boy’s shoes instead.

Since taking office Dec. 1, Zedillo has continued to strike a populist line. The president and his family are rarely seen or photographed in the company of the rich, which Loaeza and others said is a departure from the style of Salinas, who routinely dined with the wealthy.

“There was a stratum of the super-rich that never really bought into the Salinas miracle,” independent economist Denise Dresser said of the former president’s revolutionary policies to open the nation’s markets and privatize key sectors. “They invested in it. Many got richer. Some did lose corporate holdings and paper assets in the most recent devaluation. But when it came to their personal fortunes, they hedged their bets by keeping their money outside the country in dollars.

“Perhaps Salinas’ greatest accomplishment, though, was imbuing this class and the country as a whole with a sense of pride, a sense we were going somewhere, moving forward economically. So there is this sense of profound disappointment now,” she said.

Dresser agreed with Loaeza’s assessment that the rich now feel “orphaned” by Zedillo’s government. And for an economically powerful class that sees political influence as a natural perquisite of wealth, the consequences of that alienation could backfire on Zedillo.

“You’re not going to see Zedillo catering to the interests of the ultra-rich--culturally, at least,” Dresser said. “But he needs key people of the ultra-rich--particularly in the export sector. Those who buy into that will be well taken care of in Mexico.”

The question is, will they cooperate? Much of Zedillo’s recovery plan is based on what is called Salinismo, his predecessor’s reliance on foreign investment and privatization, to stabilize an economy that has lost billions of dollars in investment in five months.

For the plan to work, economists say, Zedillo will need large infusions of private, domestic capital--the assets of rich Mexican entrepreneurs who are willing to buy majority shares in the nation’s industries slated for privatization.

“The government, I think, is very scared because they need the rich,” Loaeza said. “What will happen? Nobody knows. But somehow, through all of this, I believe our society is going to change.”

Fineman was recently on assignment in Ixtapa.