Commentary : Latin Reforms Weather Mexico’s Storm : Economics: Modernization continues with renewed commitment by voters and leaders in key countries.

When the Mexican peso crisis shook the international financial system six months ago, there were fears that it would fatally harm essential reform in Latin America. Quite the opposite has happened: The crisis has given extra impetus to reform and modernization throughout the region.

The crisis, caused by Mexico piling up short-term debt and running an acutely overvalued currency, has not shown that market-based reform in Latin America to be premature; the region has not plunged back into populism and statism. Instead, the continent’s policy-makers and public now recognize that vital tasks remain in the ongoing process of economic reform.

Indeed, the global economy of the late 20th Century is a bit like Alice in Wonderland: You have to run as hard as you can to stay in the same place. If you want to go somewhere else, you have to run twice as fast.

So leaders from a growing number of Latin American countries have concluded that extending reforms rapidly is the only way to counter skepticism at home and abroad and to move decisively toward prosperity and social harmony.

This spring, Carlos Menem in Argentina and Alberto Fujimori in Peru were reelected on market-oriented platforms, which suggests that Latin American voters no longer hanker for the old ways. The fact that Argentinians rewarded Menem for his open discussion of the nation’s problems and for implementing tough but necessary measures is itself an extraordinary departure from that country’s history.

Elsewhere, the reshuffling of the Costa Rican economic team, the willingness of the new Uruguayan administration to push ahead with reform, the implementation of a firm stabilization plan in Brazil and the discussion of a new wave of privatization in Chile are further evidence that Latin American reform is alive and well and gaining momentum.

The Mexican crisis underlined the importance of raising domestic savings and encouraging private investment in infrastructure. This in turn will require sound budgets, pension reform--replacing government programs with private ones, as in Chile--and modern regulatory systems that set clear rules and protect property rights. And deregulation must spread to lower levels of government, slashing red tape in states, provinces and municipalities.

It is also evident that reforming the labor and education systems cannot be postponed. Only to the extent that the labor force becomes highly educated and mobile will productivity grow at rates consistent with the region’s aspirations. Education reform will require more private sector involvement and dealing with the powerful and conservative teachers’ unions.

Even more far-reaching, more and more Latin American leaders have realized from the Mexican crisis that there is an urgent need to rebuild the state, creating new institutions that efficiently perform tasks that the private sector cannot undertake, such as law and order, basic social services for the poor, modern regulation through independent professional bodies and the provision of infrastructure.

The combination of deeper reforms and new state institutions will provide the base for stronger economic growth, reducing the region’s notorious poverty and inequality and consolidating democracy. After a short slowdown in activity, we can expect a rebound in most Latin American economies by mid-1996.

And Mexico? In spite of the tragic elements of this crisis--the broken promises, the renewed sorrow, the new rounds of belt-tightening--Mexico can fulfill its great potential. Geography and the North American Free Trade Agreement are on Mexico’s side. The economic structure is largely healthy, public finances are more under control and exports, once free of the burden of an overvalued currency, could become a powerful engine of growth, as the country’s recent trade surplus indicates.

Most important, President Ernesto Zedillo appears committed to political reform and truly improving social conditions and reducing inequality. These are essential to restoring international confidence, itself a prerequisite for long-term economic takeoff. Mexico may have to run twice as hard to catch up, but if Latin America sticks with reform, the aspirations of the people need not be disappointed again.