The Pessimists Were Too Sanguine

One year ago, fortune finally seemed to be smiling upon Mexico. The economy was vigorously recovering from the deep recession that began in 1995 and was on the way to its highest yearly expansion since 1981. Employment was up, and real wages were beginning to rise.

More important, the mid-term congressional and gubernatorial elections had placed the country firmly on the road to democratization. Not only were the results not contested, but the ruling Institutional Revolutionary Party (PRI) lost its absolute majority in the lower house, and the opposition picked up several victories in state elections and in Mexico City, where Cuauhtemoc Cardenas, the symbol of resistance to the former government of Carlos Salinas de Gortari, was elected mayor by a landslide.

But disquieting trends persisted: in Chiapas, where peace negotiations remained stagnant; in Guerrero, where new guerrilla groups had surfaced; in the large cities, submerged by a crime wave and a virtual collapse in law enforcement; and in governmental competence, as President Ernesto Zedillo, surrounded by a remarkably mediocre team, seemed unable to come to terms with the new balance of forces in the country. Still, there were stronger grounds for optimism than in many years.

Today, even the most morose seem to have fallen short in their pessimism. Although foreign perceptions remain--fortunately and blindly--upbeat, rarely has there been such a widespread sense in Mexico that the country is adrift. External and domestic factors, economic and political trends, social and even psychological indicators have generated a sense of unease and foreboding uncommon even by traditional Mexican standards. Just about the only note of optimism stems from the national soccer team’s exceptional performance in its first game in the World Cup in France.

Zedillo wanted at all costs to avoid the end-of-term jinx that has befallen every Mexican president since Luis Echeverria in 1976. In fact, he is on the verge of succumbing to a last-year-in-office crisis 2 1/2 years early.

The signs are everywhere and ominous. The plunge in oil prices is wreaking havoc with Mexican public finances. Oil still accounts for nearly 40% of government revenues, and the president was forced to acknowledge that a third, hefty cut in spending is probably inevitable, given the current glut in world oil markets. The Mexican stock exchange index has fallen almost 20% in the past five weeks. The peso dropped below nine to the dollar last week and shows no sign of strengthening.

While part of this dismal showing is inspired by international trends--the Asian crisis, the current squabble with Washington over Operation Casablanca, the Drug Enforcement Administration and U.S. Customs’ unabashed and unannounced intrusion into Mexican territory to carry out a money-laundering sting--local factors also are at play. The main one is the ongoing banking crisis and the government’s failure to persuade Congress to pass on the $65-billion bailout bill to the taxpayer.

Logically enough, opposition congressmen are highly reluctant to do Zedillo’s bidding on this score, and even PRI legislators are wary. The reason is obvious: The government claims it had no choice but to buy off the then just-privatized banks’ bad loans, as millions of debtors defaulted on debts in 1995 and 1996 as a result of the recession and the dramatic increase in domestic interest rates. It turns out, though, that a few hundred bought-back bad loans account for more than one-half of the total; that Congress never formally authorized the bailout; and that the evidence of corruption, insider trading, crony-capitalism and self-lending by the “new bankers” is mounting.

Pressure from abroad for transparency and disclosure in national accounts grows by the day, but Zedillo simply cannot deliver. Congress will not bail him out on the bailout, at least for now.

Another reason for nervousness and dismay is bloodier and far more disturbing. In just one week, two incidents in Guerrero and Chiapas showed how precarious the situation in those states actually is and how unprepared the Mexican security and armed forces are for the type of policy the government is intent on pursuing. On June 8, in the small Guerrero town of Ayutla, the army surrounded a schoolhouse where a dozen guerrillas where spending the night and opened fire, with scant or no warning, killing 12 Mixteco presumed combatants. There was little evidence of the guerrillas returning fire, and in the aftermath the Mexican press began to point to a coldblooded execution.

Three days later in the Chiapas village of El Bosque, local police forces backed by the army moved in on one of the 40-odd “autonomous townships” set up by the Zapatista rebels; the ostensible purpose of the 1,000-troop assault was to “reestablish the rule of law.” The villagers apparently defended themselves with shotguns, hunting weapons and sticks and stones; the government forces replied with mortar and automatic weapons fire. Eight villagers were killed, the army suffered one dead and several wounded. Reports began to surface this past weekend that the eight dead had been executed after the fight.

Although previous experience and Zedillo’s obsession with preventing a debacle like the ones his predecessors experienced or handed over to their successors should suffice to avoid a full-fledged economic meltdown, a combination of recession, gridlock, violence and political turmoil is likely. But instead of a classical, big-bang type of crisis similar to what occurred in 1976, 1982, 1987-88 and 1994-95, Mexico may be entering a new, prolonged period of political instability and economic fragility. Hardly a case of fortune smiling on anyone.