The US and Mexico must work together to stem economic crisis
THE Mexican economic crisis is of first-rate importance to all North Americans. Last week officials were trying to patch together an emergency lending package to Mexico of $5 billion to $6 billion. This would make it possible for that country to keep current on the interest payments on its foreign debt of almost $100 billion.Skip to next paragraph
Subscribe Today to the Monitor
Mexico is a friend one should want to help. But it is also a friend that needs to do a lot for itself if that help is to be effective. Add to this the fact that the background of Mexico is so different from the origins of the United States and one can understand, but not condone, the general lack of interest Americans have had over the years in their southern neighbor.
Today there is only a handful of countries that equal the importance of Mexico for the United States. Obviously the Soviet Union, because of its military potential. Clearly Japan, because of its immense economic power and high sense of internal discipline.
Mexico is important as one of the more successful Latin American countries. Not of the size or economic power of Brazil, it has nevertheless made substantial economic progress during the postwar decades. That progress can still stand as an example to other nations. But a Mexico in decline would represent a marred experiment and, even worse for American self-interest, a disruption on our very doorstep. If we are concerned about 3 million Nicaraguans, what about 80 million Mexicans?
Just how Mexico got its $100 billion in external debt may be hard to understand. Through the 1970s, the country was looked on as a successful industrializing third-world country. Bankers flush with petrodollars to lend were glad to lend them to Mexican enterprises.
Many of the problems that developed later could have been foreseen, and the Mexicans alone cannot be blamed for this lack of foresight. A good part of Mexican industry is still nationalized, and the lack of efficiency in nationalized industries should be no news to American bankers. There is a good deal of alleged corruption in the Mexican government; surely this did not just begin with the economic difficulties.
A lot of the dollars lent to Mexico have reappeared in US bank accounts. Money that leaks across borders because it has been dishonestly gained is one thing. Flight money is quite another; if wealthy Mexicans fear for the future of their country, a well-run honest government could go a long way to ending that fear.
Mexico cannot be blamed for the falloff in oil prices, which in 1986 alone is halving its expected foreign-exchange income from oil sales.
One message coming across loud and clear, not only from Mexico, but from other countries such as Brazil and Peru, is that belt-tightening has its own limits. This is why the US has to take the lead in putting together a new loan package. As long as Mexico -- and other debtors -- pay the interest on their bank loans, the Federal Reserve can let the commercial banks classify such loans as current. If interest is not paid, and especially if a country says publicly it will not pay the interest, it becomes rather difficult to claim the loans are still sound.
The fact that the loans will not actually be paid off in the next generation, if ever, is another matter. (Does anyone believe the US government will ever pay back any of its own $2 trillion of debt?) If Mexico were to become healthy again, the bankers would not be looking for loan repayments; they would be making more loans. The best one can hope for now is that we meet the present crisis together, that the world economy rebounds so the value of products such as oil goes up again, and that Mexico on its own makes the domestic reforms it alone can make.