Speculation keen after Mexican's ouster. Politics and economics brought finance chief's resignation

Speculation is swirling around the sudden resignation of Mexico's best-known Cabinet minister. Economic and political observers here and in Mexico link Finance Minister Jes'us Silva Herzog's forced departure Tuesday to economic and political factors.

Analysts cite several possible reasons for the resignation: internal disputes over handling Mexico's deepening economic crisis; its ability to continue paying its $98 billion foreign debt; and the struggle over eventual succession to the presidency.

Over the last year, oil prices have steadily declined and it became increasingly apparent that Mexico could not keep its current level of debt repayment without enormous outside assistance or a change in the terms of its payments.

Mr. Silva Herzog wanted Mexico to keep as close to its original level of payments as possible. In order to achieve this, he pressed for major budget cuts, which would increase unemployment and the government's unpopularity.

As domestic political pressure mounted, the economic cabinet became increasingly divided over debt repayment and budget cuts. Silva Herzog stood practically alone at the Cabinet-minister level in his desire to adhere to a strict International Monetary Fund (IMF) austerity program, say economic analysts in Mexico.

Silva Herzog made a public statement on June 13 that indicated some reversal of his previous position and the recognition that Mexico, without massive foreign assistance, probably could not stick to its payment schedule. This statement came several days after Paul Volcker, the chairman of the United States Federal Reserve System, visited Mexico. Mr. Volcker was working on a bailout plan for Mexico for a reported $5.8 billion, designed to tide Mexico over until the end of the year.

Mexican economic analysts say the Volcker plan caused some debate within the Mexican Cabinet. Some critics of the plan rejected it as being merely another emergency package which would not change Mexico's inability to pay the debt as now organized. These critics called for a change in the terms of payment. They asked that Mexico, like Peru, be permitted to pay only a certain percentage of its export earnings each year or that Mexico's creditors would sharply reduce debt interest rates.

Another probable factor behind Silva Herzog's ouster was that he was regarded by many Mexicans as a major contender for the presidential nomination of the ruling Institutional Revolutionary Party. Some observers, however, say that Silva Herzog was identified too closely with a pro-US and pro-foreign bank policy to be nominated.

Potential presidential candidates at the top levels of government may have wanted to rid themselves of a rival, most observers say. They could do this more easily, say analysts, because Silva Herzog's relations with President Miguel de la Madrid Hurtado had deteriorated in recent months. The President, widely viewed as indecisive, was uncomfortable with Silva Herzog's strong personality, high public profile, and uncompromising positions, these analysts say.

Silva Herzog's resignation will not lead to any great changes in Mexico's repayment policy, analysts agree. Most analysts say that the Volcker plan, although it is seen as only a stop-gap measure, will be accepted. One well-placed analyst in Mexico City says that, unless the Volcker package comes through quickly, Mexico might be forced to postpone its July 1 payments of $2.1 billion.

Silva Herzog's successor, Gustavo Petricoli, a Yale-educated technocrat, is seen as someone much more likely to do the President's bidding.

About these ads
Sponsored Content by LockerDome

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...

Save for later

Save
Cancel

Saved ( of items)

This item has been saved to read later from any device.
Access saved items through your user name at the top of the page.

View Saved Items

OK

Failed to save

You reached the limit of 20 saved items.
Please visit following link to manage you saved items.

View Saved Items

OK

Failed to save

You have already saved this item.

View Saved Items

OK