Mexicans split on issue of economic reform

By , Staff writer of The Christian Science Monitor

Is there a way to help poorer nations break free of the twin burden of mounting international debts and continued poverty? Mexico is about to become a test case of the effectiveness of international loans on easier-than-usual terms and of how far a developing nation is willing -- or politically able -- to reform to avoid the need for more loans.

Even as final details of a massive loan package for Mexico are being worked out in New York, analysts here and in the United States are saying another bailout will be needed, perhaps in two years. It would be the third bailout for Mexico since 1982.

Why will more help likely be needed? Mexico's economic crisis is so deep that it is unrealistic to expect short-term loans to turn things around, according to Mexican and US experts interviewed.

Recommended: Default

But more intriguing is the question of just how far the Mexican government can, or wants to, proceed with the kind of economic reforms international lenders are requiring.

Mexico has recently taken a tougher stance in its negotiating with international banks. It is seeking later interest payments and at a lower interest rate. But says one US businessman in Mexico City, ``they are not talking about defaulting.''

Mexico's creditor banks are likely to reject Mexico's request for interest rate concessions. The banks counterproposal is not yet complete but the advisory committee hopes to present it to Mexico this week.

Although Mexico has agreed to certain reforms, it is not doing so without some reference to the risks of political instability involved with making the reforms. The reforms include selling state-run industries, cutting budget deficits, opening the country to more foreign investment, and cutting government subsidies, including those on food and transportation.

With the reforms, Mexico is under pressure from the lenders to move further away from the socialist ideals of the 1910 Revolution and toward a more capitalistic system. The Mexican economy is currently a blend of both socialism and capitalism.

As Mexican President Miguel de la Madrid Hurtado proceeds with some of the reforms demanded by Mexico's lenders, he is coming under mounting pressures from Mexicans seeking more reforms and those opposing them. Some industrialists, technocrats, economists, and others are pressing the President to move even faster on the kind of reforms the lenders are seeking.

Reforms taken to date are ``not sufficient,'' says Gerardo Bueno, who is a Mexican international economist. The government has procrastinated on making decisions such as selling uneconomical state-run industries, he says.

Opening Mexico up to more foreign competition will help the country in the long run, says one Mexican industrialist. Inefficient industries will be forced out of business; others will be forced to modernize and compete, the industrialist says.

But other economists, workers, and industrialists -- who feel threatened by the closing of more state-run industries -- and some journalists accuse the President of selling out on the ideals of the revolution by making the reforms.

Froyl'an L'opez Narva'ez, a Mexican political scientist and journalist, says the reforms do not help the economy and are contrary to the socialistic aims of the nation.

Mexican economist Jos'e Casar P'erez says the challenge is not to sell state-run industries but to improve them. The government plays an important social role in industrial and commercial affairs, he says. Nationalized banks, for example, serve people better, because they are not striving to cut costs and boost profits at customers' expense. What is needed is an even closer cooperation between business and government, he says.

What both sides seem to agree on is the problems that greater borrowing can cause Mexico. Mr. Bueno says the more Mexico borrows, the harder it is for it to repay the loans. Government officials seldom discuss this, he says.

Mr. L'opez calls the poorer nations' mounting international debts a form of ``new colonialization.'' Poor nations never get ahead, they just get enough to pay back old loans, he says.

This is not a new charge. It is addressed in the easier-than-usual terms agreed to in part of the Mexican loan package approved by international lending agencies. This amounts to more than $5 billion. (Several billion dollars more in loans are being negotiated with private bankers.) The aim of the easier terms is to help Mexico break out of the cycle so many developing nations are in: going further into debt while not breaking out of poverty.

The International Monetary Fund agreed to allow Mexico higher budget deficits than normal in such loans and to provide more loans if the price of oil drops again significantly. Mexico is a major oil producer and much of its income in recent years has been oil revenues.

The loans ``break new ground,'' says Richard Feinberg, of the Washington-based Overseas Development Council. But, he says, ``It's a misnomer to call it a growth package.''

Most interviewed say they do not see the new loans enabling Mexico to do much more than keep up with payments on its nearly $100 billion foreign debt.

The issue of economic reform is intertwined with that of electoral reform. There is growing pressure on de la Madrid and his ruling party to allow further electoral reforms to give minority parties a greater share of power. As the economic crisis has deepened, the strength of the minority political parties has grown.

Mexico is ``precariously balanced between radically different alternative futures,'' according to a recent report by Brian Latell for the Hoover Institute at Stanford University. The alternatives he suggests are greater political power sharing or ``a more closed repressive one in which power is monopolized by a few.''

A high Mexican government official says, ``You don't see people in the street burning cars.'' But, he adds, ``the situation is very delicate.'' He credits de la Madrid with being ``very truthful'' about the depth of the economic problems the nation faces.

Share this story:

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...