... By Halting an Incipient Crisis

THE United States bears no blame for the financial crisis in Mexico. The responsibility falls squarely on the shoulders of Mexico's economic authorities. Still, there are a number of good reasons for the US to help Mexico quickly. Among them:

* An economically depressed Mexico will not be much of a trading partner. Whatever Washington does, exports to Mexico will drop sharply this year. The sooner the Mexican economy recovers, the better off the US economy will be.

* The downturn means tighter budgets for Mexico and, hence, restricted ability to cooperate with the US in dealing with joint problems such as drug trafficking, border environmental contamination, and immigration.

* Mexico's economic distress is likely, in some part, to be translated throughout Latin America, compounding the damage to the US economy and threatening the region's democratic stability and economic reforms.

Moreover, there are also good reasons to believe that the $40 billion in loan guarantees proposed by the Clinton administration would stem the crisis in Mexico. The financial markets are undervaluing Mexican assets and underestimating the strengths of the country's economy. Mexico's problem is that it has more debt due in the next months than it has reserves to pay it off. That makes investors anxious and eager to pull out as soon as they can, even at a significant loss. US loan guarantees should reassure debtholders and keep many of them from precipitously withdrawing; some might be tempted to invest more because prices are so low.

The guarantees should buy Mexico time for new government austerity measures to take effect, for the trade deficit to narrow, for the markets to reassess the real value of their assets, for some measure of international confidence to be regained, and perhaps for political tensions to ease and government credibility to be bolstered.

The debate in Washington is not mainly about whether the loan guarantees serve US interests. The controversy is more over what conditions the US should impose. Three kinds are being promoted. The first is easy: The US should assure itself that it will not lose any money, that Mexico will be able to pay back whatever it borrows.

A second condition would demand changes in Mexico's economic policies that would reduce the chances of Mexico getting itself into another financial crisis. In principle, such conditions make sense. In practice, the right policy decisions are not always technically clear and unambiguous. In this area, it would be best for the US to cooperate with experienced international financial institutions (the IMF, the Inter-American Development Bank, and the World Bank, which also will be providing backing for Mexico).

Finally, there are political conditions unlinked to Mexico's ability to pay or the nation's economic management. These mostly represent the demands of US interest groups that want to force a weakened Mexico to adopt policies more to their liking on issues such as Cuba, drugs, immigration, environment, labor rights, and electoral rules. Political conditions are a bad idea, unworthy of the US, and likely to be ultimately self-defeating, even if Mexico agrees to them.

Mexico's financial crisis is an opportunity for the US to be a good neighbor while serving its own interests and demonstrating its reliability as a partner.

It should do so. The Opinion/Essay Page welcomes manuscripts. Authors of articles we accept will be notified by telephone. Authors of articles not accepted will be notified by postcard. Send manuscripts by mail to Opinions/Essays, One Norway Street, Boston, MA 02115, by fax to 617 -450-2317, or by Internet E-mail to OPED@RACHEL.CSPS.COM.