Mexico's move on the banks

A lame duck can still bite, and Mexico's President Lopez Portillo has proved it. With a scant three months left in office, he used his final state-of-the-union address to announce the nationalization of his country's private banks.

His successor was seen in the audience applauding the drastic move. That may prove important. Mexico needs a continuity of determination to act on its economic problems even at the price of controversy.

In this instance there is a question of just how much nationalization will add to the government's already considerable bank ownership and control - both formal and informal. Bankers' reactions in the neighboring United States, for example, were divided on what the step would do for the domestic and international confidence Mexico needs to get through its ordeal of soaring indebtedness.

To ensure that this confidence is enhanced rather than undermined, Mr. Lopez Portillo will have to go beyond blaming the banks for allegedly collaborating in peso speculation and a massive flight of Mexican capital.

He has to demonstrate justice in treatment of shareholders. He has to address concerns about a leftward swing away from private enterprise. And he needs to fortify hopes that the credit standing of the banks will be improved by the certainty that the government now stands behind them.

One positive indication in the speech itself was a proposal to make Mexico's central bank a public institution loosened from the federal government. This could dispel cynicism about the central bank as a handy money machine for excessive government spending.

A broader useful suggestion recognized that the flight of capital is a problem of developing countries besides Mexico; it called for international consideration of a system for recycling such money for the benefit of these countries.

Mr. Lopez Portillo also took out after the black market in currency, one symptom of the corruption to be curbed if the Mexican economy is to find secure ground for the future.

By helping Mexicans rise to the best in what he told them this week, Lopez Portillo might just show that a lame duck can fly as well as bite.

of 5 stories this month > Get unlimited stories
You've read 5 of 5 free stories

Only $1 for your first month.

Get unlimited Monitor journalism.