In Mexico, a loan's not enough

THE United States Government is handing Mexico a $3.5 billion loan because it likes what that country's leaders have been doing - imposing austerity measures to wring out inflation, privatizing hundreds of government-owned businesses, trying to hold down their budget deficit. These steps have played well with Washington and with international bankers. But they haven't played so well with large segments of the Mexican public. The austerity program has meant tough times for many middle- and low-income people. Over the last six years, real income has fallen by 40 percent; inflation, though now way down, has soared to triple digits; thousands of jobs have been lost as government enterprises closed.

Mexican economic planners and US Treasury and Federal Reserve officials might view the loan as a way to offset a sharp drop in Mexico's oil income and as a bridge to longer-term commitments from the World Bank and International Monetary Fund.

Many average Mexican citizens, however, are likely to see it as simply a deeper plunge into debt - the interest on which, they suspect, eventually comes out of their own pockets. At $104 billion, Mexico's level of foreign debt is second only to Brazil's among developing countries.

That debt, rapidly accumulated in the past decade, is a weight holding down economic recovery in Mexico. Merely piling on new debt, such as the US loan, is hardly going to ease that weight. What is urgently needed is some form of debt relief. The bankers who hold much of Mexico's debt have indicated they are ready to forgive large portions of it so long as the interest on what remains can be guaranteed. Japan has shown some willingness to act as a guarantor; the US balks, because such a move could be seen as bailing out the banks, a politically unpopular stance.

But if Washington truly wants to boost the kind of economic reform championed by Mexican President-elect Carlos Salinas de Gortari, it will have to shuck political wariness and zero in on debt relief.

As President Miguel de la Madrid's top economic aide, Mr. Salinas has been a primary architect of the austerity measures favored by Mexico's creditors. The US loan may be of immediate value to him in quelling speculation on the weakening Mexican peso. The government can point to US Treasury and Fed backing for its currency.

Working against that note of confidence is a suspicion that the peso may be in even worse trouble than thought. Some analysts worry that Mexico's foreign-exchange reserves are starting to drain away, along with oil revenues, as the country strains to service its debts. The worst-case scenario is a renewed explosion of inflation and a virtual economic meltdown.

That is far from inevitable. But economic pessimism seems to be growing, not diminishing, within Mexico, and the country's newly vigorous political opposition is feeding on it. Salinas's most formidable opponent, Cuauht'emoc C'ardenas, promotes an alternative set of policies: a moratorium on foreign debt repayment and a redistribution of wealth. His strong showing in last summer's election, and continued popular following, indicates he has struck a chord with the Mexican people.

Sticking to the path of reshaping Mexico's economy into a modern, market-driven mechanism won't be easy for Salinas, who takes office in December. Loans from Washington and from international agencies, along with debt relief, can help. But most important may be the new president's ability to point to tangible successes and thus bring the mass of average Mexicans along that path with him.

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