Peso Plan Calls On Mexican Workers to Tighten Belts
MEXICO CITY — Mexicans from the poorest peasant to the flashiest nouveau billionaire were jolted by the harsh reality of the country's daunting financial straits Jan. 3 as the government announced a tough emergency plan to stabilize the economy.
The severe economic measures were finally agreed to by the country's government, labor, farming, and business sectors after 20 hours of negotiations Jan. 2.
The unexpectedly long and ``arduous'' talks, in the words of Labor Secretary Santiago Onate Laborde, gave an early taste of how unpopular the measures, designed to stabilize the crash-burned peso and reanimate investor confidence, are likely to be with the public.
The plan calls for:
* Cutting overall government spending by 1.3 percent.
* Holding wage increases to the 10 percent increase agreed at a December meeting of Mexico's economic leaders.
* Limiting inflation to a 15 percent jump, despite a 40 percent drop in the peso's value against the US dollar.
* Cutting the current accounts (basically trade in goods and services) deficit to less than $15 billion, from the $28 billion registered in 1994.
* Letting the peso ``float'' on currency markets.
Mexican President Ernesto Zedillo Ponce de Leon cited the trade deficit as the principal reason for Mexico's sudden crisis when he told Mexicans Dec. 29 that an difficult emergency economic plan was unavoidable and would be announced this week.
The surprise caused by the year-end crisis is demonstrated in the contrast between the basic economic projections the government was touting just before the crisis and those it offers now.
In December the newly installed Zedillo economic team was trumpeting expectations of 4-percent-plus growth this year, with inflation only a few points higher.
Now the government anticipates something around 2 percent growth - some private forecasters worry the rate could be closer to 1.5 percent - with inflation jumping 15 percent.
The crisis led President Zedillo's first finance minister, Jaime Serra Puche, to quit his post after less than three weeks at the country's economic helm, admitting that his bright picture for the new year and the economic program he had intended to follow were wrong.
He was replaced by Guillermo Ortiz Martinez, a man with intimate connections to foreign investors and whom many observers had expected to get the finance job in the first place.
The US will contribute $9 billion of an $18 billion international loan package to prop up the peso. In Washington on Jan. 2, Acting Treasury Secretary Frank Newman cited ``the importance of the US-Mexican economic relationship, the substantial economic reforms that Mexico has undertaken in recent years and the strong program announce ... by President Zedillo.''
The next largest contributor is the Swiss-based Bank for International Settlements, which is offering $5 billion in potential loans.
Canada, a North American Free Trade Agreement member, agreed to put up $1 billion.
Commercial banks internationally have offered $3 billion more.
JUST how Mexicans will respond to Zedillo's plan is still unclear, but rumblings are already surfacing. Shoppers say prices are already being jacked up in stores, while workers say a 10 percent wage increase will leave them even worse off.
That will be true for most Mexicans, observers say. One economic expert estimates that the number of ``very poor'' in Mexico, last year estimated at 40 million, will jump to 45 million with the effects of the devaluation and higher inflation.
At the same time, he says the country's 24 billionaires - a much ballyhooed figure here last year - now probably number only a dozen.
Recognizing the risks of an austerity plan in Mexico's already unstable social climate, Zedillo insisted in drafting his plan that social spending actually rise - much of the increase pegged for the troubled rural sector.
The plan also includes measures for facilitating credit for the nation's small companies, who employ more than 90 percent of the private work force. With interest rates having soared to prohibitive levels above 30 percent and with small business leaders predicting massive business closings without relief, the beleaguered new president's plan will sow hope or despair in the first week of the new year.
A year of turmoil, which included the assassination of two political leaders and a peasant rebellion in the state of Chiapas, is also blamed for the crisis.