The Larger Lessons of the Mexican Crisis
Ignorant of the real situation in Latin America, the Clinton administration and American investors stumbled
MEXICO'S peso crisis is a warning to the Clinton administration and Americans in general to take Latin America more seriously.
The danger is that we may use this crisis as an excuse to write off much of Latin America altogether. If we do, we will pay a high price for our provincialism.
The United States today has an enormous and growing economic, political, and human stake in Latin America. However, our knowledge of this region, which is undergoing its most profound change in five centuries, is superficial.
This superficiality is evident in the White House and Congress, in most investment firms, and among Americans generally. It contributed to the current crisis and will bring even more trouble in the future.
In recent years, frustration with lack of development in Latin America was replaced by a mindless euphoria and a propaganda snow-job about the future. For example, the North American Free Trade Agreement (NAFTA), an essential instrument of change, was shamelessly oversold by supporters. Early reforms led naive and overzealous investors to believe that Latin economies were suddenly good for safe, easy, and endless profits.
Thus, US ties increased exponentially through direct investments by millions of Americans in Mexican telephones, Argentine petroleum, and Chilean wines, and by investments in Latin stock markets, especially through mutual funds.
But the Chiapas rebellion in Mexico in January 1994 reminded us that change must benefit everyone. Now the peso crisis has shown that leaders generally on the right path can still make serious mistakes -- through inexperience or playing politics -- that hurt their own people and investors while casting a shadow over their country's free-market revolution.
Many Americans have looked on South America as simply other southern provinces of Mexico. When the peso crisis hit, and their investment portfolios were flattened, they panicked. The Mexican crisis became a warning about what they thought would happen in all of Latin America.
The responsibility for this US attitude falls partly on a Clinton administration that has allowed itself and Americans to get distracted by side issues, such as Haiti. If the president had devoted as much time to conscientiously developing former President Bush's hemispheric free-trade plan as he has to Haiti, every country in the hemisphere would have been better off today. The current crisis might have been averted, or at least softened.
Ironically, the Summit of the Americas in Miami last December demonstrated the Clinton administration's lack of interest in Latin America. During the year between when it offered invitations and the summit, the White House largely ignored the event and the region. In the end, frantic to find something concrete to accomplish in Miami, Clinton decided to invite Chile to join NAFTA. But if he had really been interested in the region, he would have issued that invitation a year ago -- Chile has long had the
strongest economy in Latin America.
From Argentina to Mexico, reform-minded officials complain of a lack of US support for the basic reforms that are central to successful political and economic change. They note that increasingly petty US protectionism reflects true US policy better than speeches lauding free trade. Legitimate US objectives, such as securing intellectual property rights, are often pursued with much subtlety.
Finally, some policies the US does push, like dragging Latin military forces into the drug war, alienate Latin leaders and breed corruption while leaving untouched the basic and more politically volatile problem of demand for drugs in the US.
The Clinton administration has offered help in stabilizing the peso. But it must continue with a more informed and constructive role in the region. Investors who invest knowledgeably and for the long term in Latin America can make profits for themselves and help create more vibrant economies that in turn become markets for US exports.