President Clinton and the IMF, bowing to a theory called “systemic risk”—sort of a domino theory for international money—have advanced Mexico $20 billion and $17.8 billion, respectively, in credit; another $10 billion has been promised from the Bank of International Settlements. But in this confidence game, avoiding an appearance of neediness is essential. Foreign investors, like a volatile high-school clique, have asked Mexico, star of the last decade, to sit at another table. Into the empty seat investors have welcomed a new protégé, Chile, which, with more tiger-like foresight than Mexico, insists that its foreign investors keep money in the country for a minimum of a year, no matter what apocalypse occurs to decimate it.
It came on fast, as shocks do. But most of what followed—speeches with watchwords like “discipline” and “sacrifice,” the metaphor of belt-tightening, and all the gray, portentous trappings of crisis—was oppressively familiar to Mexicans. Pull the camera back, so to speak, from the dazed face of Jaime Serra, shift to Washington, DC, and you will see that Mexico has more or less been in crisis mode for thirteen years. A flashback: it is late summer 1982. A grim-faced Mexican delegation is arriving in town. A reckless borrow-and-spend cycle—a cycle in which American banks, flush with extra money deposited in the 1970s by newly rich OPEC oil merchants, are thoroughly implicated—has brought Mexico to the brink of insolvency. Jose Lopez Portillo, Mexican president at the time (remembered for promising to fight like a dog to defend the peso, a phrase that Mexican political cartoonists have resurrected this year, with various officials cast in the role of fire hydrant), has threatened to default on his country’s loans. At the last minute, Paul Volcker at the Federal Reserve helps to arrange a bridge loan from thirteen commercial banks.
So begins an era in which the accumulation, postponement, and refinancing of debt turn into a regular routine in Mexico. The people who run the government today are at this time just beginning to serve in its ministries, where debt has become something both to ignore and to tolerate, like television for one’s latchkey child. There, in the early 1980s, is future president Zedillo, working in Mexico’s Central Bank, where his principal innovation is a program called Ficorca, devised to save companies indebted in foreign currency. There, in 1989, is the future secretary of state, Jose Angel Gurria, Mexican nickname “the Angel of Dependency,” meeting with John Reed of Citibank. They are working out new terms for the debt incurred in 1982. The fruit of their efforts, the Brady Plan, forgives a small portion of the Mexican debt and converts the rest into thirty-year bonds—a happy solution which is hailed as the renegotiation to end all renegotiations. Yet there is Gurria again, in January of this year, sitting in Robert Rubin’s office at the Treasury for yet another telephone marathon, post-devaluation disaster, to round up new money.
As for Mexico’s creditors, having acted like enablers during the 1970s, they suddenly turned into temperance crusaders. To assuage them, Mexico agreed to submit to a new diet prescribed by the IMF. Since World War II, the Mexican economy had operated on an “import-substitution” model: the government poured money into domestic industries and protected them with high tariffs. Now, gradually, through what the IMF called “structural adjustment,” the government would transfer financing burdens to the private sector. The plan stressed rigor and discipline. State-owned telecommunication companies and iron and steel operations, most of them corrupt and inefficient, would be sold off. Manufacturing, followed by banking and services, and then—gradually—agriculture would be opened up. Because inflation must be exorcised as vigorously as any demon, wages and prices would be held low. At the same time, though, an important element of structural adjustment was relaxing the rules for foreigners to invest, which had the consequence—unintended, but a consequence nevertheless—of encouraging Mexico to live off capital inflows from someplace else.
Here is what the investment bankers, stockbrokers, and international-aid and financial-policy bureaucrats who were lured to Mexico—some by the promise of quick profit, some by a missionary commitment to markets, some by a new career track in which to rise—saw when they flew south to do business. In 1988, when Salinas took office, the Bolsa Mexicana de Valores, or Mexican Stock Exchange, occupied a dilapidated old building in the historic downtown of Mexico City. In 1990, in accordance with Salinas’s intention to “modernize” Mexico (he used this word at thirty different points in his inaugural speech), a new headquarters opened. The new Bolsa is on the Reforma, a European-style, wide boulevard that cuts south from downtown. (The Reforma Avenue is, in fact, a leftover from another tragicomic fantasy of Mexican progress. It was built in the 1860s; Napoleon III, after his army won a ludicrous skirmish at Veracruz, had installed a Habsburg, Archduke Maximilian, as Emperor of Mexico. Maximilian and his mad wife, Carlota, unaware that they were France’s pawns, set out with a touching, earnest, misguided paternalism to mold their new home into a liberal monarchy. Rebel Mexicans disagreed and stood Maximilian before a firing squad.)
The new Bolsa consists of a squat dome with dark-glass reflecting panels abutting a tall, dark-glass tower. The tower is divided into three sections, which look like three books that have been lined up side by side and then sliced across the top in crazy diagonals. It is a bold structure, but not a very solid or sober-looking one. In any event, for a mile on either side of the Bolsa, and across Reforma, in a quaint, heavily touristed district called the Zona Rosa, are dozens of brokerage houses and banks. Under Salinas, new offices representing the business interests of Arizona and Illinois and other American states opened, and sleek international-franchise clothing stores and restaurants appeared and began to multiply. It is this well-tended district that the Americans who dealt in money got to know. They found, too, that for the first time they had a parallel Mexican cohort, a counterpart class that drove Hondas, used cellular phones, and worked out on StairMasters at the gym.
When I went to Mexico in late March I found myself frequenting this neighborhood, trying to take its temperature. The streets were quieter than they had been in August, the last time I had been there; just recently, for what were given as “security reasons,” the Bolsa had been closed to the general public and its press room removed to a side street around the corner. Except for a receptionist and a woman who was whispering on the phone to a friend, the press room, done in international-office gray, was empty.
Later that afternoon, I went to see a Mexican writer, a nonaligned critic of the government, whose observations have a rare independence and sharpness. I wanted to ask his opinion. Was it the current account deficit, the Tesobono, or clumsy public relations; had Mexico adhered too strictly to the doctrine of neoliberalismo, had it deviated from a key tenet? I wanted his help in identifying the fatal error. Instead, he bounded into the room, energetically shook my hand, and lifted my questions to a different plane. “Well, it’s amazing, the lie, isn’t it?” he said. “How they came up with it, how they kept it up. How everyone went along. It’s quite an interesting psychological problem.”
“Lie” might not be quite right. A good con man, after all, will pocket the credulous widow’s savings, but that didn’t happen in Mexico. No, some new word or even epistemological category might be needed to describe how, regarding Mexico, an optimistic scenario has been floated for years, like an option, to become indistinguishable from the truth as long as enough people invested in it. Consider this statement, with its hopeful, strident, and insecure-sounding logic, by Michel Camdessus, the director of the IMF, explaining on February 2 why it was necessary for the IMF to spend $20 billion—more than it has ever given to any country—to bail Mexico out:
Another systemic aspect of the Mexican crisis is that Mexico has been an exemplar of the approach to sustainable growth recommended by the international community. Of course, this is what accounts for its great progress in the past decade. An unwarranted perception of failure of the Mexican approach might have had wide-ranging repercussions, because a view might have spread that the market-based approach to development had failed…The I.M.F. had a responsibility to step in to help prevent an unnecessary and partially self-fulfilling threat to the continued economic success of a country which had so resolutely pursued economic reform.
That the market-based approach works best of all is a given. Therefore the market-based approach deserves our confidence. And only if we trust in the market-based approach, as it deserves, will it show you doubters that it works best of all. A roundabout piece of reasoning, requiring an almost religious faith. Actually, though, Mexico’s “great progress in the last decade” has been mixed. The highest growth registered under Salinas was 3.6 percent in 1991; but this number had receded to less than 1 percent in 1993.
What a world view in which truth is subject to market verification appears to cherish above all is “credibility.” This sounds like a good neutral quality, and most of the time it is, but trying too single-mindedly to secure, hang onto, or recover credibility can also have ugly side effects. Since December, Mexico has pledged to keep inflation down, improve its balance of trade, beef up foreign reserves, and retire the ill-considered Tesobonos. (Meeting the Tesobono obligations, in fact, will eat up the lion’s share of the US and IMF package.) For the sake of credibility, Mexico has in effect forced its economy to contract—a million jobs are gone, and the projected shrinkage is between 4 and 5 percent—on the gamble that a year from now investors will admire its trim new figure. Meanwhile, as it awaits rediscovery by the world, the government must guard against blurry vision, malnutrition, and a weak, wobbly feeling in its legs.
Nor, just as investors are not voters, does credibility bear any necessary relation to accountability, democracy, or responsible government. The apotheosis of this non-relation was exposed in February, when the following advice from an American analyst, Riordon Roett, writing in Chase Manhattan’s investor newsletter, was reprinted in Counterpunch, a left-wing Washington newsletter, and further explored in The Nation and Harper’s: “While Chiapas, in our opinion, does not pose a fundamental threat to Mexican political stability, it is perceived to be so by many in the investment community,” Roett wrote. “The government will need to eliminate the Zapatistas to demonstrate their effective control of the national territory and of security policy.” Needless to say, Roett’s suggestion that Mexico go in and “eliminate” the guerrilla leaders and who knows how many hundreds of Mayan Indian followers, issued casually, as if he were advising someone to wear a nice navy wool suit to a job interview, was perfectly useful in the technical sense. But sent naked into the world, where other concerns besides investors’ perceptions come into play, it became a liability, and Roett was fired.
So while credibility is reassuring it can also be callous. Which is why I am repeatedly surprised to find its adherents, in conversation, to be unusually well-intentioned, sincere, and almost unnaturally upbeat. I had dinner in March with an American friend, a stock analyst who works at a Mexican brokerage firm. At the beginning of the meal he was all gloom. Mexico had taken such strides toward creating a middle class, and now so much ground had been lost; already there was so much pain, and layoffs and defaults would mount over the summer. But by the time we ordered coffee he was already envisioning the turn-around. “NAFTA will save us,” he said. Zedillo, Ortiz, Rubin, Camdessus, et al., agree. The Mexican government asserts, and the US government and the multilaterals confirm, that Mexico’s macroeconomic conditions are stabilizing. Inflation, though high (it is projected at 42 percent for the year), is not runaway. Easy access to the American market and a cheap peso have driven exports way up. The budget is showing a surplus. The economy is on track to register growth again starting in the first quarter of 1996.
There is another version of reality, of course, but it is less easily rendered in statistics and can only be gleaned from personal experience, gossip, anecdote, glimpses of haunted-looking restaurants and stores, and the erosion, tangible to anyone who has been in Mexico lately, of politeness in daily life. In this reality, anyone who hasn’t lost a job himself knows several people who have. Interest rates on loans and mortgages are running at the usurious rate of about 80 percent. A middle-class debtors movement called El Barzon has sprung up and staged symbolic credit-card bonfires around the country. Granted, Mexican beer exports shot up by 50 percent in January. On the downside, the number of Mexicans who suddenly find themselves in the underground economy, trying to interest passersby in a carnation, a pirated videotape, or an Indian handicraft, has also jumped. So, too, have bankruptcies, muggings, violent crime, juvenile delinquency, and suicide; by the middle of June, twenty-three people had killed or attempted to kill themselves by jumping onto the Mexico City sub-way tracks.
Still, compared to the psychology of belief, that of dissent is just beginning to evolve. Ever since December, the situation in Mexico has served the disgruntled, there and in the United States, as something like a Rorschach test—a smudged, ominous political symbol in which to confirm suspicions that the governments of both countries are bending the truth to serve a secret partnership with the rich. Except for that calculated to make Bill Clinton look foolish, the political opposition to the bailout remains unspecific, reactive, disorganized, and rhetorical—mostly a focal point for rage. The different explanations of what went wrong, and the different political stances on the American aid package, fall into place along a subtle, precisely delineated ideological rainbow. There are people on the left, like Ralph Nader, who perpetually complain that the Treasury and the Fed run both Mexico and the US as if it were their own colonial hacienda. There are freshman Republican congressmen hungry to expose the US bailout package as another example of government wastefulness. (“We need to focus our energies on passing the Contract with America,” ten congressmen wrote in a perfunctory letter explaining their opposition.) Richard Gephardt and David Bonior, both populist, protectionist liberals, have focused on NAFTA, which they say favors corporations and sacrifices American and Mexican workers and the environment. Alphonse D’Amato—to protect Robert Dole against accusations of collusion around election time, it is suspected, rather than out of conviction—has held Senate Banking Committee hearings attacking the bailout; the week that this article went to press Dole and D’Amato, citing an “in the event of an emergency” clause in the Mexican aid package, and claiming that the state of emergency has passed, sent a joint letter to Robert Rubin requesting that the second $10 billion in American aid be delayed.
But the opposition awaits its Calvin or its Luther with a concrete plan; money and the current economic wisdom argue the other side—the only side that has a thorough blueprint—with a momentum that so far has made it quixotic to attempt to dissent. Clinton came into office opposing NAFTA and then changed his mind—and so, it is surprising to recall, did Salinas, on the grounds that Mexico was too weak. A myth has gathered around the precise moment when he saw the light. It was February 1990. Salinas was high over the Atlantic, returning from a meeting in Davos, Switzerland, of executives from Europe, Japan, and the United States, at which he had given a keynote address on Mexico’s great reforms. But the executives had saved their enthrallment for the new promise, two months after the fall of the Berlin Wall, of Hungary, Poland, and East Germany. “May these splendid signs of change not cloud Europe’s global vision,” Salinas had pleaded, “not turn its attention away from our continent—particularly Mexico—and from other regions of the world.” His audience had looked bored, cool. On the way home, so the myth goes, Salinas, shaken by the executives’ indifference, realized that Mexico had to play this game better and harder than anyplace else, or Eastern Europe would pass it by.
If this is so, it begins to look like a gamble based on a faulty projection—Eastern Europe is doing all right, but not without its own pains, and is hardly rolling in money. Still the free-trade, market-based model lurches forward and grows. It will be interesting to watch how such a system intends to police itself. Signs so far indicate that when the money dries up, as it did in Mexico in December, the market will play with the fates of those who have attempted to master it like that merciless god of myth, which in some ways it resembles. Witness the number of Mexicans on the Forbes list of billionaires. Two years ago there were four; last year the number rose to a glorious, scandalous twenty-four, placing Mexico fourth in the world for this statistic. The new list is just out, and the number has shrunk to ten.
Witness former president Salinas, whom the private plane of a tortilla magnate whisked out of Mexico in March. For a while, dogged by blame for the collapse, sniping from Zedillo, and rumors of his administration’s corruption, he seemed to disappear. But in early July, he was reported as having secured a six-month Canadian visa. When the six months are up, presumably, he will move on—a sad human parody, almost, of the perpetual flow of capital that he helped to accelerate.
Still, it remains a good bet that a decade or so from now Salinas will appear in history books as a great reformer of the last half-century. Two recent signs already indicate that Jaime Serra himself is already under-going a minor rehabilitation. A story on July 6 in The Wall Street Journal* shifted much of the responsibility for the bungled devaluation from Serra to the formerly revered Pedro Aspe. Out of arrogance and pride, the article said (to preserve credibility, it might be argued in his defense), Aspe put off devaluing at a time when the results wouldn’t have been so catastrophic. One can only hope that this latest chapter in the ongoing melodrama of blame encourages people to place more faith in the managerial skills of President Ernesto Zedillo. Perhaps it will increase investors’ and everyone else’s confidence; indeed, Mexico has just succeeded wildly in its first debt offering since December, selling $1 billion in new two-year notes on July 10, the day they were introduced. In any event, it has been announced that in the fall Serra will go to the Woodrow Wilson Center at Princeton. He will serve a one-year appointment as John L. Weinberg/Goldman Sachs & Company Professor of Economics. He is to teach a graduate course on “Economic Policy in Emerging Economies.”
David Wessel, Paul B. Carroll, and Thomas T. Vogel, Jr., "How Mexico's Crisis Ambushed Top Minds in Officialdom, Finance," The Wall Street Journal, July 6, 1995, p. 1.↩
David Wessel, Paul B. Carroll, and Thomas T. Vogel, Jr., “How Mexico’s Crisis Ambushed Top Minds in Officialdom, Finance,” The Wall Street Journal, July 6, 1995, p. 1.↩