ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Friday, September 27, 1996 TAG: 9609270040
SECTION: EDITORIAL PAGE: A-11 EDITION: METRO
SOURCE: THOMAS L. FRIEDMAN
OK, IT'S safe to say it now: The 1995 U.S. bailout of Mexico's economy with a $12.5 billion loan worked. Mexico has now repaid $9 billion of that loan, including $1.29 billion in interest, and the Standard & Poor's credit agency just upgraded Mexico's government bonds from ``negative'' to ``stable.''
You may recall the Mexican bailout was fiercely resisted by most of Congress, but a few brave legislators (including Bob Dole) supported President Clinton when he essentially took personal responsibility for the Mexico loan by getting the money from a special Treasury Department fund, instead of Congress. If Mexico had defaulted, Clinton, and his top Treasury officials Robert Rubin and Larry Summers, would have been skinned alive. But it turns out they were right. Their critics - Al D'Amato & Co. - were wrong. So what have we learned?
Lesson 1. Thank goodness nobody did a focus group before President Truman announced the Marshall Plan. At a time when Congress is increasingly populated by nativist, anti-foreign-policy types - who think that representative democracy is about accurate poll-taking, not exercising judgment - it's a good thing the executive branch can still operate in a crisis without them.
Lesson 2. As in war, so in economics, without U.S. leadership nothing happens. Without a U.S. commitment of cash to rescue Mexico, the IMF and the Europeans never would have joined in. In other words, without the G-1, there is no G-7. Unless America is ready to act unilaterally, it will never have allies with whom it can act multilaterally.
Lesson 3. Markets are important, but central banks still matter. The Mexican crisis was the equivalent of a bank run on an entire country, and the only institutions that could stop it were not the markets but the major central banks and the IMF. The global markets cannot just take care of themselves. ``In the absence of the U.S. and IMF the outcome for Mexico would have been much worse today,'' Mexico's finance minister, Guillermo Ortiz, told me. ``We would have had to declare a moratorium on debt repayments. There would have been lawsuits. It would have been a mess.''
Lesson 4. Culture matters even more than central banks. To pay for the bailout, Mexico cut the standard of living for most of its people by 20 percent. There should have been a revolution, but there was barely a demonstration. In part this was because Mexicans were too busy just trying to survive, but mostly it was due to the strength of the Mexican family. ``The family was a terrific social absorber here,'' said Antonio Madero Bracho, chairman of Sanluis, the Mexican mining conglomerate. ``People moved in with each other, and the family really took the place of Social Security and unemployment insurance.''
Lesson 5. The advocates of the North America Free Trade Agreement oversold Mexico. Yes, there is substantial political and economic reform happening, but alongside it are still substantial graft, drug-running, political assassinations, weak police and Robin Hood guerrilla groups. The United States rushed into NAFTA in response to the Europeans getting together and the Japanese walling themselves off. But Mexico was never our economic equal. NAFTA will hasten the pace that it becomes one, but that moment is a ways off. Mexico reminds us that there is still a reason we call places ``developing countries.'' ``We oversold NAFTA short term,'' argued Ortiz. ``But in the long term, NAFTA will help consolidate Mexico's economic institutions and its place in the global economy.''
Lesson 6: Diplomats prefer to do shuttle diplomacy in airplanes, not taxi cabs, but it's the taxi shuttles, inside countries, that now matter most. The increasing challenge of U.S. foreign policy is going to be dealing with the internal workings of allies and neighbors - to help them make the transition from state-dominated, regulated economies to more open systems linked to global markets, without triggering social explosions.
Lesson 7: Yes, some investors on Wall Street benefited from the Mexico bailout. But sometimes governments have to do the right thing despite the fact that Wall Street benefits.
Lesson 8: Mexico has undergone a lot of remarkable changes in this century, but one thing hasn't changed: its geography. It's still 100 million people on the U.S. border. What happens in Mexico still matters more to America than what happens in its own state of New Mexico.
Thomas L. Friedman writes for The New York Times.
- New York Times News Service
LENGTH: Medium: 81 linesby CNB