COVER

MEXICO FIGHTS BACK

SALINAS IMPOSES A RADICAL PROGRAM TO REVIVE HIS NATION’S ECONOMY

ROSS LAVER March 26 1990
COVER

MEXICO FIGHTS BACK

SALINAS IMPOSES A RADICAL PROGRAM TO REVIVE HIS NATION’S ECONOMY

ROSS LAVER March 26 1990

The 80,000 inhabitants of Jalisco, a dirt-poor barrio on the outskirts of the central Mexican city of Guadalajara, rarely find much reason to celebrate. Crowded into rows of small, boxlike houses lining a dusty hillside, they lack many of the amenities their neighbors in the city take for granted, including electricity and sewage facilities. But last week, thousands of Jalisco’s residents jammed the community’s central plaza to mark the introduction of another long-awaited service: a safe source of drinking water. The highlight of the festivities was a speech by Mexican President Carlos Salinas de Gortari, who told the crowd that the project was part of a $1.6-billion public works program to improve conditions for Mexico’s poor, using money raised from the sale of state-owned companies and the renegotiation of the country’s debilitating $117-billion foreign debt. “In the past, the fruits of Mexico’s efforts have gone abroad,” Salinas declared, shortly before opening the main valve to introduce the water service. “Now, they will remain in Mexico, for the benefit of Mexicans.”

Modernize: Salinas’s visit to Jalisco last week was the latest effort in a drive to convince Mexico’s impoverished millions to support his radical, free-market drive to revive and modernize the country’s economy. After only 16 months in office, the 41-year-old, Harvard-educated president has opened the country to a tidal wave of imports, reduced or eliminated subsidies on food and other consumer products, and privatized hundreds of money-losing state enterprises, including hotels, sugar mills and both national airlines. At home, the president’s admirers have labelled his economic overhaul “Salinastroika”—a play on Soviet President Mikhail Gorbachev’s perestroika, or restructuring.

Elsewhere, Salinas’s tough-minded policies have won praise from international bankers and foreign governments. World Bank president Barber Conable has lauded Salinas for implementing “one of the most ambitious, courageous and determined programs of economic reform and institutional change recently undertaken in any country.” And during a two-day visit to Mexico City last week, Prime Minister Brian Mulroney congratulated Salinas for his efforts to resolve Mexico’s economic and social problems. Said Mulroney: “We believe you are making sweeping and profound changes which will place your administration clearly on the right side of history.” The two leaders signed 10 bilateral agreements covering such areas as the environment, trade, tourism and the war on drugs (page 43).

Reform: Still, even Salinas acknowledges that his economic policies have not yet made much difference to the lives of Mexico’s 85 million people. Since the early 1980s, when falling oil prices began to severely reduce Mexico’s export earnings, the average citizen’s standard of living has fallen by 50 per cent. In addition, a recent government survey pegged the official unemployment rate at 12 per cent and the underemployment rate (employees working below their levels of skill and education) at 40 per cent. To solve those problems, Salinas is trying to increase exports and attract investment from foreign markets—a message he stressed repeatedly last week to Mulroney. And in an interview with Maclean’s, Salinas made it clear that he is counting on such countries as Canada to help Mexico along the difficult road to recovery. He added, “I insist that now is the time for us to reap the benefits for opening our economy unilaterally” (page 45).

From Canada’s standpoint, Mexico offers not only a growing market (the country’s population is expected to grow by 10 million during Salinas’s six-year term in office), but also a convenient source of inexpensive labor. Until now, however, the economic ties between the two countries have been slight. Mexican exports to Canada totalled $1.7 billion last year, while Canadian sales to Mexico amounted to a mere $600 million, making it only Canada’s 17th largest export market. As well, Canadian companies account for only 1.4 per cent of total foreign investment in Mexico.

Still, Canadians have ample contact with Mexico: they represent the second-largest group of foreign tourists there, after the Americans. Nearly half a million Canadians flocked to its sun-soaked beaches and ancient ruins in 1989. And Canadian officials said last week that they were hopeful that Salinas’s push to reform Mexico’s economy would lead to expanded trade opportunities between the two countries. “There is a much more open environment [in Mexico] these days,” a senior External Affairs official said in Ottawa. “It opens up more possibilities for new investors.” Chief among the changes are new measures lowering import duties and relaxing restrictions on foreign ownership (page 46).

In fact, some experts are already speculating about the eventual emergence of a North American free trade zone, encompassing Canada, the United States and Mexico. To date, Salinas has declined to comment on that prospect—in large part, officials say, because of Mexico’s longstanding concerns about being swallowed up by the U.S. giant. Said Luis Alvarez, president of the right-wing National Action Party: “We have a saying: ‘Poor Mexico—so far from God, so close to the United States.’ ” But privately, a senior adviser to the Mexican president told Maclean’s last week that some sort of trilateral free trade arrangement was inevitable. “Mexicans are extremely nationalistic and very suspicious of the U.S.,” the official said. “But we cannot live in the past. You only have to look at Europe to realize that a North American free trade zone is sure to exist some day.”

Elite: Few Mexicans expected any radical steps from Salinas when he took over the presidency from Miguel de la Madrid in December, 1988, five months after a controversial election marked by allegations of widespread fraud. Bald and slightly built, Salinas lacks the commanding physical presence and charisma that Latin Americans traditionally look for in their leaders. Indeed, even one of his own staff members cautioned a visiting journalist last week not to be deceived by his appearance. “He does not look like much,” the official said, “but when you listen to him talk, you cannot help but be impressed.”

Born into Mexico’s elite, Salinas is the son of a former minister of industry and commerce and his economist wife. At Harvard, he earned two master’s degrees and a doctorate in political economy and government. He returned to Mexico in 1978 and worked his way rapidly through the bureaucracy, serving as minister of budget and planning under de la Madrid. It was de la Madrid who handpicked Salinas as his successor. During the 1988 election campaign, Salinas’s opponents ridiculed him as a colorless technocrat and labelled him “El Pelón de las Orejad’ (Baldy with Big Ears). Even so, victory for Salinas was almost a foregone conclusion: his Institutional Revolutionary Party won every national election since its founding in 1929, making it the world’s second-longest-governing party, after the Soviet Communists. Amid charges of ballot fraud, Salinas won 50.7 per cent of the vote, compared with 31 per cent for his main rival from the centre-left National Democratic Front, Cuauhtémoc Cárdenas, and 17 per cent for the candidate of the pro-business National Action Party.

Arrest: Once in Los Piños presidential mansion with his wife, Cecilia, daughter and two sons, Salinas moved swiftly to assert his authority on the national scene. His first step was to launch a headline-grabbing crackdown on corruption, underscoring his avowed desire to clean up Mexico’s notoriously undemocratic political system. A month after his inauguration, the new president sent the army to arrest Joaquín Hernández Galicia, the widely feared head of Mexico’s oil workers union, on charges of arms smuggling and possessing illegal weapons. Later, police charged Eduardo Legorreta Chauvert, a prominent business leader and ally of Salinas’s, with stock fraud. Mexico’s most powerful drug trafficker, Miguel Angel Félix Gallardo, was also jailed as part of the crackdown—a step welcomed by U.S. officials, who estimate that 70 per cent of the cocaine consumed in their country enters from Mexico. As well, five senior police officials were rounded up on charges of accepting bribes from Félix Gallardo and supplying him with weapons. “When I walk through the crowds, the campesinos [peasants] always tell me to keep fighting,” Salinas said last week during a campaign-style tour of Nayarit state, northwest of Mexico City. “These poor people have suffered so much—they should not have to watch corrupt officials getting rich at their expense.”

Although political scientists say that public opinion polls in Mexico are generally unreliable, most analysts say that Salinas’s anti-corruption drive has increased his prestige and erased his previous image as a political weakling. At the same time, his increased popularity has given him the political base he needed to address Mexico’s severe financial difficulties. Salinas is an enthusiastic advocate of free markets, a rarity in a country that was once synonymous with centralized planning and state control of the large industries. “My economic beliefs come from a deep, personal contact with Mexican reality,” Salinas said. “I came to the conclusion that we had to return to our basic principles.”

As Salinas saw it, that meant rolling back the influence of Mexico’s huge and cumbersome central bureaucracy. Already, the government has announced plans to tum over an estimated 800 state-run firms to the private sector. Many more are due to be sold in the near future, including parts of the national oil company, Petróleos Mexicanos (Pemex), and the government’s 51-per-cent share of Télefonos de Mexico, the country’s notoriously inefficient telephone service. In a series of parallel moves, the government has torn down many of the nation’s import barriers and lifted most restrictions on foreign investment. John Lawlor, director of communications services for Mississauga, Ont.-based Northern Telecom Canada Ltd., which is currently seeking contracts to supply cellular telephone equipment to parts of rural Mexico, said that in the past year, “our focus on Mexico has really begun to increase because of the open-door policy of the Mexican government. They are more open to foreign investment, and the Mexican government has a more businesslike attitude.”

Candy: For consumers, Salinas’s market-oriented reforms have proven to be a mixed blessing. On the one hand, stores that previously sold only Mexican-made products now display a wide range of imports, a consequence of the government’s decision to expose Mexico’s protected economy to the rigors of foreign competition. The resulting boom in consumer spending is most noticeable in Mexico City’s zona rosa, or pink zone, an affluent neighborhood crowded with upscale nightclubs and boutiques selling designer fashions from Paris, Rome and Tokyo. And even in middle-class neighborhoods, merchants stock such imported products as U.S. candy bars and Japanese video cassette recorders. “Until last year, we would not have bothered to import such products,” said the owner of a men’s shoe store, pointing to a selection of Italian loafers on display in his front window. “But now that import duties have fallen, people are looking to buy quality goods from abroad.”

Devastated: Still, for the most part, the influx of foreign goods has benefited only the country’s relatively small middle and upper classes. But the vast majority of Mexicans are poor—a long-standing fact of life in the country’s tumultuous history. Following a brutal 300 years of Spanish occupation, Mexico finally achieved its independence in 1821. A half-century of turmoil followed, marked by civil war, invasions by the United States and France, and an utterly devastated economy. When the country first undertook significant modernization in the late 1800s under President Porfirio Díaz, the gains, fuelled in part by U.S. investment, came at the expense of the poor and the working class. Diaz seized plots of land from peasants, crushed workers’ uprisings and arrested political opponents. He was finally toppled in a revolution in 1911, and his overthrow touched off a period of repeated uprisings, led by such colorful figures as Emiliano Zapata and Pancho Villa, that killed more than a million people by 1920.

Since then, Mexico has enjoyed relative internal stability and gradual social, political and land reforms. But the poor continue to suffer. The minimum wage is 15,000 pesos (less than $7) a day, and nearly half the population lives on less than $50 a week. “Life is a lot more expensive than it used to be,” said Ramona Hurtado de Lopez, 38, a homemaker and mother of eight who lives in a run-down neighborhood of Guadalajara. “In the old days, we used to buy beef every day, but now we can only afford it twice a week. We have to eat a lot more beans and rice instead.”

So far, there is no sign that conditions for such people are likely to improve. On the contrary, poor Mexicans are the ones most directly affected by the government’s decision to slash subsidies on a wide range of staple groceries, including milk, tortillas, sugar and beans. “Right now, 70 per cent of the total budget of the agriculture department goes to tortilla subsidies,” said Gustavo Gordillo, deputy secretary of agriculture planning. “Of course, the bureaucracy would love to continue handing out money to everyone, regardless of need. But it is not realistic. We have to become a lot more selective.”

That approach is one that Mexico’s foreign creditors heartily endorse. Impressed by Salinas’s support for conservative economic policies, international bankers signed a historic agreement last month that will relieve the country of as much as 20 per cent of its foreign debt burden, the second-largest in the developing world after Brazil’s. Under the accord, the banks agreed to forgive $8.4 billion of the debt and to reduce the interest rate on another $27 billion to 6 1/4 per cent, from a previous average of 10 per cent. In all, the debt restructuring should save the Mexican government about $1.8 billion a year in interest payments.

Shanty: But although Salinas has demonstrated that he is capable of wooing Mexico’s foreign bankers, he risks being painted as a hard-nosed economist more concerned with balance sheets than the plight of Mexico’s impoverished millions. To lessen the danger of social instability, he promised Mexicans that he would channel some of the savings from debt rescheduling and the sale of state-owned companies into an ambitious new public works program. In addition to electricity, sewage and water services, the money is earmarked for the construction of schools, libraries, medical centres and sports facilities.

To his adversaries, Salinas’s welfare projects amount to little more than token gestures. “He swoops into these poor areas like a superman,” declared Porfirio Muñoz-Ledo, a prominent left-wing senator. “But, in reality, the benefits are only for a few.” Muñoz-Ledo, who split with the ruling Institutional Revolutionary Party because of its increasingly conservative policies, also criticized the government’s privatization program. “They are sacrificing the formal sector of the economy,” he said, “and giving peanuts to the great mass of marginalized citizens.” By contrast, Alvarez, the conservative National Action Party president, said that Salinas deserved modest praise for his economic and political reforms. “We certainly do not want Salinas to fail,” Alvarez added, “because if he does, the result will be harsher conditions for the Mexican people.”

Trade: For many international observers, the question now is how far Salinas is prepared to move towards opening up his country’s economy. Last fall, the Mexican president signed a far-reaching trade agreement with Washington that will set the stage for further tariff reductions in such areas as automobiles and automotive parts, telecommunications, computers and processed foods. Mulroney signed a similar, although less detailed, agreement with Salinas, pledging co-operation to encourage trade and investment between the two countries.

But Mexican Foreign Secretary Fernando Solana brushed aside any suggestion that Mexico might consider a free trade pact with the United States and Canada. “Right now, we are concentrating on building up our bilateral relationship with Canada,” he said. “This is not the time to go beyond that.” Still, Herminio Blanco, Mexico’s deputy secretary for foreign trade, seemed ready to endorse the free trade option. “When you see all the trading blocs forming around the world,” he said, “you have to acknowledge that Canada, the U.S. and Mexico would provide strong competition.”

And for his part, Mulroney told reporters that Mexicans had little to fear, and much to gain, from such an arrangement. “Whether this [proximity of nations] leads to a more formalized arrangement, I don’t know,” he said, “but more and more countries are seeking formalized arrangements.”

Still, Salinas may not have much time to demonstrate the effectiveness of his economic reforms. With congressional elections planned for September, 1991, the president will have to convince Mexicans that his policies are producing the longawaited economic recovery, or risk losing his party’s majority in the Chamber of Deputies, Mexico’s lower house. By appealing to U.S. and Canadian investors, Salinas is trying to keep his debt-laden economy afloat while implying that Mexico’s neighbors will be among the biggest losers if he fails. “If the Mexico economy collapses,” one presidential adviser said last week, “our people will migrate north across the border in even greater numbers than is already the case. So it is in your interest to help.” In Mexico City last week, there was much official talk of a closer political and economic relationship between Canada and the Latin American nation. The hard part will be to translate that well-intentioned rhetoric into reality.