BUSINESS

Salinas's Mexican Standoff

Mexico leader is gambling that his people will support free trade

September 7 1992
BUSINESS

Salinas's Mexican Standoff

Mexico leader is gambling that his people will support free trade

September 7 1992

Salinas's Mexican Standoff

BUSINESS

Mexico leader is gambling that his people will support free trade

Behind the gleaming, white stucco walls of the presidential palace in downtown Mexico City, a massive renovation Program is under way. Visitors have to step around teams of workmen, construction equipment, exposed wires and beams as they navigate the labyrinthine premises. The construction work at Los Pinos, headquarters of Mexican President Carlos Salinas de Gortari, is in keeping with the spirit of his six-year term in office. Since he took over the presidency in December 1988,

Salinas, 43, has launched a nationwide campaign to modernize Mexico’s economic, social and political sectors.

That initiative bore its finest fruit on Aug. 12 with the final drafting of a North American Free Trade Agreement (NAFTA) among Canada, the United States and Mexico.

The apparent success of Salinas’s relentless drive to reverse decades of protected, uncompetitive industry, corrupt politics and abject poverty has earned him international acclaim as well as strong domestic support. When he took office, he set out a clear, if painful, strategy designed to transform Mexico from a paternalistic state, with a preColumbian agricultural system, into a modern, competitive industrial nation.

One of the first controversial steps Harvard-educated Salinas took was to privatize hundreds of state-owned busiSalinas in Los nesses, excluding the oil com-

pany Pemex, and to open Mexico’s long-protected borders to foreign business. Under the Brady Plan, he renegotiated Mexico’s foreign debt of more than $100 billion owed to scores of international commercial banks. Then, working with business and labor, under an agreement known in Mexico as “el Pacto, ” Salinas managed to slash inflation to its current level of about 10 per cent from 114 per cent in 1988. Now, NAFTA, which formalizes Salinas’s emphasis on trade-generated economic prosperity, forms a key part of his overall strategy.

But critics of the Salinas regime note that the benefits of the much-touted economic and politi-

cal reforms have been slow to affect the lives of Mexico’s large, impoverished population. It is estimated that about half of the country’s 88 million people live in poverty. Concerns have also been expressed about the lag in political reforms to supplement the strides made on the economic front. Although Mexican presidents may only hold office for a single six-year term, the same political party, the Institutional Revolutionary Party, has been in power for 63 years without interruption. Government critics also insist that political ossification and a weak democratic tradition could ultimately undermine any economic gains.

Analysts of the Mexican situation, however, point out that Mexico does not share the same democratic tradition and political structure as the rest of North America—and that it is virtually meaningless to judge that country by foreign standards. With its semi-feudal past, Mexico has matured under the strong hand of an authoritarian and interventionist state and a long tradition of political debate and opposition has never fully developed as a result, analysts note.

But international bankers, who despaired of Mexico when it defaulted on its foreign debt in 1982, are perhaps a more decisive indicator of Mexico’s newfound status in the international financial scene. Under their wing once again, Mexico has returned as a participant in global capital markets, and international investment bankers and lenders are once again flocking there in pursuit of deals.

For his part, Salinas has also displayed a consistent willingness to conclude new deals. Almost immediately ¡2 following the signature of the I NAFTA draft documents, Mexg ico signed a free trade frameg work with five other Latin æ American nations. By year“ end, a trade pact with Vene£ zuela and Colombia is expectg ed to be complete, and very o preliminary talks with Ar°gentina have also been broached recently.

Last week, Maclean’s Business Editor Deirdre McMurdy interviewed Salinas in his offices at Los Pinos. A compact man, he sat on the edge of his slate-blue leather armchair, gesturing to emphasize his points, barely containing his apparently abundant energy. And, typical of a leader who is aware that the more changes he makes, the more there is to accomplish, the only note at odds with his conservative grey suit was a black plastic runner’s watch. Excerpts:

Maclean's: Did the recent North American free trade negotiations take longer to conclude than you had anticipated?

Salinas: Some people kept on asking why it took so long to conclude the negotiations. Others asked why we weren’t taking more time to go on with the negotiations. My answer was always the same: the negotiations were going to take as long as it required to get a good agreement. And we derived a great experience from the Canada/U.S. free trade negotiation, and that took three years to conclude.

Maclean’s: Was there ever a point at which you doubted that NAFTA would be accomplished?

Salinas: Yes, there were some times when the talks got pretty rough. When one had to draw the line very clearly—what was part of the negotiation and what was not. And those were tense moments in a very intense negotiating process.

Maclean’s: Until quite recently, you said that

was not. And those double. We haven’t targeted specific very intense negotiA MEXICAN for increased trade. We prefer to business community and our exporters recently, you said that SNAPSHOT the decision to promote specific areas Gross 1988 1991 domestic product $210 billion $334 billion Population 83 million 88 million Median age of population 19 19 Unemployment 20 percent 3 per cent* Inflation 114 per cent 10 per cent Literacy 88 per cent 88 per cent TV sets 107 per 1,000 persons 117 per 1,000 persons Motor vehicles 60 per 1,000 persons 111 60 per 1,000 persons

you preferred to deal with the issue of North American free trade on a sector-by-sector basis rather than through a comprehensive agreement. When did your thinking change and why?

Salinas: At first, we were hesitant to go along with a North American free trade area. But things changed dramatically in 1989, the first year of my presidency. When I visited Europe in January, 1990,1 found what I call a fascination of Western Europe with changes in Central and in Eastern Europe. I knew then that Mexico was facing very tough competition for the scarce capital required to finance

growth and development. And the only way to be better positioned to compete for such capital was to be part of one of the huge trading blocs being created in the world. We happened to be neighbors with one of them. And I decided to reverse my previous position.

Maclean’s: With the framework of NAFTA now in place, do you believe that the relatively limited trade between Canada and Mexico will increase?

Salinas: I am convinced that trade between Canada and Mexico will now increase substantially. Our previous experience with free trade between Mexico and Chile showed us that even in a few months, trade could more than double. We haven’t targeted specific sectors for increased trade. We prefer to let our business community and our exporters make the decision to promote specific areas of trade with Canada. Let the market decide. Maclean’s: Is it reassuring for Mexico to have Canada as a geopolitical counterweight in the context of NAFTA?

Salinas: Well, it’s very difficult to live close to the most powerful country in the world and we have had a very traumatic historical experience. Every time we have quarrelled and divided among ourselves, we have lost part of our territory to our neighbor to the north. That is why we are interested in strengthening our internal unity—something that requires growth and development. Paradoxically, we will strengthen our domestic unity by getting a

closer economic relationship with our neighbor to the north. And at the same time, yes, we believe that a closer relationship with Canada will strategically improve our relations with the United States.

Maclean’s: Is there concern in Mexico, as there has been in Canada, about the cultural impact of closer economic ties to the United States?

Salinas: Mexico has 3,000 years of culture behind it. That gives us a tremendous selfconfidence in approaching this relationship with the United States.

Maclean’s: Do you understand why the pro-

tectionist lobby against NAFTA in the United States is so pronounced?

Salinas: I understand that the worst possible time to negotiate a free trade agreement is during an economic recession, because everybody tries to blame their problems on freer trade instead of domestic realities. But it seems to me that U.S. opponents of NAFTA are focusing on the wrong side of the problem. Americans are not losing their jobs to lowerpaid workers, but to workers who get better wages, like those in Germany and Japan. It’s a matter of competitiveness. And we in Mexico do not want to get into NAFTA with lower wages. We want higher wages for our workers on a permanent basis.

Maclean’s: How do you counter the criticism of those who claim that Mexico is an unequal partner in NAFTA because of its inferior environmental and labor standards?

Salinas: We are committed to strengthening our environmental and labor standards not because of NAFTA, but so that our children will inherit a better environment, a better country. To those who claim that it’s an uneven partnership, I would say that it is not equitable that these economic giants are suddenly asking the smaller, less developed economy to be on an equal basis and to participate in this NAFTA on an equal footing.

Maclean’s: How long do you expect that it will take for the economic benefits of freer trade—in terms of real wages and standards of living—to flow through to the average Mexican citizen?

Salinas: Our analysis indicates that the benefits of NAFTA will be felt mainly by the next generation. But nevertheless, short-term benefits will flow from the fact that the market will increase along with the opportunities for job creation in Mexico. But I have stated very clearly that the current strategy will only be successful if it simultaneously has a determined social program. So today in Mexico, even without NAFTA, the benefits of economic recovery are already being felt by Mexicans, even the poorest ones, because we have an explicit social program in place.

Maclean’s: Is Mexico’s infrastructure currently adequate to support an influx of new industry under NAFTA?

Salinas: We have to invest more in infrastructure. We have to upgrade the quality of our infrastructure—in telecommunications, in agriculture, in urban development. And that’s precisely why we want to enter NAFTA, because additional growth will allow us to have more resources to invest more in infrastructure. Unfortunately, this partnership doesn’t come with funding from the developed countries to upgrade our infrastructure as happened with Spain and Portugal when they entered the European Community. They got more than $10 billion in funding to upgrade their infrastructure.

Maclean’s: Now that you have a draft agreement for North American free trade, what is the next priority on your economic agenda? Salinas: We still have some steps ahead in NAFTA, like congressional approval in each country—that’s very important. My task in the months and years ahead is to consolidate the broad process of reform in Mexico: economic reform, political reform, environmental reform.

Maclean’s: Do you feel a sense of urgency as the term of your presidency draws to its conclusion in 1994?

Salinas: I would say that the world is in a hurry and we mainly try to work at the same pace. And as long as the world is in a hurry and as long as Mexicans want answers to their fundamental demands, I will continue working at this pace.

Maclean’s: What are Mexico’s objectives for freer trade with other Latin American countries?

Salinas: We have already concluded a free trade agreement with Chile. And Colombia and Venezuela and Costa Rica have expressed a commitment to conclude one before the year is over. Bolivia has also made it clear that it is anxious to join in. The whole of Latin America is going towards freer trade and we certainly are glad to be part of that process and to include them in NAFTA.

Maclean’s: Do you have any concerns about the effects that such rapid and profound economic change will have on the population of Mexico?

Salinas: Mexicans have been adjusting to economic change for more than 10 years. The 1980s were a decade of stagnation and high inflation in Mexico while the economy went through a very drastic adjustment. But the most important change taking place in Mexico today is the one relating to mentality and attitudes: the way Mexicans look at themselves and themselves in relation to the rest of the world.

Maclean’s: Do you think that there is an adequate understanding of Mexican society and history on the part of the people of Canada and the United States?

Salinas: It’s a paradoxical thing that we live so close and know each other so little. But freer trade, I am convinced, will stimulate a closer knowledge of one another.

Maclean’s: Is there an economic model which you have followed?

Salinas: There are no models—each country has its own traditions, institutions, historical developments. We have applied an economic strategy that has been good for us. And we are willing to share it with anyone who asks for it. But, again, I emphasize there are no models— even within Latin America. Each country has its own circumstances.

Maclean’s: What is the proudest personal achievement, to date, of your term as president of Mexico?

Salinas: The light I see in the eyes of many Mexicans. The hope. It’s not that we have solved all the problems—we have many left. But they have hope. Let’s say that we have gone through many very difficult times. And today, even though we still have difficulties ahead, Mexicans have self-confidence. Confidence in themselves, in their capacity to overcome their problems. □