A long climb back

SALLIE HUGHES June 24 1996

A long climb back

SALLIE HUGHES June 24 1996

A long climb back

Mexico starts to pull out of its crisis, but life is still a struggle


Mario Esquier, a tall, handsome Mexican whose taste in clothing mirrors the cowboy dress of his Texas-size home state of Sonora, is one of a minority in

Mexico City: he agrees with the government’s assertion that the economy is crawling out of the depths of its 18-month-old recession. In snakeskin boots and big buckled belt, he notes with optimism that sales at his

tomato brokerage in the mammoth Central de Abastos, the distribution centre for the sprawling capital’s staple foods, have recovered from last year’s 40-per-cent plunge. He calls this mass of warehouses, vendors and scurrying porters “the stomach of Mexico City.” Nearly half of Mexico’s national harvest, 24,000 tons of food daily, moves through its labyrinth of 2,000 warehouses. Some 250,000 traders, truck drivers, retailers and wholesalers work there. So a 40-per-cent decline at “Supply City” is a good indication of the empty hole in Mexico’s belly during the depths of the financial crisis.

The fact that sales are picking up in Esquier’s warehouse, as well as those of spice trader Ricardo Maupome and egg wholesaler Ruben Gonzalez, is a sign of the country’s increasing economic appetite. “What happens here reflects what’s happening elsewhere,” notes Esquier. The market bustie hints at what is going on in the domestic economy, the part that shrank most dramatically in the wake of the disastrous 40-per-cent devaluation of the peso in December, 1994. The cheaper currency has sparked a boom in exports, but that has mainly benefited the country’s few trading giants. Esquier’s ringing cash register offers hope for the “real” economy, the internal movement of goods and services that puts

food on the table of the average—and longsuf fering—Mexican.

Certainly that was the message that President Ernesto Zedillo carried with him last week on a five-day visit to Canada, principally to drum up new investment. “Mexico is turning the corner,” he told Maclean’s in an interview. At stops across the country, the 44-year-old former technocrat acknowledged with characteristic frankness that the

country still faces severe problems, including corruption, human rights abuses, drug cartels and a vast divide between rich and poor. In a relaxed session with Prime Minister Jean Chrétien in Ottawa, he traded thoughts on issues ranging from expanding trade to fighting Washington’s Helms-Burton bill, which targets foreign firms dealing with Cuba (page 30). But Zedillo’s most consistent theme was that his country is back on track, and that he is determined to push through the political and economic reforms that he sees as crucial to combating its problems. “Mexico today has become a country committed to change, to redress imbalances of the past and to meet the challenges of the future,” he declared in an address to a special joint session of Parliament.

Yet even Zedillo concedes that Mexico still has a long way to climb back. The 1994 financial crisis capped a year in which an Indian uprising in the southern state of Chiapas made world headlines and the leading presidential candidate was assassinated. Skittish investors began moving dollars out just as some large short-term loans were due. The crunch came shortly after the unassuming Zedillo, the replacement candidate, was sworn in as president on Dec. 1, 1994. The bottom fell out of the peso, and the

economy shrank by nearly seven per cent over the following year. Now, 18 months later, there are signs of increasing impatience among Zedillo’s countrymen over their steep drop in living standards.

A nationwide poll published this month in the respected newspaper Reforma showed that 64 per cent of those surveyed were unhappy with Zedillo’s management of the economy. Sixty per cent believed their situation is worse now than one year earlier. That could bode ill for the young president, whose six-year term expires in 2000. His public approval rating hovers at 35 per cent as preparations are under way for tough mid-term congressional elections next year.

The optimistic voices of men like Esquier are drowned out by those who are still hurting. Earlier this month, in the style of the 1910 Mexican Revolution, dozens of desperate families hijacked a trainload of corn and beans in the northern state of Nuevo Leon. In the south, government negotiations with the indigenous rebels in Chiapas have so far failed to resolve demands for political and economic development, though the talks continue.

Since exports remain the only game in town, Mexicans are trying to tap into the international economy in any way they can. In the northwestern city of Hermosillo, assembly plant manager José Ramirez is relieved that he works in a company that builds truck-engine parts for export. His brother, an engineer, was laid off from a nearby factory dedicated to the local economy. Painter José Paradisi in Mexico City works feverishly on a show planned for October in Puerto Rico, since art sales in Mexico have come to a near standstill. Domestic worker Clemencia Ortiz contemplates a sojourn in the United States to work illegally, so she can finish construction of her modest home in the Mexico City suburb ofTexcoco.

Those who cannot find a link to the outside world just keep tightening their belts. One is Mexico City bar manager Lillian Perez, who dispenses the fermented maguey cactus juice known as pulque in eight fruity flavors. Her sales are off 50 per cent from pre-devaluation levels. “Things are really difficult here, and I don’t see it getting any better,” she says.

The government’s own data show that Mexico, eternally plagued by the gap between the rich few and the poor majority, is more than ever an economy divided. The export upturn is offset by declines in other areas that hurt ordinary Mexicans. Business activity continued its fall through March, off seven per cent from a year earlier. While new jobs are being created, they have not replaced the 500,000 lost during the first six months of 1995. Inflation may be down from its 52-per-cent peak last year, but it still rages along at 28 per cent to 30 per cent. The Labor Secretariat recently announced that Mexicans have lost nearly three-quarters of their


While staying at the Governor General’s residence in Ottawa last week, Mexican President Ernesto Zedillo, 44, a Yaleeducated economist, talked with World Editor Berton Woodward. Excerpts:

Maclean’s: The world got a great scare in December, 1994, due to Mexico’s financial crisis. How have you progressed in turning the economy around?

Zedillo: I think the message is very clear— Mexico is turning the corner. A year ago, we were in the midst of a terrible crisis, it’s true. But today, Mexico is recovering. In this quarter, the economy will grow in the vicinity of five per cent. Inflation is one half of what it was a year ago; interest rates are less than a third. Our exchange rate has been basically stable now for fiveand-a-half months. The unemployment rate, which hit a historic high last August, has come down significantly. So I think

the Mexican economy is showing its flexibility and its new capacity to compete in the global economy. I think it will become stronger from this crisis.

Maclean’s: What are your goals for this trip? Zedillo: Well, of course we want to promote Canadian investment in Mexico, but I also want to promote bilateral trade and, if possible, to promote Mexican investment in Canada.

Maclean’s: You and the Prime Minister are also discussing joint action against the American Helms-Burton Act, which punishes countries dealing with Cuba.

Do you think this law will be implemented with the same intensity after the U.S. presidential election?

Zedillo: I think that as time passes it will become evident how cumbersome and costly it will be for the United States to implement Helms-Burton. Certainly, firms that might be affected are not going to rest idle.

I would assume that they would go to court and probably legal problems regarding Helms-Burton will emerge with great force. The cost-benefit analysis of the whole situation will change significantly. That should be more evident after the election (laughs). Maclean’s: Critics say your efforts to bring in political reform in Mexico have become bogged down. How do you respond?

Zedillo: Our expectation is that perhaps before the summer is over we will have what I have called the “definite electoral reform” (smiles) that should lead us into a clear, transparent, fully legal federal [Congressional] election in 1997 and should lead us in the year 2000 to what I call “normal democracy,” or “democratic normality” if you wish. The big issue now is not whether elections are legal, are clean, but whether they are fair. We have progressed so much. A few years ago, the issue was the legality of the elections, electoral fraud. Now, it is whether the [ruling] PRI has too much of an advantage over the other parties. Maclean’s: There are peace talks on now with the group involved in the Chiapas uprising. When can you imagine a resolution? Zedillo: We don’t really have a deadline. We have already completed negotiations on a major issue, the rights of the Indian communities. We are beginning another chapter on democracy and justice. We don’t have to rush. Rather, we have to obtain sound agreements.

Maclean’s: Another source of potential unrest is the lack of growth in real wages. Zedillo: The country became poorer in 1994. All of the economy had to adjust to that new circumstance. I would be a demogogue, a populist, if I told people that as soon as we have the recovery that everybody will recover their earnings, their wages, their profits. That’s a lie. It will take time, it will take discipline, it will take effort.

Maclean’s: How would you describe yourself? Has your background as a technocrat helped you in dealing with entrenched political interests?

Zedillo: I think it has helped me a lot to have very strong views on four issues. I have a very strong view on democracy. I have been a democrat all of my life, since I was a little boy. My economics background has been terribly useful in these circumstances. I have a very strong view about the rule of law. Even though I am not a lawyer, I happen to believe that any country needs the rule of law if it is going to develop. And I think it has been extremely useful that as minister of education [in 1993] I was in charge of the most important educational reform undertaken in many decades.

purchasing power in the past 20 years, while the number of Mexican billionaires on the Forbes list of the world’s wealthiest grew from two to 24 in the same period.

Zedillo, who comes from a working-class background with few ties to the political and business elites, makes no defence of the wealth gap. Instead, he uses it to justify the reforms begun by his predecessor, Carlos Salinas de Gortari. “I think that if anything explains our very poor income distribution,” Zedillo told Maclean’s, “it is the rather absurd policies that we followed for many years. Protecting our economy meant protecting the rich, conspiring against labor in favor of capital and making our economy prone to accumulating everything in the hands of a few.”

He, like Salinas, has followed the now-classic formula of privatization, free trade and market reforms. “The economy is undergoing a recovery and we are working very hard to correct the structural problems,” says Jaime Zabludovsky, the deputy foreign trade secretary, citing a cornucopia of programs to diversify exports, chop red tape for

businesses, increase domestic savings, reactivate agriculture and improve education. But the contradictions remain.

“I suppose it is natural for the government to concentrate on the macro economy because that is the only bright spot. But if you look at the daily lives of Mexicans, nothing has changed,” says Lorenzo Meyer, one of the country’s most prominent historians. “The government is building, with the help of the media, a virtual reality.”

As with any crisis, however, there are opportunities. That was the line Zedillo touted last week to high-tech industry leaders in Ottawa, mining and energy executives in Calgary, financial heads in Toronto and captains of shipping and mining industries in Vancouver. And many Canadians doing business in Mexico agree that the time is better than ever for long-term

investors to take advantage of the North American Free Trade Agreement. When the crisis hit, Zedillo accelerated the sell-off of state-owned enterprises, the opening of the banking system to foreigners and the liberalization of the telecommunications sector. Canadian banks such as the Bank of Montreal and the Bank of Nova Scotia stormed in this year to prop up flailing Mexican institutions with multimillion-dollar mergers. At least 70 Canadian mining companies are exploring or mining in Mexico, and Calgary-based Nova Corp. has expressed interest in the opening of the country’s previously protected natural-gas market. One of the biggest beneficiaries has been Northern Telecom, the Mississauga, Ont.-based manufacturer of telecommunications equipment, which has won two major phone-system contracts worth $930 million. “It’s easy to do business here. We are comfortable here and the Mexicans like Canadians,” says Stan Robitaille, president of Northern Telecom de Mexico.

Smaller Canadian enterprises are also plunging ahead. Mexico Citybased William Lee, president of Corere Consultants Ltd. of Halifax, sold $2 million worth of Atlantic fish in Mexico last year. “The biggest effect of NAFTA is that it opened Canadians’ eyes to the fact that Mexico exists as a market. They couldn’t imagine selling any further south than Boston,” explains Lee. He wants to process Canadian fish in Mexico, import Mexican fish into Canada and sell Canadian Christmas trees in the southern nation. “It is the time to be in Mexico, not the time to be wondering,” he says. But as a veteran of Latin American trade, he knows enough to temper his optimism with a cautionary note. It will be years before the economy returns to pre-devaluation levels, he says. And he adds, in an observation that Zedillo would not dispute: “It’s got to be awfully hard to be a Mexican these days.”


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in Ottawa