Peso Crisis for a New President

Clutching suitcases and shopping bags full of cash, hundreds of Mexicans streamed across the Rio Grande last week. Their aim: to deposit in U.S. banks their threatened life savings. In Mexico City, foreign-currency trading halted as snaking lines of customers exhausted banks' supplies of dollars. Across the breadbasket of Sonora and Sinaloa states, armies of militant peasants poised to "invade" some of the country's richest farm lands. Near by, dispossessed landowners angrily draped their tractors in black crape. For a time, land war in the campo (countryside) seemed only a gunshot away.

Changing Presidents always creates unrest in Mexico. But the turmoil facing Jose Lopez Portillo when he dons the tricolored sash this Wednesday as Mexico's 60th President poses one of the country's gravest trials of confidence in decades. The able Finance Minister of the present government and a longtime friend of outgoing President Luis Echeverria Alvarez', Lopez Portillo inherits three major and all-but-insoluble problems:

> Landless peasants and unemployed workers are clamoring for farms and jobs.

> Wealthy members of the small but powerful upper middle class fear that Mexico is drifting toward socialism.

> Foreign investors are losing confidence in an economy nearly bankrupted by Echeverria's free-spending ways.

The present crisis began in September, when intense speculation forced the government to cut the overvalued peso loose from its two-decade mooring at 12.5 to the U.S. dollar. Wary of Mexico's swollen, $24 billion debt and mounting balance of payments deficit, investors began a precipitate capital exodus, dropping the value of the peso more than 40%. In late October, renewed trading forced a second round of devaluation, tumbling the peso to 24.5 to the dollar--half its previous value. Inflation bounded, approaching an annual rate of 30%. Worse, the government has announced huge jumps in the price of gasoline, electricity and phone service.

During his tumultuous six years in office, Echeverria gained international fame--some might call it notoriety--as a spokesman for the Third World's quest for a new international economic order. At home, he combined tough anti-business rhetoric (he referred to wealthy entrepreneurs, for example, as "plutocrats and pro-fascists") with an ambitious, deficit-financed investment program in highways, electric projects and oil and steel production. Last year public investment exceeded private investment for the first time in Mexico's history. Rising food costs boosted wages and inflation at home, while world recession cut export markets. Caught by surprise, the government found its deficit soaring over $2 billion.

Troubled by Echeverria's uncertain response to the fiscal crisis, Mexican and foreign investors were bothered this year by the fact that the President was not behaving at all like a lame duck. While Lopez Portillo was busy campaigning, the mercurial "Don Luis" continued working an 18-hour day--fueling rumors spread by his conservative critics that he intended to stay in power, possibly by means of a military coup. His last major act as President was a political shocker. Charging that wealthy landlords had violated Mexican law by masking their holdings under relatives' names, Echeverria two weeks ago ordered that 243,000 acres in Sonora's lush, irrigated Yaqui valley, worth about $80 million, be handed over to landless peasantry. The subsequent "invasion" of 8,000 farm families was smoothly run overnight by government-sponsored unions. By dawn, happy, flag-waving campesinos were haggling over boundaries.

The seizure brought screams of rage from landowners and their allies. With the powerful industrialists known as "the Monterrey Group" in the lead, businessmen shut down shops and factories in cities across the country in a 24-hour sympathy strike. Full-page newspaper ads accused Echeverria of "attacking the productive men of Mexico." Privately, business spokesmen charged the President with seeking to impose a "socialist or Communist system." As aroused campesinos in neighboring Sinaloa prepared to occupy vast new acreage last week, Echeverria balked. To avoid a bloody clash between the peasants and landowners, he announced a compromise: only a token 32,000 acres of land would be distributed to farm hands; any further expropriation would wait until the new President took office.

Land's End. Placating the peasants is just one of Lopez Portillo's problems. "His first 100 days," says one Mexican banker, "will be as important as F.D.R.'s in 1933. He must act boldly and quickly." The most critical challenge is restoring Mexicans' confidence in their own economy. To do so, he may have to conciliate industrialists and foreign lenders by trimming Echeverria's spending projects and undertaking a deflationary program of austerity. Although he has seldom revealed his plans, Lopez Portillo will undoubtedly try to prune Mexico's huge, corruption-riddled civil service. Over the objections of union leaders, he may try to impose new ceilings on wages. He is also in a position to achieve vitally needed tax reforms stymied in the confrontation atmosphere created by Echeverria.

As for land reform, Lopez Portillo is unlikely to reverse expropriations already carried out. But he will move slowly on new ones. "The land is not made of rubber," he has told advisers. "It is not elastic." There will simply not be enough arable soil for everyone. Larger, more efficient holdings, however, may increase, since they are prime earners of U.S. dollars.

Cruel statistics underline Lopez Portillo's toughest job: finding work for the 750,000 workers who enter the job market each year. Though per capita income is more than $1,200 a year, millions live on the fringe of the cash economy. Figures are vague, but estimates of unemployment run upwards of 25%; an equal number scrounge by on occasional day labor. "The best way to distribute the wealth," Lopez Portillo told campaign supporters, "is to create more sources of work." Doing that will be difficult. The investment--public and private --needed just to employ new job-seekers is estimated at $10 billion a year, a crushing burden for a nation whose total G.N.P. is only $80 billion.

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