"We Are in an Emergency"
By George Russell
COVER STORIES "We Are in an Emergency" Mexico's new President opts for austerity, efficiency and, above all, honesty
The change in style could hardly have been more telling. Almost every day at about 8:30 a.m. last week, a burgundy Ford station wagon and a white Dodge escorted by two police motorcycles pulled away from Mexico City's southern suburb of Coyoacan. The modest motorcade traveled unobtrusively, inching along in the morning rush hour's endless traffic snarl and dutifully stopping at every traffic light. Finally, about 30 minutes later, it would arrive at the massive and ornate National Palace. A short, handsome figure with graying hair at his temples would emerge: it was the new President of Mexico, Miguel de la Madrid Hurtado. Unlike his predecessor, Jose Lopez Portillo, who commuted to the National Palace by flag-waving motorcade or helicopter, De la Madrid suffered the same delays and irritations as his fellow citizens.
Another sign of change that all Mexico noted came when De la Madrid held his first meeting with the 30 Justices of the Supreme Court. By tradition, the Justices are supposed to walk to the National Palace to offer their greetings to the incoming President. This time, De la Madrid walked to the Supreme Court building. When he arrived, he avoided speeches and ceremonies. Instead, he briefly informed the Justices of two changes he wanted in the Mexican constitution, changes that would make it easier to prosecute corrupt government officials.
Throughout his first week in office, as he assumed the powers he will hold as President of Mexico for the next six years, De la Madrid acted like a man eager to set a new tone. His aim: to impose austerity, efficiency and, above all, "moral renovation"--a euphemism for honesty--upon a nation battered by economic troubles and demoralized by the latter-day excesses of Lopez Portillo.
No other country has a greater stake hi De la Madrid's success than the U.S. Never in more than a half-century has the U.S. faced even the faintest threat of political instability or hostility along either of its two long, undefended borders. That prospect, no matter how remote, has inspired a blend of acute concern and well-intentioned sympathy for Mexico's plight. Says U.S. Ambassador to Mexico John Gavin: "We want Mexico to be free, and we want Mexico to be prosperous. Why? Enlightened self-interest."
In the days after his inauguration, De la Madrid asked the 400-member National Congress to broaden the government's powers to crack down on graft. He announced a sharp cut in government subsidies for such basic commodities as sugar and gasoline. He sent a draconian budget to the Congress, calling for a $ 12 billion, or 50%, cut in the budget deficit for 1983. He also proposed an ambitious plan for government decentralization to help prevent urban paralysis in Mexico City, one of the world's most congested (pop. 16 million) and polluted capitals. The President then made a whirlwind tour of Mexico's southern state of Chiapas, giving the colorfully dressed Indian residents of the remote region a first glimpse of their new leader in action. Said a presidential aide: "He is acting so quickly that many people are stunned."
Mexico's new President could not afford to settle into his job at a more leisurely pace. After four years of boom, fueled by the exploitation of huge oil reserves, Mexico's 72 million citizens are now facing their worst economic crisis since World War II. But the measures necessary to pull Mexico back from the brink may create an unprecedented political crisis, threatening the system of "guided" democracy that has made Mexico one of the most stable countries in Latin America for a half-century. If De la Madrid fails, the consequences could be severe for the U.S., which, in addition to being Mexico's most important trading partner, shares a 2,000-mile border with the country and is home to anywhere from 3.5 million to 5.5 million legal and illegal Mexican immigrants. Says a top U.S. policymaker: "By the end of the decade Mexico could become our most important foreign-policy problem, bar none." De la I Madrid described the crisis tersely in his inaugural address. Said he: "We are in an emergency."
Potentially, Mexico has all the advantages necessary to become one of the world's most prosperous nations: a sophisticated, well-educated elite; an ambitious, assertive population; a strategic location next door to the world's richest consumer market; and a veritable treasure house of natural resources ranging from oil to uranium. A vast, dramatically beautiful land with a rich and complex cultural heritage, Mexico is one of the world's great sites for tourism. It is already one of the so-called nearly industrialized countries, which are still struggling with the problems of development but have emerged as important economic powers. The country's current crisis may retard that progress, but it cannot erase it.
For now, however, one obstacle stands in the way: Mexico's foreign debt of between $80 billion and $85 billion, which, along with Brazil's, is the highest of any developing country. Last August, Mexico came within a hairbreadth of defaulting on its obligations, a move that would have had devastating repercussions for the international financial system. The U.S. came to the rescue with more than $2.9 billion, while American, Western European and Japanese banks agreed to a seven-month freeze on the Mexican government's repayment of principal. Still, more than $8 billion in interest payments is due in the next twelve months. The International Monetary Fund is expected to come through with $3.9 billion next week, but it will impose conditions that may only worsen the immediate economic situation within Mexico.
The problems that De la Madrid confronts at home are even more nightmarish than those that worry bankers abroad. Inflation, which stood at 60% as recently as August, has reached nearly 100% and is expected to climb further next year. The peso has lost more than three-quarters of its value against the U.S. dollar in the past ten months. In a country that reveled in growth rates of 8% or higher for four years, the economy has come to a virtual standstill. Next year will be even worse: gross domestic product is expected to decline 2% or more. The unemployment rate is between 10% and 15%, and rising. Another 1 million workers are expected to lose their jobs next year. Yet those figures, harsh as they are, understate the problem. According to Mexican labor leaders, 40% of the labor force is underemployed, meaning a hand-to-mouth existence of marginal, unskilled, part-time work. In the grimy urban jungle of Netzahualcoyotl, a onetime Mexico City slum that has now become a full-scale city of nearly 3 million, Plumber Jose Vasquez is one of many who contemplate an increasingly desperate future. Says he: "Life is very hard now. It will get worse. I will defend myself as best I can."
Mexico's population continues to grow at a rate of 2.5% per year in spite of efforts to reduce it. Demographers estimate that the population will reach more than 100 million by the turn of the century. Even if economic growth were to return to its precrisis rate, the country would be hard pressed to produce enough new jobs just to absorb the 800,000 youths who join the labor force every year.
Virtually every corner of Mexico's diverse geography is touched by the economic blight. In the northern Sierra Madre Occidental and Sierra Madre Oriental mountains, which is the storehouse for an array of mineral wealth, mining production has declined by 10%. Mexico's manufacturing industries and light assembly plants, many of them concentrated in the smog belt that envelops Mexico City, are wilting. Because of foreign-exchange controls imposed last September, the dollars necessary to buy imported raw materials and spare parts are not available. About 36,000 trucks and 25,000 buses are stuck on Mexican assembly lines, while auto production is down 20%. Nor is manufacturing the only industry affected. The Mexican association of chicken farmers has predicted that 30% to 40% of the country's poultry will soon die for lack of imported feeds and chemicals.
Even nature seems to have turned against Mexico this year. More than half of the country's 31 states are suffering from drought, adding further to the human misery. In Oaxaca, Peasant Farmer Manuel Ramirez Santiago, 30, explains that he has given up entirely on working the land. Instead, he has become a street-side Popsicle vendor. Agricultural experts estimate that on a nationwide scale, Mexico will have to import 10.5 million tons of basic grains by the end of 1983 to compensate for the natural disaster.
The only thing that has evaporated faster than the water supply in Mexico's major food-producing states of Chihuahua and Sonora is Mexican confidence in the future. Says a U.S. businessman in Mexico City: "People are scared and confused. There is no confidence left in the government, and people are going to give De la Madrid only so long to prove he can be trusted. If there is no sign of change in a few months, a lot of Mexicans are just going to leave the country." Many of them have already done the next best thing: they have exported their money. By some estimates, as much as $20 billion has been transferred both legally and illegally into the U.S. in the past three years.
The cure for Mexico's economic ills will involve still greater hardship. To repair its international financial position, Mexico has promised the IMF to slash its towering budget deficit from 16.5% of gross domestic product this year to 8.5% in 1983 and 3.5% in 1985. That will involve a painful pruning of personnel from the country's more than 1,000 state and quasi-government organizations, plus a sharp curtailment of Mexico's dense fabric of price subsidies. De la Madrid's announcement that he was lifting price controls on 2,700 items is only the beginning.
By imposing austerity, De la Madrid could be faced with a different kind of crisis from within his own political power base, Mexico's Institutional Revolutionary Party (P.R.I.), which since 1929 has exercised a monopoly over Mexican political life (see box). Like the eleven Presidents who have held office in the past half-century, De la Madrid was hand-picked by his predecessor after secret consultations with a tiny group of economic and political oligarchs. According to the official returns, he won the national election last July with 74.4% of the 23.6 million votes cast.
Now De la Madrid confronts a contradictory challenge: to deal with Mexico's economic problems, he must win the cooperation of key elements of his own ruling coalition, notably organized labor and the bloated 1.6 million-member public service sector. In the best of circumstances an austerity program on the scale that De la Madrid must carry out would risk provoking social upheaval. But in Mexico's case there is another danger, the possibility of tearing the country's unique political fabric in such a way as to limit the P.R.I.'s ability to cope with unrest.
The same danger applies to the other major challenge De la Madrid has set for himself: the "moral renovation" of Mexico. Corruption has long been endemic in Mexican society, from the highest reaches of government to the cop on the beat. (In Mexico City, some police cadets would literally take a week off from their academy training to learn from veteran officers how to take bribes.) The country's effective one-party system virtually institutionalized the practice, a fact that Mexicans have recognized with equanimity. But during Lopez Portillo's term of office, the scale of corruption reached such levels that even normally tolerant citizens, particularly in the country's burgeoning middle class, were scandalized. Among other things, Mexicans suspect that as many as 1 million phony jobs were created in the country's economy, while government officials and others siphoned off the paychecks for nonexistent workers.
Some analysts even wonder whether the Mexican political system is losing its legitimacy. Says William Perry of Georgetown University's Center for Strategic and International Studies: "The question is whether the traditional political system in Mexico is reaching the end of its rope. I am not saying this is happening. But what we are seeing now is the decay of the Mexican political system as we have known it in the last 40 or 50 years." In other words, while few people doubt De la Madrid's sincerity and determination to restore Mexico's political and economic wellbeing, some wonder if he will be able to do it.
Any upheaval in Mexico would seriously affect the U.S. strategic position in the Western Hemisphere. The most pessimistic scenario is that a revolution would produce a leftist takeover of the kind that occurred in Cuba in 1959 and in Nicaragua in 1979. Mexico, in the view of some Reagan Administration officials, is the biggest prize for Communist adventurism in the hemisphere. Says a top government official: "Mexico is the decisive battleground. If we make no headway in El Salvador or in Guatemala in forestalling Marxist-Leninist takeovers, I do not know what the U.S. or anyone could do to prevent Mexico from falling to a similar regime." That, of course, would be untenable for the U.S. This alarmist view, however, is not universally shared. "We don't think Mexico is about to explode," says a senior Administration official. "But the potential elements are there for trouble in the future." Just closing off the border in such an event would be a major military undertaking for the U.S.
The porousness of the frontier is already a serious problem for the two countries, and one that may worsen as Mexico digests De la Madrid's austerity program. Traditionally, the hundreds of thousands of illegal Mexican immigrants to the U.S. who annually cross the border act as a social "safety valve" for their country's inability to provide employment at home. De la Madrid's policies may greatly increase the flow of illegals in search of jobs.
The economic reasons for the U.S. to watch De la Madrid's progress are equally compelling. Not the least of them is the amount of money that U.S. banks have loaned to Mexico: some $25 billion, or about 30% of the country's foreign debt. According to many economic experts, overeager lenders are as responsible tor Mexico's acute financial pains as the overeager borrower. Says an international banker in Washington: "When things go well, banks are stepping on each other to get in. When things go badly they are in an even greater hurry to get out."
Any deterioration in Mexico's economic condition has an impact on the U.S. Trade between the two countries totaled $31.6 billion last year, making Mexico the U.S.'s third largest commercial partner, behind Canada and Japan. The main U.S. imports: oil (522,000 bbl. per day, worth $6.2 billion annually) and natural gas (300 million cu. ft. per day). But until the economic crisis, Mexico had also become an increasingly important consumer of U.S. manufactured goods, machinery and services. The U.S. industries hardest hit by Mexico's decision to curb imports: automotive parts, electrical appliances and capital goods.
The expanding interdependence of the two countries is strikingly visible in such U.S. border towns as Calexico, Calif., Nogales, Ariz., and El Paso. During Mexico's boom, local economies flourished as Mexicans crossed the border in droves to buy American-made cars, clothing and food. But the peso's declining value, together with strict controls on the amount of U.S. currency Mexicans can obtain, has virtually halted the flow of Mexican customers, and merchants complain of near Depression business conditions.
This situation cannot change until the Mexican economy substantially improves. The man who must make that happen is a paradox: a politician who has never before held elective office. Virtually all of Miguel de la Madrid's adult life has been spent within the Mexican bureaucracy, usually in financial or planning positions. He is a lawyer-technocrat who is known as a pragmatic and quiet but firm negotiator rather than an inspired political leader for difficult times. De la Madrid's reputation is based on his mastery of the details of economic planning, his simplicity of style and his personal probity. Few of those qualities were associated with his predecessor, Lopez Portillo, by the end of the latter's six-year term.
Born in the small Pacific state of Colima, De la Madrid had a conventional middle-class upbringing by Mexican standards, with one important exception. His father, a prominent local attorney, died when De la Madrid was only two; he was shot by an irate enemy of one of his clients. De la Madrid, his mother and only sister moved to Mexico City, where Miguel was a diligent student, working part-time as a bank's legal clerk to help support the family. De la Madrid now credits his mother Alicia Hurtado de la Madrid with having given him a strong, persevering character and an acute sense of responsibility. In 1957 he graduated from the law school of the National Autonomous University of Mexico, but his mind was on economics, not law. His thesis: The Economic Thought of the Mexican Constitution of 1857.
De la Madrid returned to banking on a full-time basis as a lawyer with the state-run National Bank of Foreign Commerce, one of many institutions set up after the Revolution to control the country's economy. In 1960 he moved to the Bank of Mexico, the country's central bank. Four years later, he spent a year at Harvard on a scholarship, earning a master's degree in public administration. (Among De la Madrid's professors: Liberal Economist John Kenneth Galbraith.) After he returned to Mexico, he became assistant director of public credit in the country's Finance Ministry, a job he held until 1970. Throughout most of that early period, De la Madrid also lectured on constitutional law at the University of Mexico.
After a two-year stint with the state oil monopoly, Pemex, De la Madrid began to achieve prominence as one of Mexico's senior financial bureaucrats. Soon after he became the government's Director of Credit in 1972, Lopez Portillo was appointed Finance Minister and became his boss. Those who attended Mexican Cabinet meetings at the time recall that De la Madrid sat directly behind his minister. When questions arose that stumped Lopez Portillo, says one official, "he'd just turn and say, 'Miguel.' " De la Madrid would then stand up and speak for as long as 15 minutes without notes. Recalls the witness: "He can ad-lib at the drop of a hat with commas, colons and semicolons. You would have thought he had written a paper and memorized it."
Despite Lopez Portillo's confidence in his protege, De la Madrid's rise was not quite meteoric. When Lopez Portillo was elected President in 1976, he failed to give De la Madrid a Cabinet post, Later, De la Madrid refused an offer of the prestigious but politically impotent ambassadorship to France. Finally, in May 1979, Lopez Portillo elevated De la Madrid to the Cabinet-level job of Secretary for Planning and Federal Budget. There De la Madrid helped the President to prepare his grandiose development plans. Although he oversaw many of the Mexican government's wilder borrowing and spending projects, he has not been tainted by their failure. In Mexico everyone understands that the President's will is virtually law.
De la Madrid is widely known as a man of simple tastes and even simpler pleasures. Not even a rumor of corruption, that occupational disease of offices both high and low in Mexico, is attached to him. Quite the contrary, he is said to have chafed angrily in private at the peculation he saw among other high government officials.
Married for 23 years to the former Paloma Cordero Tapia, a devoted housewife with strong views on maintaining the strength of the family, the couple have five children ranging from twelve to 22. De la Madrid has said that his main worldly assets are the family's comfortable colonial home in Coyoacan; a smaller home in the capital, where his mother lives; and a modest rural retreat in Cuautla, 45 miles from Mexico City. The President and his spouse have broken with precedent by delaying their move into Mexico's presidential residence, Los Pinos, until January. The reason: after six years of Lopez Portillo's occupancy, the extravagant interior was not at all to the De la Madrids' liking. They wished to redecorate it more simply.
De la Madrid is also modest in his private activities. Where Lopez Portillo was an outgoing sportsman and ban vivant, De la Madrid prefers recreations like reading at home in his library or in the garden (among his favorite authors: Hermann Hesse, Morris West and Mexico's Carlos Fuentes), listening to music (Mozart and Mexican romantics like Agustin Lara), or playing dominoes. Every two or three weeks he travels to his family's country home where he enjoys swimming, badminton and walking. He keeps in shape by doing calisthenics every day; he also jogs. He admits to a mild passion for soccer, but rarely attends matches at Mexico's huge national stadium. His tastes in food are simple: for dinner he may eat a plate of fruit or quesadilla (tortilla and cheese) and drink a glass of milk. He also enjoys an occasional highball.
Lopez Portillo was both a teacher and a novelist; De la Madrid's writings are infinitely drier and more technical. Sample titles: Studies on Constitutional Law; Today's Great National Problems, The Challenge of the Future. Nonetheless, those who know the new President well say that he is also suave, self-assured and possesses a warm sense of humor. Says a Mexican banker: "He is soft in form but hard in substance. I've never heard him raise his voice, but he can be very tough." Says one of De la Madrid's advisers: "He is an orderly man. He is meticulous."
De la Madrid revealed his own view of himself in an unusually candid description written in response to a request from TIME. "I consider myself to be of normal, serene temperament, but I become enthused or moved by interesting questions or things that impress me," he wrote. "I prefer dealing with people to solitude, but once in a while I appreciate being alone with myself and my reflections. I have always been concerned with equilibrium and avoiding easy irritation or depression. I am fundamentally an optimist."
Lopez Portillo too was an optimist. When he took power in 1976, inflation was 30%, and Mexico already owed some $20 billion to foreign banks. But geologists were discovering that in vast fields located in Chiapas and Tabasco states, as well as off the Yucatan peninsula, Mexico possessed proven oil and gas reserves that are now estimated to total 72 billion bbl., second only to Saudi Arabia. The fields were quickly exploited, and by 1981 Mexico was pumping 2.5 million bbl. per day, making it the world's fourth largest oil producer. Mexico earned $14 billion from its wells in 1981. No longer was there any need for the austerity Lopez Portillo had introduced after his inauguration.
Instead, Lopez Portillo launched a series of grandiose development schemes, including a national system of support for basic agriculture and a plan to build 20 nuclear reactors. To finance these projects, he went on an international borrowing spree. Never stopping to think that Mexico's oil revenues could one day prove inadequate, American, European and Japanese banks were only too happy to oblige, in some cases offering Mexico even more money than it was asking for.
The additional infusion of funds lent an entirely new dimension to the endemic problem of corruption. Although Mexicans are accustomed to the idea that their elected officials will steal "a little bit," they were not prepared for the flagrant abuses that began to be obvious. To many Mexicans, the previous regime's corruption is best symbolized by "Dog Hill," an Olympian, 32.5-acre complex high above the Mexico City smog line, where Lopez Portillo has built palatial homes for himself and his children.
Lopez Portillo's economic mistake was to ignore the consequences of the global oil glut that began to develop in early 1981. Although some oil-producing countries began to discount their prices in response to the weak market, Mexico stubbornly held out a while longer. As a result, customers canceled their contracts. All the while, Lopez Portillo continued to borrow money as if nothing had changed. But rising international interest rates began to put a severe strain on Mexico's ability to meet its loan obligations.
As a result, Mexicans began to lose confidence in their currency, rushing to buy dollars and thus undermining the peso. But Lopez Portillo would not devalue the peso--a humiliating gesture, in his eyes--until it was too late. By February, when he finally allowed the Mexican currency to decline in value from 25 a dollar to 50, huge amounts of private money had been taken out of the country. In a final attempt to salvage the situation, not to mention his reputation, Lopez Portillo nationalized Mexico's 57 private banks last September, blaming them for the disaster. To prevent any further flight of capital, he imposed onerous foreign exchange controls that have made it virtually impossible, at least legally, for individuals or enterprises to buy goods in the U.S. Together, the moves have hampered Mexico's ability to attract foreign investment, which had been one of the primary resources for the postwar "Mexican miracle." Says Manufacturing Executive Carlos Lopez: "We haven't been in worse shape since the Revolution."
In the view of most experts, De la Madrid will have to maintain a policy of austerity for anywhere from one to four years. His decision to crack down on corruption is designed to avoid the social explosion that might loom as living standards drop further. De la Madrid's aim is to show that belt-tightening will affect the rich as well as the poor. "What's fair is fair," explains a P.R.I, 'politician. "We cannot have fat-cat officials taking advantage of these conditions to feather their own nests." De la Madrid has also made clear that he will do as much as possible to protect government programs that aid the peasantry, the poorest element of Mexican society.
At the same time, De la Madrid is expected to undo quietly some of the excesses of his predecessor's final days in office. While respecting Lopez Portillo's decision to take over the country's banks, he may try to divest the state of nonfinancial enterprises controlled by the banks that were also swept up in the nationalization move. In his inaugural address De la Madrid said that the government would support the "legitimate rights and incentives" of "responsible" entrepreneurs. The statement was seen as an endorsement of private enterprise, although De la Madrid also insisted that businessmen be socially responsible.
For the time being, De la Madrid enjoys the support of the power blocs within the P.R.I., including labor, peasants and the bureaucracy. One important figure to watch is Fidel Velasquez, 82, head of the 3.5 million-member Confederation of Mexican Workers, the country's most powerful union organization. After the February devaluation of the peso, Velasquez won wage increases of 10% to 30% for Mexican workers. As a result, the devaluation did not significantly help the competitiveness of Mexican exports, and inflation moved toward the three-digit range. On the eve of De la Madrid's inauguration, Velasquez had threatened strikes unless further wage hikes were granted. Most of the walkouts never took place, and the garrulous Velasquez has decided to play a wait-and-see game.
As Mexicans give their new President breathing space to deal with the country's crises, Washington has wisely chosen to do the same. The turbulent history of U.S. involvement with Mexico, which has included three invasions and the seizure or forcible purchase of fully half of Mexico's territory (now parts of Texas, California and five other states), means that overt American intervention in its neighbor's affairs, even of the most helpful kind, is anathema to Mexican leaders. The U.S. infusion of cash that averted Mexican bankruptcy last summer, for example, was arranged with a minimum of fanfare and rhetoric. Says a Washington-based expert on Mexico: "The most important thing we can do for De la Madrid is not to smother him in our embrace."
The U.S. can help also by adopting what Indiana University Political Scientist Kevin Middlebrook describes as an "open and flexible" attitude toward Mexico. Economist Clark Reynolds of Stanford University warns that Washington should avoid closing the U.S. border to Mexican immigrants in such a way as to spark social conflict within Mexico. The U.S., most experts agree, must also reject any protectionist demands that would put additional pressure on Mexican exporters. Perhaps most counterproductive would be any attempt to seize upon Mexico's troubles as an opportunity to exercise more leverage and, for example, demand preferential oil prices. Says Carlos Rico of the Institute of U.S. Studies in Mexico City: "If the U.S. exploited Mexico's weak position, that would be a mistake from the point of view of U.S. interests. In five or six years the U.S. would be asking what went wrong, why there is so much discontent around."
Mexico's new Secretary for Commerce, Hector Hernandez, summed up his nation's expectations in a speech to foreign bankers and investors only two days after De la Madrid's inauguration. "There are no magic formulas to solve the problems," he said. "The miracle must be made by Mexicans themselves." If the U.S. can learn anything from the tribulations of its neighbor, it is that Mexico has become a mature enough force in the world to decide how to face its own problems.
--By George Russell. Reported by Gisela Bolte/Washington, Laura Lopez and James Willwerth/Mexico City
With reporting by Gisela Bolte/Washington, Laura L
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