RIDING OFF IN ALL DIRECTIONS

By GEORGE J. CHURCH

Que onda? That question, or its English equivalent--What's going on?--is being asked throughout Mexico, in Washington and on Wall Street. Is the Mexican government at war or peace with rebels in the southern state of Chiapas? Does the governing party's electoral defeat in Mexico's second biggest city, Guadalajara, and in the state of Jalisco portend a loss of political control or a heartening turn toward genuine democracy--or maybe both? Most important, does Mexican President Ernesto Zedillo Ponce de Leon, less than three months into his six-year term, have a consistent strategy for dealing with political and financial crises, or is he just grasping at straws?

Right now it would be hard to make a case for consistency. Only five days after sending troops and tanks to occupy 18 villages in Chiapas that had been controlled by Zapatista rebels, Zedillo abruptly called off the offensive. He ordered the soldiers to do nothing that might lead to shooting, suspended efforts to catch rebel leaders for whom he had caused arrest warrants to be issued and offered the Zapatistas amnesty and political negotiations if they would lay down their arms. He even went along with one of the rebels' prime demands: the resignation of Chiapas Governor Eduardo Robledo, who the Zapatistas contend had won his post in a fraudulent election.

The government claimed that the offensive successfully reasserted its authority throughout the region. Indeed, in Guadalupe Tepeyac, where the Zapatista leader who calls himself Subcomandante Marcos made his headquarters most of last year, a garrison of 20 soldiers did seem to be in command--but in command of a ghost town. Elsewhere too, Zapatistas were neither fighting nor giving up but melting away into the jungle, sometimes with families in tow. As a car carrying two journalists approached the village of Oventik, 20 men who had been hoeing at the ground ran into their huts, grabbed clothes, firewood and babies and, with their women, fled into the brush. Within minutes most of the 32 families had disappeared without a trace. A few young men who stayed behind explained that the inhabitants had pulled the same vanishing act four times previously when soldiers appeared.

In Chiapas a Zapatista calling herself Major Ana Maria read to Mexican reporters a communique, supposedly from Marcos, that said the Zapatistas were willing to negotiate, ``but it is necessary that the government takes out its troops first.'' Government officials, relying on information from a defector known as Subcomandante Daniel, who is being held in a maximum-security prison near Mexico City, insist that the movement is made up of a mere 130 ``professionals'' and 500 militiamen and is being torn by dissension over Marcos' allegedly authoritarian ways. If encircled and forced to hide in the jungle long enough, military planners think, disheartened Zapatistas will give up and negotiate. Maybe, but at week's end there were no negotiations, though the army had clearly dug in for a long stay in previously held rebel villages. ``It's a scrambled policy,'' said a Western diplomat.

The elections in Jalisco and its capital city of Guadalajara showed Zedillo in a better light--because his party lost by a landslide. After more than 60 years of control at all levels of Mexican politics by the Institutional Revolutionary Party (P.R.I.), Zedillo has pledged to lead the country toward a real pluralistic democracy. To make good, Zedillo must show that the P.R.I. will allow honest elections and abide by the results. The P.R.I., in other words, can win back public confidence only by losing a few important elections. Many party reformers quickly resigned themselves to the victory--by more than 15 percentage points--by the center-right National Action Party (P.A.N.) over their candidate for Jalisco governor; at least there could be no suspicion of fraud.

The winners in Jalisco support some aspects of Zedillo's economic belt-tightening program. Nonetheless, some Jalisco voters turned against the P.R.I. in part because of dismay over the nation's financial crisis. Since the December devaluation of the peso and the resulting sharp rise in prices, ``we earn enough to half-eat,'' jokes Catalina Ventura, speaking for herself and Concepcion Martinez, two saleswomen in a crafts shop in Tlaquepaque, outside Guadalajara, explaining why they had abandoned the P.R.I. to vote P.A.N. Such sentiments do not bode well for Zedillo's ability to unify the country behind the tough measures that will still be needed to restore the country's finances.

Investors had another worry: the threatened default of Grupo Sidek, a tourism-and-steel conglomerate, on $19.5 million of dollar-denominated debt. The company eventually decided it could pay after all and even put up $10 million more, but financiers were not totally reassured. They noted that Grupo Sidek still has an additional $100 million or so of debt coming due soon, and are concerned that if it fails to pay, other big companies will also stiff their foreign creditors. Eduardo Cabrera, a Latin American investment strategist for Merrill Lynch in New York, says that Zedillo ``should have stepped in with a bridge loan or something'' to remove all fears of a default. The President did not, and the Mexican stock market dropped about 6% last Wednesday to a 17-month low. It recovered a bit by week's end, but the peso remained volatile, trading at one point at 6.4 to the dollar--its worst price yet--before recovering to close the week at 5.7.

Zedillo, who was hurriedly designated the P.R.I.'s presidential candidate last year after the party's first choice, Luis Donaldo Colosio, was assassinated, could be forgiven if he feels as if he has fallen through a trapdoor. He took office a few days before a financial crisis erupted that his predecessor, Carlos Salinas de Gortari, had done little to prepare either Zedillo or the nation for. But Zedillo's performance so far has not reassured the foreign-government officials and financiers who will have to bail Mexico out. The Clinton Administration, says a Senate staff member who regularly deals with the U.S. President's Mexico watchers, ``is still very worried about whether Zedillo is up to the job of being President.''

After Wednesday's market chaos, U.S. Treasury Secretary Robert Rubin met in Washington with Mexican Finance Minister Guillermo Ortiz for talks aimed at nailing down all the details and conditions of the $20 billion in loans and guarantees that the U.S. is prepared to extend, out of an international bailout package totaling almost $50 billion. A U.S. source described the talks as ``very hot.'' Lawrence Summers, Undersecretary for International Affairs at the Treasury and a participant, said the U.S. was insisting on ``very tough conditions'' to make sure the loans would be repaid. One condition is that the U.S. get first call on the revenues of Pemex, the state oil monopoly, if necessary to repay debts. Mexico is reluctant but in a poor position to resist, since Pemex revenues move through the Federal Reserve Bank of New York.

An agreement still seems likely, but the question then will be whether it spells out a coherent Mexican financial policy. Felix Rohatyn, a senior partner at Lazard Freres & Co. in New York and an unrivaled expert on financial bailouts--he headed the one that saved New York City from bankruptcy in the mid-1970s--complains that ``Mexico hasn't come up with any strategy at all'' and adds, ``I`m very worried.'' Financiers complain in particular that Mexico has not decided what to do about the peso--whether to let its price float or try to stabilize it within some range.

That indecision is symptomatic of a deeper problem: Zedillo's inability so far to craft a consistent policy on anything. A technocrat and former Education Minister thrust into the top spot almost by accident, Zedillo seems torn between the hard-liners (``dinosaurs'') and reformers in the P.R.I., veering first one way, then another. He may learn, and he will have to do a delicate balancing act in any case. But for the moment, all his moves keep bringing up that deadly question: Que onda?

--Reported by Laura Lopez/Oventik, Marguerite Michaels/New York and Adam Zagorin/Washington

With reporting by LAURA LOPEZ/OVENTIK, MARGUERITE MICHAELS/NEW YORK AND ADAM ZAGORIN/WASHINGTON