Spring 1996

Since the December 1994 devaluation, the value of the Mexican peso has plummeted almost 60 percent. Today, it hovers at 7.58 pesos per dollar.¹ The government still contends that the devaluation was necessary to decrease the current account deficit.² Gustavo Vega, visiting Professor of Political Science at Yale, contends that the devaluation was necessary, but that the crisis was brought on because of "indecisiveness in policy making and overconfidence in the Salinas policy making and overconfidence in the Salinas administration." In 1996, Mexico plans to limit currency expansion to offset depreciation and prevent hyperinflation. According to government statistics, inflation in 1995 ran at 30 percent, but many analysts estimate a more realistic figure was 50 percent.³ Keeping inflation under 20 percent is a primary goal for Mexico. While the government projects an optimistic 19.4 percent growth rate in exports in 1996, the Wall Street Journal predicts an overall growth rate of three percent.⁴

Lackluster Initiatives

In order to ease the hardships facing Mexico, the government imposed several programs to help workers with falling incomes. Tortilla vouchers were distributed to help individuals in extreme poverty, although the government has recently considered eliminating the coupons.⁵ To aid debtors, the government instituted a series of alphabet programs which resemble President Franklin D. Roosevelt’s New Deal programs. In addition, the government began the Unidades de Incersion (Units of Investment of UDIs) to help people with mortgages and credit card payments. These UDIs will give debtors lower lending rates and ease the burden of payment for up to 30 years. The government projects the cost of the program at roughly US $2.2 million.⁶ Other programs include ADES, FOBAPROAs and PROCAPTEs, all of which are similar to UDIs in their objective to ease the pain of debtors. According to one source in the Mexican journal Proceso, these plans had good intentions, but they failed to improve the economic situation. Only 14.8 percent of debtors applied for the programs because people did not trust the government.⁷ Also, in order to keep money from leaving the country, interest rates have reached as high as 55.5 percent.⁸ The high interest rates have placed the middle class in jeopardy, since they are the ones who often take out loans for mortgages and are faced with credit card debts. According to Coparmex, a Mexican research group, the number of poor has increased from 40 million in 1994 to 48 million in 1995.⁹ These pessimistic figures give few Mexicans much hope for a healthy recovery any time soon.

An old Spanish adage says "confianza y viad, solo una vez perdida" (confidence and life, only a one time loss). In the past, Mexicans have lost confidence in their government’s leadership, and it will be hard to reinstate tat trust. Amidst financial instability, there is also concern of political instability due to political assassinations and allegations of corruption are low and high levels of government. The task remains difficult for President Zedillo, since Mexicans remain weary of his authority. His predecessor, Salinas de Zgortari, had brought a new optimism to the country upon entering as president.

dollars to US customs on a trip to Spain. In addition, progress in the investigation of the assassination of presidential candidate Luis Donaldo Colosio has been slow. Rumors are circulating among the public that the current suspect held in custody is not the real trigger man and conspiracy theories run rampant. These type of scandals make Mexican officials "lose legitimacy" comments Professor Vega.

Amidst the political upheaval, there is even more corruption at local government level and drug dealers roam freely in the country. The Zapatista rebels, who led the January 1994 rebellion formed a political state of Chiapas, have recently formed a political action group called the Ejercito Zapatista de Liberacion Nacional (EZLN). It is unclear what direction the Zapatistas will take, since EZLN is neither a political party or an organized national movement. However, there is a concern over recent incidents of isolated violence. In Proceso, Bartolme Carrasco Briseno, archbishop of the state of Oaxaca, reports of increasing amounts of arms transports throughout the country. Mexico City has already reported an increase in violent crime. In order to restore order the government must begin at the local level. One step necessary is professionalization of police authorities. However, the Mexican government must also set the example by cleaning up corruption at the highest levels. Three major murders still remain unresolved. By bringing the culprits to justice sooner, the government can restore credibility to it justice system. President Zedillo has already begun that process by appointing a member of the opposition party to the post of Attorney General.

Before any economic plan can be instituted for recovery, trust between the government and the people must be restored. Foreign investors remain weary because of the lack of trust that sent the peso plummeting. Statements made by Mexican officials one day about the peso’s stability were proved wrong by the next day’s market. Analysts agree that controlling inflation and stabilizing the peso are essential. President Ernesto Zedillo bears the burden of responsibility to reform. Once these reforms have been achieved and all the skeletons have been thrown out of the closet, the new revival of Mexico may begin.

Notes: 1. Valenzual, Alejandro. Press release, Office of the Official Spokesperson for the Recuperation of the Economy. 2. Ibid. 3. Torresm Craig, Plane Soli. "Mexican Markets Belie Weak Economy." Wall Street Journal, January 4, 1996, A6. 4. Ibid. 5. Ibid. 6. Criterios Generales de Politica Economica para 1996, November 14, 1995. 7. Cabarellero, Alenjandro, Guillermo Correa, et al. "Empresarios arruinados, campensinos al borde de la humbruna, ogreros depauperados, etc." Proceso, January 1, 1996, p.6 8. Caballero, Jose Luis, Ricardo Jimenez,. "Alcanza las tasas el 55.5%" Reforma, December 14, 1995, A1.

Mr. Flores, PC'98, is a history and political science major at Yale College.