Clinton may have a fumbly touch on traditional striped-pants and gunboats diplomacy. But on trade and currency issues-the foreign policy of the future – he is a lot more knowledgeable than most traditional diplomats, and he needs to be. “Mexico is the archetypal 21st-century crisis,” says Lawrence Summers. Treasury under secretary for international affairs. Administration officials may hope that Mexico’s present parlous economic plight is unique. But with free-market capitalism sweeping the globe, increased U.S. investment by everyone from high-risk speculators to pension and mutual-fund managers has given ordinary Americans a stake in dozens of countries just as vibrant – and fragile – as Mexico.
As the Mexico crisis reveals, these “emerging markets” are just that – emerging. They are not yet a sure thing. In the wake of the peso’s collapse, virtually every emerging market experienced sharp falls in January. In some cases, the declines were justified. Last year Hungary ran a current account deficit worth 9.3 percent of GDP (more than Mexico’s) and in January its finance minister resigned, warning of a “Mexico-type collapse.” Negotiations for an IMF stand-by loan for Russia have been complicated by the war in Chechnya, which threatens to bust what little budgetary discipline Russia’s government still has. That, in turn, raises the specter of a collapse in Western confidence about Russia’s economic reform.
Nor is there much consensus among the Western economic powers about what to do when things fall apart. Indeed, six European countries abstained from the IMF vote on the Mexican package. Though their public reason was a lack of consultation by the United States, they may fear that in present global conditions the IMF will have to be very careful where it places its limited funds. Little wonder that White House adviser Thomas (Mack) McLarty, who helped broker the Mexico deal, says “The IMF and World Bank are going to have a heightened importance in the post-cold-war world.”
In Washington, this new urgent focus on economies is a source of some irony. In the years immediately after the cold war, Republicans made hay over the administration’s constant muddle over peacekeeping. But on international economic policy the administration has shown a touch that the GOP seems to lack. As co-chief of Goldman, Sachs, Treasury Secretary Robert Rubin once ran one of New York’s biggest global investment houses; Summers was chief economist of the World Bank and is often mentioned as its next boss. Clinton himself fought with a rare passion for congressional ratification of both NAFTA and the GATT trade agreement, and dreams of free-trade areas in both the Americas and the Pacific Basin.
By contrast with Clinton’s decisiveness, Republicans have shown disarray, tinged with populism, on the Mexican package. The deal, says former presidential candidate Patrick Buchanan, is “corporate socialism.” Helen Chenoweth, an Idaho Republican from the House freshman class, says, “Idaho farmers and ranchers have problems getting loans, and we’re giving loans to Mexico. It’s very inconsistent.”
Of course, if the Mexican crisis triggered a global rise in interest rates, Chenoweth’s constituents would be complaining about much more than inconsistency. Still, critics of Clinton’s plan could yet have the last laugh. “Forty billion dollars can be gone in six months or a year,” says John Mueller, an emerging-markets expert with the investment advisers Lehrman Bell Mueller Cannon. “Only if – a tremendous if – Mexico reforms its finances will this thing work.”
Just how big an “if” is Mexican reform? Much depends on Washington’s monitoring of Mexico’s promises. In the cold war, the United States used U-2s and spy satellites to warn of potential danger; now it must scrutinize money supply and trade figures. The IMF has imposed its own economic conditions on the fund’s $17.8 billion share of the loan. And the United States wants Mexico’s cooperation on illegal immigration and drugs.
History ensures that the job will not be easy: Mexicans still remember which country stole haft of its territory, and that for more than a hundred years foreigners have bullied it whenever its debt has grown out of control. Mexico has pledged revenues from its state-owned oil revenues as collateral for the Clinton deal, and oil has long been the symbol of Mexico’s always prickly sense of sovereignty.
For now, at least, some of the economic and political messages from Mexico have been encouraging. President Ernesto Zedillo seems willing to press ahead with political reforms, without which Mexico’s economic reforms will be hijacked by the intertwined elites of the ruling Institutional Revolutionary Party (PRI) and a business class that is used to receiving all kinds of favors from it. (One key test: watch to see if the PRI, now trailing in the polls, loses a Feb. 12 gubernatorial election in Jalisco.) And some Mexicans now show a rare and welcome candor. As one senior economics official said last week, “The party’s over. We’ve got to start being honest about our problems. This time we’re going to give the world what it wants from us.” Pensioners and ranchers in Idaho should be praying that he’s right. And so should Bill Clinton.
PHOTO: ‘We’ve got to start being honest about our problems,’ said one official: A Mexico City newsstand
Mexico isn’t the only emerging market with problems. Other countries that worry investors:
Red tape and corruption make Westerners wary. The IMF is negotiating a loan, but the Chechen war may bust the budget.
The finance minister just resigned over the slow growth of privatization.
Years of hyperinflation led to a weakened economy. But the finance minister turned president promises monetary reform.
Skirmishes with Ecuador and an over-heated stock market may drive investors away, even though terrorism is down.
Once the promised land, now spiraling inflation and xenophobia make it hard for Westerners to do business. Just ask McDonald’s.
