From the pages of
"We think that the country's institutions are fundamentally sound," President Clinton told reporters outside the White House in late March. "I think things will settle down. And I think fundamentally they are in good shape."
But it wasn't any of this country's institutions he was talking about. (Say the banks, especially after they've enjoyed several years of generous interest-rate spreads, compliments of the Federal Reserve. Or the insurance industry, at least by the time Congress and the White House wash their hands of health-care "reform." Or the penal system, one of our fastest growing industries and now being privatized, along with the rest of Creation.)
And surely it wasn't the New Year's Day celebrations on the streets of San Cristóbal de las Casas, Tuxtla Gutiérrez, Las Margaritas, Ocosingo and Altamirano--though Clinton very well may have had visions of General Electric, Westinghouse, Bechtel Power, and a few other friendly TNCs winning contracts to wire-up this deepest part of deep Mexico's south dancing in his head.
No. It was Mexico's--one of the three founding NAFTA signatories, the first new member to join the OECD in the past 21 years, a darling on Wall Street (recent setbacks aside), and one of the biggest of the "Big Emerging Markets," to recall the phrase that Commerce Under Secretary for International Trade and a former investment banker, Jeffrey E. Garten, likes so much to use.
While campaigning in a Tijuana slum on March 23, Luis Donaldo Colosio, the ruling dictatorship's candidate for the presidency of Mexico, was shot to death with a Brazilian-made revolver purchased from a San Francisco gun dealer back in 1977--one of the many low-tech, low-value-added specks of merchandise
in an international weapons bizarre now worth tens of billions annually.
Fearful of what the assassination could mean to the Mexican peso, to the value of Mexican stocks traded on the Bolsa Mexicana de Valores and the major foreign markets in New York and London, to the Institutional Revolutionary Party's (the PRI) 65-year grip on the reins of government, not to mention the longer-term prospects for U.S. investments south of the border, in our little but ever-growing region over here, both the U.S. Treasury and the Federal Reserve promptly extended a $6 billion line of credit to the Fed's counterpart, the Banco de Mexico, to help rescue the peso from panic selling.
Or rather they re -extended it. Back in early November, as the date of the congressional vote on NAFTA approached, the Treasury had quietly negotiated a $6 billion swap facility with Mexico's central bank to help it defend the peso in case the agreement failed to pass. Swaps allow the central bank of one country (in this case Mexico's) to borrow a predetermined amount of a foreign currency (the dollar), which in turn can be used to buy back the domestic currency (the peso), thereby supporting its value on the foreign exchange markets.
Of course swaps tend often to be stopgap measures at best. Longer term, the currency markets are capable of overrunning even the most heavily defended currencies. The successful attacks on some of the currencies of the European Exchange Rate Mechanism in September, 1992, and again in July-August, 1993, in which some traders made considerable fortunes at the expense of any hope for European monetary union this century, are a case in point. But unlike the British pound, for example, or the French franc, the two most noteworthy of the ERM's casualties, the peso is a thinly traded currency--there's just not that much speculative interest in it. Had NAFTA died in Congress, touching off the dreaded stampede of the Latin America bulls northward, the arrangement between the United States and Mexico should have been sufficient to provide whatever support the peso needed. And at a relatively cheap price, too. It's estimated that the Bank of Japan spent roughly $35 billion (the equivalent in yen, that is) during the first sixteen months of the Clinton administration to support the perennially weak dollar against the strong yen. Even May 4's single-day round of concerted interventions by no less than 16 central banks on behalf of the dollar against both the yen and the German mark must have cost billions. Not that it mattered much. In late May, the dollar was still hovering near its historical lows, as the U.S. current accounts deficit with Japan, a deficit financed through purchases of yen on the currency markets, gave no hint of letting up.
But November's U.S.-Mexico swap facility proved to be overkill. Congress passed NAFTA--a transcendent moment for the New Democrats in the White House, who at the last minute were able to convince the austere body "to set aside parochialism and vote for the higher national interest," as the New York Times was to editorialize, itself feeling mighty beatified. With the uncertainty over the project of integrating the Mexican economy into the U.S. scheme of things as yet another low-cost, no-holds-barred frontier for investment and production finally removed, so, too, was the uncertainty premium --that is, the tribute that international capital demands from its flock before giving them its blessings, better known as "yield" on the business pages. Over the next several weeks, investor confidence in everything from the peso to Brady Bonds to Telefonos de Mexico and the PRI would soar to all-time highs. And Mexican interest rates began to fall--none too soon, either, given the country's recession, its worst during the Salinas presidency, with maybe one-quarter of the workforce being unemployed and as many as one-person-in-six living in abject poverty, both direct results of the PRI having spent ten brutal years trying to bleed inflation out of the economy, almost exclusively by tapping into the blood of its people and letting it flow.
The "two detonators?" The PRI's electoral coup in 1988, and Article 27, Section X of the Mexican Constitution, as amended in 1992 to in fact deny the people the land they need for survival. "Land reform is now over for good," David Myhre of the University of California at San Diego's Center for U.S.-Mexican Studies notes. "If you are landless, you will remain landless."
ENOUGH IS ENOUGH! The Zapatistas' Declaration of War. "We rise up in arms against this death sentence from Carlos Salinas."
Next, the paroxysms of attention. The focus. The body counts. Morelia. "There was a general brutalization of the people," Amnesty International reported from this target of military terror, hardly an aberration.
The demonstrations of solidarity. "By grace, the Zapatistas have opened our eyes!" The bombings. And the chiapanecos ' taking of Rancho Jotoaquil. "The ranchers now are scared."
The PRI's humiliation. Its stone-faced confessions. "We know that benefits and opportunities are not tangible realities for many," the Mexican President was forced to admit.
And the lunatic reactions. "[T]hey are neither indigenous nor peasants<193>. Their ideology is archaic<193>. They have damaged Mexico's credibility in the international community<193>. They have sown the seeds of distrust concerning our economic prospects<193>." (Nobel laureate Octavio Paz, waiting for a modern Diaz, perhaps?)
The Cristóbal negotiations. The kidnappings. The lack of an agreement. "What the Government does not realize," Marcos said, "is that it is dealing with a very politicized leadership, which, although it is Indian, is very clear that the problem can only be dealt with if these issues are resolved at the national level."
Finally, the assassinations. Ernesto Zedillo. "[W]e have this short term noise," in Mr. Continuity 2nd's anguished view.
And the triumph of the dinosaurs. "Two ` dedazos ' in less than four months is two ` dedazos ' too many<193>" (Carlos Fuentes).
"The United States Government is alarmed," a financial consultant from Mexico City told the New York Times, shortly after Colosio's death. "The scale and promptness with which [the central banks] acted would indicate that whatever report they have about the political situation of Mexico made them absolutely alarmed."
Officially closed for a day of mourning in the first 24 hours after the assassination (as much as anything, a sop from President Carlos Salinas to foreign capital, giving it the first crack at selling), Mexican banks and the Bolsa re-opened their doors one day later to far less carnage than had been anticipated. "The whole world was grading our ability to manage the unexpected," Nacional Financiera development bank chairman Jose Angel Gurria bragged, confident that he and his fellow neolibs had passed their test.
Not without a little help from their friends on this side of the border, however. An excellent piece in the Wall Street Journal recounted how, during the critical first hours after Colosio's death, "Almost every investment bank and every investor in the U.S. was on the phones<193>and had it all laid out for them by the Mexicans," as an American portfolio manager told the story. That this individual was exaggerating goes without saying. But that the heads of the Hacienda (what the insiders at Mexico's Ministry of Finance like to call their own form of caciquismo) manage their country's affairs much as one of Merrill Lynch's or Goldman Sachs's foreign branches might manage theirs seems equally clear. Or as Business Week put it: "Under Salinas, this large diverse country has been tightly disciplined by Ivy League technocrats who considered Western investors their main constituency." Is it any wonder that from Chihuahua to Chiapas and back again, life can be bought a lot more cheaply than either the land or a stable dollar-peso relationship can?
All of this is because on the financial markets, sentiment is king. And when U.S. interests in one of the "Big Emerging Markets" are at stake, nothing soothes the savage beast quite the way the appearance of "stability" does.
"We weren't supporting any particular outcome of the presidential election," Treasury Under Secretary for International Affairs Lawrence Summers observed of his government's rescue of peso in late March, "but we were supporting financial stability in Mexico, which everyone would favor."
Everyone, Larry? (And this from the same guy who says that in the post-Cold War era, the regional development banks have become "as important to the new world order as the regional security organizations were to the old one.")
A month later, on April 26, the U.S., Mexican and Canadian governments launched a new "tri-lateral foreign exchange swap facility<193>to expand the pool of potential resources available to the monetary authorities of each country to maintain orderly exchange markets." Called the North American Financial Group (a curiously corporate sounding title for an ostensibly public body), the $9 billion facility institutionalizes last November's $6 billion U.S.-Mexican swap, plus it expands an already existing Canadian-Mexican swap to a total of CAN$1 billion, and incorporates an old U.S.-Canadian swap, worth $2 billion. "The arrangement is a logical progression from trade and investment cooperation between the three countries to greater monetary and fiscal cooperation," Goldman Sachs co-chairman Robert D. Hormats explained. When the Big Finger of the North taps you on the shoulder, how can you refuse?
This leaves August 21. "If the next election is viewed as fair, and the right people keep control of the economy, we will be consolidating those things that foreign and domestic investors need--incentives for growth and social and political stability," Manuel Camacho told the Wall Street Journal the week before the Colosio assassination. The PRI's envoy to the Zapatistas and a large figure in Mexican politics, Camacho came this close last spring to splitting from his party and making an end-run for the presidency, either as an independent or more likely a replacement for the National Action Party's Diego Fernandez or even the Democratic Revolutionary Party's Cuauhtémoc Cárdenas, who himself had done the same after then-President Miguel de la Madrid passed him over for the Harvard-educated Salinas in 1987.
Under Mexican law, Camacho would have until July 21 to stand in for one of the other parties' candidates.
Given the deepening integration of the United States and Mexico, it would be entirely fitting for an opposition party candidate having Camacho's worldly commitments to those things that foreign and domestic investors need to dethrone the PRI, and ascend the stairs of Los Pinos.