[Congressional Record Volume 142, Number 64 (Thursday, May 9, 1996)]
[Extensions of Remarks]
[Page E750]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                     MEXICO AT A CRITICAL JUNCTURE

                                 ______


                          HON. BILL RICHARDSON

                             of new mexico

                    in the house of representatives

                         Thursday, May 9, 1996

  Mr. RICHARDSON. Mr. Speaker, I am taking this opportunity to share 
with my colleagues a brilliant analysis of the political and economic 
crisis in Mexico. The essay discusses the multiple causes that 
triggered the Mexican crisis, explains the measures that the Mexican 
Government has implemented to overcome the crisis and offers insights 
of the position our Government should adopt to help this troubled 
developing nation to flourish again.
  This report was written by C. Allen Ellis--a well-known international 
specialist who has demonstrated outstanding leadership and diplomatic 
skills and whose opinion is respected in our country, Mexico and in the 
international financial circles. Among the multiple duties of his 
professional life, Mr. Ellis has served as an advisor to senior 
political, diplomatic, and financial authorities of the United States 
and Mexico. He also participated in the North American Free Trade 
Agreement process as advisor to key members of the United States 
Congress, the Government of Mexico and Mexico, private sector 
interests. And most importantly, Mr. Ellis is an active member of the 
North American Institute, an international think tank based in the 
heart of my district in Santa Fe, NM. I believe that my colleagues will 
benefit greatly from Mr. Ellis' report.

                     Mexico at a Critical Juncture

                          (By C. Allen Ellis)


                          the 1994-1995 crisis

       The years 1994-1995 were two of the most turbulent years in 
     Mexico's modern history since the Revolution of 1910. An 
     indigenous uprising in the southeastern state of Chiapas, 
     which could represent a flashpoint for the vast number of our 
     southern neighbor's rural and urban poor, continued to 
     fester. Luis Donaldo Colosio, the presidential candidate of 
     the country's dominant political party for 65 years, the 
     Partido Revolucionario Institucional (``PRI''), was 
     assassinated March 23, 1994 as he initiated his campaign, and 
     a possible conspiracy and its participants is an issue which 
     the judiciary and law enforcement branches of the government 
     have been unable to resolve to date.
       A relatively unknown substitute and politically 
     inexperienced PRI candidate, Ernesto Zedillo Ponce de Leon, 
     was elected President September 1, 1994, in what observers 
     and participants alike concluded was a model democratic 
     election in Mexico.
       The above dramatic events, along with a continuing rise in 
     international interest rates, and a massive acceleration in 
     Mexico's balance of trade and current account deficits, 
     resulted in a growing erosion of confidence by foreign and 
     Mexican investors alike in Mexico and in its capital market, 
     which the bulk of capital flows earlier had found attractive, 
     notably in the form of ``Tesobonos'', short-term, high-
     yielding, essentially dollar-denominated instruments.
       The Government of Mexico's reliance on ``Tesobonos'' and on 
     escalating short-term internal financing to meet its short 
     and long-term financial needs, was compounded by the failure 
     of the outgoing administration of President Carlos Salinas to 
     address the challenging issue of an over-valued currency. The 
     international financial community would have accepted a 
     devaluation prior to its leaving office, given its confidence 
     in Mexico's outgoing political leadership and financial 
     authorities, but the decision was made to avoid this 
     unpalatable choice.
       President Ernesto Zedillo and his inexperienced political 
     and financial team were thus confronted, three weeks after 
     taking office, with the fateful necessity to devalue. It was, 
     inevitably, a failure, given its having to be attempted 
     before the new administration had established its political 
     and financial credibility compounded by its handling of the 
     devaluation proper.
       The result of the above-described confluence of events was 
     a crisis year 1995 in which Mexico experienced its worst 
     recession since 1932 with a fall in its gross domestic 
     product of 6.9% inflation in excess of 50%, its currency 
     devalued by a third against the dollar, at least 15,000 
     business failures, additional millions of unemployed or 
     underemployed and a shattering loss of confidence by the 
     Mexican people at all levels of society in the workings of 
     their traditional political system and in their political and 
     economic governance.
       Fortunately for Mexico, and in the national self-interest 
     of our own country, President William Clinton, his financial 
     team and the Federal Reserve Board were joined by the 
     international financial community and key members of both 
     parties in our Congress in approval of timely and massive 
     financial assistance to Mexico. This was in response to the 
     economic stabilization program adopted by President Zedillo 
     and Treasury Secretary Guillermo Ortiz, in close consultation 
     with Secretary Robert Rubin and his team at Treasury working 
     in tandem with the international financial agencies.


                     the present economic scenario

       At the recent Mexican Bankers Convention held March 15-16 
     the mood of the assembled banking representatives and senior 
     government officials was realistic, if not somber. It was in 
     striking contrast to the prior gathering in October 1994 
     where outgoing President Carlos Salinas presided and lauded 
     his Treasury Secretary for his abilities and loyalty.
       President Zedillo in his address to the 1996 assemblage 
     reiterated that the economic austerity program of his 
     administration would be continued. Treasury Secretary Ortiz 
     thereafter described the slowing in the fourth quarter of 
     1995 of the economy's free-fall in the second and third 
     quarters. He predicted that a slow recovery, and fall in 
     Mexico's continuing inflation, would begin in the second 
     quarter of 1996, making possible achievement of the 3% growth 
     rate target for the year with moderating inflation.
       However, the assembled Mexican and foreign bankers remained 
     particularly troubled by the continuing crisis in the banking 
     system where prevailing interest rates of 40% and higher, 
     similar bad debt levels as a percentage of loans, and a 
     growing non-payment mentality by borrowers, even when able to 
     repay, were of increasing concern.
       Our country's 1995 trade deficit of $15.4 billion with 
     Mexico was the first year since 1990 that imports exceeded 
     exports, and was principally due to Mexico's deep recession, 
     the devaluation of its currency and our own booming demand. 
     Our exports to Mexico, in a total of $46.3 billion, were down 
     approximately 9% from their 1994 level but still 11% higher 
     than in 1993, the year before NAFTA took effect. Despite 
     earlier dire forecasts by Ross Perot and others of the effect 
     NAFTA would have on employment, the Department of Labor has 
     reported that between January 1994 and February 1996 it 
     certified for assistance 58,600 workers whose loss of jobs 
     could be attributed to NAFTA, far fewer than had been 
     predicted.


              president ernesto zedillo and his policies.

       President Zedillo has begun his six-year term to end in the 
     year 2000 embarked on a program to open and democratize 
     Mexico's one-party political system, reform the authoritarian 
     nature of its presidency, enhance the role of the legislative 
     and judicial branches of government, and decentralize its 
     federal-state relationships, all the while confronting 
     Mexico's shattered economy and banking system. He has chosen 
     a herculean course which, if successful, could dramatically 
     change Mexico and result in its political modernization.
       Many Mexicans, particularly among traditional political 
     figures and their counterparts in the private sector, 
     question whether this is the right course for Mexico and do 
     not believe President Zedillo and his team have the 
     experience, political skills and public support to accomplish 
     the fundamental transformation involved. Notwithstanding 
     there appears to be a gradual realization that President 
     Zedillo, given his resolute and stubborn nature, will stay 
     his present course. However, to assure the long-term success 
     of this program his administration and he must develop 
     greater political support at all levels within Mexico.
       The importance of Mexico to our own country merits 
     increasing appreciation here, not only as our partner with 
     Canada in NAFTA, but as proof the world's leading industrial 
     democracy and a troubled developing nation, with which it 
     shares a 3,000 mile border, can address their many common 
     problems and prosper together.

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