Mexico - President Salinas

On October 17, 1988, the United States government announced a US$3.5 billion loan to Mexico to help ease the revenue shortfall resulting from the continued drop in oil prices. The loan was considered a bridge loan to tide Mexico over until it could reach agreement with the IMF and the World Bank. Many observers considered the United States action to have been prompted more by political concerns than economic ones. From 1982 to 1988, real income in Mexico had fallen by 40 percent; inflation had reached almost 160 percent annually, privatization efforts had eliminated thousands of jobs that had not yet been replaced by the private sector, and the economy had contracted more than it had grown. In late April 1988, candidate Salinas visited the United States to sound out both United States presidential candidates George H.W. Bush and Michael Dukakis and to visit with members of the United States Congress, interest groups, the press, academics, and influential Mexican-Americans. Even before his election, it was clear that Salinas set great store on productive relations with Mexico's northern neighbor. The October loan may have been one result of his efforts.

Salinas made the economy his first priority. On December 12, 1988, he ended the wage, price, and exchange-rate freeze instituted under de la Madrid. In its place, the new president advocated price restraint, a modest wage increase, and a scheduled devaluation averaging one peso per day against the dollar. Salinas endorsed de la Madrid's efforts for Mexico's entry into the General Agreement on Tariffs and Trade (GATT), although imports had risen and foreign reserves had dwindled since membership had first been proposed. Salinas privately held that Mexico must open and integrate itself more extensively into the world economy in order to progress and meet the employment needs of a burgeoning young population. Over the short term, however, he admitted that 1989 would be a "year of transition," with little overall economic growth.

With the president's support, congress passed modest political reforms during the last half of Salinas's term. In 1992 constitutional restrictions on the Roman Catholic Church were repealed (see Church-State Relations, ch. 2). The following year, congress passed a package of electoral reforms, including limits on campaign financing, expansion of the Senate to allow a third minority-party senator from each state, and increased proportional representation in the Chamber of Deputies (see The Salinas Presidency: Reform and Retrenchment, ch. 4).

The election results of August 21, 1994, contained no surprises. The PRI candidate, Zedillo, won the presidency with 49 percent of the vote. The PAN took 26 percent of the total, the major candidate on the left garnered 16 percent, and six minor parties accounted for the rest. Despite some irregularities, international observers declared that the election was generally honest, and Zedillo was inaugurated on December 1, 1994.

With his political flanks covered, and having included both t�cnicos and oldtime PRI members (disparagingly nicknamed "dinosaurs") among his cabinet, Salinas felt secure enough to begin his program of economic liberalization and reform. In May 1989, he ended previous restrictions on foreign ownership of business in Mexico and opened to foreign investment some previously restricted areas. The president also promised to simplify the bureaucratic process that often had deterred investors in the past. The new administration also continued the process of privatization begun under de la Madrid. The major casualty of this process was Altos Hornos de M�xico, a state-owned steel mill in Monclova, where 1,740 workers lost their jobs under a foreign-financed modernization program begun in June 1989. The previous administration had closed outright the Fundidora Monterrey, another steel mill, in 1986, putting almost 13,000 out of work.

On August 15, 1988, the National Congress, sitting as the electoral college, met to ratify the presidential vote. C�rdenas filed criminal charges against Minister of Interior Manuel Bartlett D�az, who also served as head of the Federal Electoral Commission. Despite an August 15 rally by the FDN and the PAN, nationwide protests never materialized; the electoral college ratified Salinas's victory as expected.

With all eyes focused on the presidential campaign and the uprising in Chiapas, few noticed the worsening economy in 1994. A rising deficit in the current account made the economy increasingly vulnerable to shifts in external capital flow. Although statistics showed a healthy rise in exports, most of the exports were goods from the border-zone maquiladora (see Glossary) industries, with little overall benefit to the Mexican economy or Mexican workers. In addition, rising interest rates in the United States diverted much-needed capital from the developing world. The government was reluctant to take stringent economic measures in an election year, however, and instead issued short-term, dollar-denominated bonds to finance government spending.

Salinas took office on December 1, 1988. In preinaugural interviews, he promised the "political, economic, and cultural modernization" of Mexico and an improvement in Mexico's standing abroad. During the inaugural ceremony, C�rdenas's supporters walked out in protest; PAN members protested silently throughout. In his speech, Salinas stressed the importance of a sound economy to the nation's future. The debt, he claimed, was the primary problem in this regard. He urged further renegotiation, "no longer to pay, but to return to growth." Salinas, however, had no intention of reneging on any portion of the debt. The new president also promised further political reform.

In several ways, Salinas followed the pattern established by his predecessor. He wasted little time in moving against potential political enemies in his own moral renewal campaign. Where de la Madrid had moved quietly, however, Salinas acted more dramatically. The corrupt leader of the oil workers union, Joaqu�n Hern�ndez Galicia (also known as La Quina), surrendered after a gunfight with federal police at union headquarters (see Petroleum, ch. 3). Subsequently, authorities took into custody broker Eduardo Leorreta, a PRI member and former fundraiser for the party, on charges of tax fraud.

President salinas

The 1988 election did not end Salinas's struggle to succeed his mentor, de la Madrid. C�rdenas rejected the Electoral Commission's results, which showed him with 31.1 percent of the national vote. On July 17, 1988, C�rdenas addressed a rally of some 200,000 in Mexico City, in an effort to force a recount. Eventually, along with the PAN candidate Manuel Clouthier, the two opposition candidates united to demand that the elections be nullified and an interim president appointed.

Political uncertainty increased during 1994. In March Luis Donaldo Colosio Murrieta, the PRI presidential candidate, was assassinated while campaigning in Tijuana. Several investigations failed to produce a motive or the existence of a conspiracy. Rumors circulated, however, that the assassination was drug-related or the action of old-line PRI members opposed to political reform. Anxious to divorce itself from a reputation of fraud, the PRI quickly nominated reform-minded Ernesto Zedillo Ponce de Le�n as its presidential candidate. Zedillo had been Salinas's secretary of budget and secretary of education and was widely perceived as someone who would continue Salinas's policies.

The debt agreement behind him, Salinas began to make good on his promise of political reform. In the balloting of July 1989, the PRI conceded the governorship of Baja California Norte to the candidate of the PAN. This was a historic event, the first time that the PRI had admitted the loss of a state election. At the same time, however, the PRI took a firm stand in C�rdenas's home state of Michoac�n, where the ruling party claimed to have won eleven of eighteen seats in the state legislature. C�rdenas's party, now known as the Democratic Revolutionary Party (Partido Revolucionario Democr�tico--PRD), protested that its candidates had taken fifteen of the eighteen seats. The PRI, they claimed, had stuffed ballot boxes.

President Salinas had hoped that his free-market economic policies and political reforms would bring sustained economic growth and increased democratization. The realities of the last years of the twentieth century differed, however. The Mexican economy suffered one of its worst downturns since the Great Depression of the 1930s. The PRI's lessening grip on power led not to stability but to an era of increased political and social turmoil. As so often in Mexico's past, in the late 1990s democracy and prosperity remained only tantalizing goals.

As in previous sexenios , the last year of the Salinas administration was a time of crisis. On January 1, 1994, the Zapatista Army of National Liberation (Ej�rcito Zapatista de Liberaci�n Nacional--EZLN), a heretofore unknown group, suddenly overran several towns in Chiapas (see National Security Concerns, ch. 5). The overwhelming military response forced the rebels into the mountains, but the rebels' demands for reform reminded the country that recent economic improvements had failed to reach many in the lower classes or in the impoverished south.

With the election over, attention turned to the economy. Most economists felt that the currency was overvalued, and a devaluation was widely anticipated. When a devaluation was announced on December 20, however, the result was unexpected. Investors panicked, and large amounts of capital were pulled out of Mexico or converted to dollars. Government measures to stem the exodus of funds only exacerbated the problem. Government debt rose sharply, and inflation and interest rates soared. Only large-scale international intervention stopped the downward spiral.

Allegations of voting fraud aside, the United States government, led by President Bush, was very supportive of Salinas and his efforts, particularly in the economic arena. Salinas's original suggestion of a free-trade agreement received serious consideration in Washington. Eventually, after the debt reduction agreement and liberalization efforts in such areas as foreign investment and privatization, United States officials felt that a free-trade accord was a logical next step in opening the Mexican economy and incorporating it into a North American trading bloc. Accordingly, on June 11, 1990, the two governments agreed in principle to negotiate a "comprehensive free-trade agreement" that would eliminate not only tariff barriers, but also "import quotas, licenses, and technical barriers" to the free flow of goods, services, and capital between the two nations. As negotiations progressed, the treaty would become known as the North American Free Trade Agreement (NAFTA) (see Trade Agreements, ch. 3). The agreement fit logically into Salinas's vision of a modernizing Mexico, at least in an economic sense. In 1992 NAFTA was approved by the legislatures of Mexico, the United States, and Canada to take effect on January 1, 1994.

In laying the groundwork for economic liberalization, the government announced in July 1989 that it had reached another accord with its foreign creditors after four months of negotiations. Under the so-called Brady Plan, an approach advocated by United States Secretary of the Treasury Nicholas F. Brady to reduce Mexico's debt principal, the IMF agreed to provide US$3.5 billion over three years, US$1 billion of which was designed to assure Mexico's bank payments. In addition, the World Bank was to provide US$6 billion over three years for economic development and guarantees. The government of Japan also provided US$2.05 billion in debt reduction loans. Foreign creditor banks received three options: to make new loans to Mexico, to reduce the principal by writing off some percentage of their loans, or to cut the interest rates they charged on Mexican loans. The net effect of the terms was to reduce Mexico's foreign debt payments by US$8 billion per year.

Initially, Salinas hoped to diversify Mexico's markets by expanding trade with the industrialized nations of Europe and perhaps with Japan. A state tour of Europe and other contacts, however, convinced him that this hope was illusory. Geography, history, infrastructure, investment, financial ties, and other factors made the United States the arbiter of Mexican economic progress, whether President Salinas liked it or not. Accordingly, Salinas began to develop a notion that he had first proposed to United States president-elect Bush in late November 1988. The Mexican president-elect suggested the establishment of free trade between the two nations, as a natural extension of bilateral agreements already negotiated in such areas as steel, textiles, and automobiles. Bush had promised to take the suggestion under advisement.

Meanwhile, during his final months in office, de la Madrid sought to maintain the economy on an even keel for his successor. On August 15, 1988, the government extended the wage and price freeze through November 30, the end of de la Madrid's term. The freeze had done what had been expected--it had reduced inflation from 15.5 percent in January to 1 percent in August. To ease the burden somewhat on the poor, the administration also eliminated a 6 percent value-added tax on basic foodstuffs and medicine and decreed a 30 percent tax cut for low-income workers. The exchange rate of the peso to the dollar remained fixed at the 2,270-to-1 level established in December 1987.

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President Carlos Salinas de Gortari 1988-1994