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Next Step : Pride, Politics and the Peso : With currency bailout, is Washington becoming a 'probation officer' to its southern neighbor?


WASHINGTON — "Poor Mexico," that country's 19th-Century President Porfirio Diaz famously observed. "So far from God and so close to the United States."

Whether they like it or not, the United States and Mexico just got a lot closer--and their new intimacy is transforming an already-tricky relationship into something like a high-risk marriage: It will either be a marvelous success or a permanent crisis.

By launching an economic-support plan based on $20 billion of U.S. Treasury loans and loan guarantees, the United States has taken on a complex role it never wanted: guarantor of Mexico's economic and political order--or, as one knowledgeable observer of the deal put it, "Mexico's probation officer."

As a result, Mexico's government must henceforth draw up its budgets and its economic plans in discreet consultation with officials of the U.S. Treasury Department and the Federal Reserve, who will be jetting more often between Washington and Mexico City. Mexico's international oil revenues will flow through the Federal Reserve Bank of New York, collateral that the United States can seize if a future Mexican government reneges on its debts.

The economic rescue plan is wildly unpopular in Congress and with the U.S. public; in House hearings last week, it was roundly denounced by both conservative Republicans and pro-labor Democrats who are less convinced than President Clinton that the marriage of the two economies is a union made in heaven.

But the economic rescue plan is only the beginning. Mexico has plunged into its most serious political crisis in half a century, and Clinton Administration officials are looking for ways they can discreetly help President Ernesto Zedillo move his country from the one-party rule that no longer guarantees stability to a genuine democracy that just might.

At the same time, the United States and Mexico must still do business every day on a long list of practical problems that occur when a developing country in the throes of upheaval shares a 2,000-mile border with the richest nation in the world: trade, crime, drug smuggling, immigration, labor standards and environmental problems.

Already, members of Congress are asserting a right to demand performance from Mexico on these other issues as the price of American economic help. But Administration officials say they are trying to resist the impulse to demand an explicit quid pro quo --for fear of causing a backlash in Mexico, where U.S. domination has been feared ever since the James K. Polk Administration took California and the Southwest by conquest in 1848.

"We're extraordinarily sensitive to this," said a State Department official who has been helping to manage the relationship. "We don't want to kill the patient with an overly interventionist policy."

The good news, senior U.S. officials said, is that Zedillo doesn't need much prodding; his program of political, economic and judicial reform is largely what the United States would like to see happen in any case. And in the flurry of U.S.-Mexican negotiations over the past two months, U.S. aides say they have been pleasantly surprised at Mexican officials' open expressions of gratitude for American economic help and their willingness to cooperate on other issues.

A series of meetings in Zacatecas last month on joint efforts to pursue narcotics smugglers--held in the wake of the economic rescue plan--was "the best we've ever had," a senior official said.

"This (Mexican) government has been remarkably complex-free about cooperating with the United States," he added, noting that Zedillo has repeatedly declared drug trafficking his top national security concern.

Administration officials said they were also pleasantly surprised that the economic-support plan, with its explicit lien on Mexico's oil revenue, provoked relatively little backlash from nationalists and leftists in Mexico City. The Mexican Congress passed a resolution approving the plan with little trouble.

Not so in Washington. Clinton's first proposal, a $40-billion rescue plan that would have required congressional approval, went down in flames. His current plan, which combines $20 billion in U.S. funds with about $30 billion from the International Monetary Fund and other international donors, requires no approval from Congress--but that hasn't made it any more popular.

"No amount of U.S. taxpayer money will solve Mexico's problems, which are rooted in deep-seated political corruption . . . and mismanaged economic programs," charged Rep. Marcy Kaptur of Ohio, one of several Democrats who have opposed the plan. She said aid to Mexico would be a quagmire like the Vietnam War. "As in Vietnam, the mistakes of elites are being paid for by the ordinary people of both countries--lost jobs, lost incomes, lost homes."

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