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Standing Behind Mexico Pays Off

Bailout: Clinton's extending the lifeline of U.S. credit is turning a profit all around.

August 25, 1996|FRANK del OLMO | Frank del Olmo is assistant to the editor of The Times and a regular columnist

Whether or not President Clinton wins reelection in November, his finest hour in the White House may have already come and gone.

Unfortunately for him, it happened on one of those complex international issues that can't be easily summarized in a TV campaign commercial. Worse, it involved a foreign country most U.S. citizens take for granted--or just plain ignore--until something goes wrong.

I'm referring to Mexico. And in case you missed it--very likely, given the way most of the news media (with the honorable exception of this newspaper) underplayed the story--Clinton's much-criticized "Mexican bailout" plan is a success.

Mexico's gross domestic product grew a remarkable 7.2% from April to June, when compared to the second quarter of 1995. That is only the latest and strongest indication that an economic recovery is well underway. And one of the biggest beneficiaries of that rebound will be the United States, because Mexican consumers will be buying U.S.-made imports again, and fewer unemployed Mexicans will be sneaking across the border to look for work.

Mexican President Ernesto Zedillo deserves most of the applause for this turnabout. While he is routinely maligned in the Mexican press as an uninspiring fiscal bureaucrat, this Yale-trained economist has doggedly pushed forward with the effort begun by his controversial predecessor, Carlos Salinas de Gortari, to privatize and bring free-market discipline to what long had been one of the free world's most inefficient state-run economies.

But on the U.S. side of the border, no politician showed more leadership, and even courage, in supporting Mexico than Bill Clinton.

For those with hazy memories, Zedillo's government mishandled a devaluation of the Mexican peso in December 1994. While most economists agreed that it was necessary, the devaluation got a fiercely negative reaction on Wall Street and other world financial centers--one of those volatile combinations of surprise and anger that can easily degenerate into panic. For a few perilous days, it looked as if the Mexican economy would implode, taking most of the developing world with it, as capital-fund managers from London to Tokyo pulled money out of those countries. This was when Clinton stepped in to help restore order.

Initially, the White House plan had the support of key Republicans like House Speaker Newt Gingrich and then-Senate Majority Leader Bob Dole. But this statesmanlike GOP stance wavered, then utterly collapsed, when demagogues like Sen. Alfonse D'Amato and Ross Perot began lambasting efforts to help Mexico as a "bailout" of a corrupt foreign government and Wall Street. Soon, gutless Democrats like House Minority Leader Richard Gephardt joined the Mexico-bashing, making it impossible for Clinton to push an aid package through Congress. So the president tapped a Treasury Department contingency fund to give the Zedillo government a $20-billion line of credit. That didn't end the crisis, but it was the beginning of the end.

With the full faith and credit of the U.S. Treasury behind Mexico, aid to shore up the peso also flowed in from the International Monetary Fund. The Mexican currency stabilized, investors began to look at Mexico anew and the slow process of recovery began. Ultimately, the Zedillo government would tap $13.5 billion of its U.S. credit line. Still, even the most optimistic analysts predicted that it would take two years for Mexico to recover.

Well, the optimists turned out to be right. Not only is the Mexican economy in a recovery mode in slightly less than two years, but last month--in another big financial story that was barely noticed in this country--Mexico paid off most of the money it borrowed from Washington, plus $1.2 billion in interest.

Of course, the average Mexican family has not felt the full benefit of this economic upswing, and until they do, the potential for more political turmoil will be high. The nation's political system is still recovering from recent assassinations and guerrilla threats. And official corruption, especially from drug trafficking, remains very worrisome. So plenty of things can still go wrong in Mexico.

In fact, with the Cold War over, it is no exaggeration to suggest that Mexico and its many problems will, for the foreseeable future, be the most persistent foreign-policy challenge that any U.S. president will have to face.

That's why, whatever else can be said of Bill Clinton's first term in office, he at least deserves credit for having handled Mexico well. When faced with a tough challenge from south of the border, Clinton didn't flinch. He handled it with insight, grace and more than a little guts.

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