Mexico sends out cry for help

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The Independent Online
Mexico is calling on "friendly" countries and banks to provide between $10bn and $15bn (£6.5bn-£10bn) to support its markets through its latest financial crisis.

President Ernesto Zedillo was last night expected to announce the package as part of an austerity drive to rein in the country's $28bn current account deficit.

Due to address the nation at 2 AM London time, Mr Zedillo is calling for "additional sacrifices" and structural changes to make Mexican industry more competitive.

Since 21 December, when the Mexican currency was floated, the peso has fallen 40 per cent, sending shock waves through the newly formed North American Free Trade Agreement trading block.

Since the creation of the North American tariff-free zone, imports into Mexico have flooded in at the rate of $1bn a week, a big increase on the previous year. Exports from Mexico to the north have also increased but not fast enough. Trade with the United States has risen 21 per cent while that with Canada grew 29 per cent.

Nafta has been blamed for exacerbating Mexico's woes but its defenders point out that rising exports are evidence that the zone is working.

Analysts also noted that a $7bn intervention last week by Washington and Ottawa to stop the peso from collapsing suggested that the Nafta allies were pulling together.

Nafta received a baptism of fire in Mexico's crisis-torn year of 1994, but analysts say it may already be quietly bearing fruit.

The day the treaty was launched, 1 January 1994, a peasant rebellion exploded in the southern state of Chiapas and rebels declared the deal with the US and Canada "a death sentence for the indigenous people of Mexico."

It was an inauspicious start to an accord that had been touted as a "win-win-win" situation for all three countries. Mexico's political and economic situation became steadily worse as the year wore on.

When the peso was devalued last week in a bid to curb a cripplingly high import bill, opponents inevitably blamed the trade treaty, which slashed tariffs and non-tariff barriers and made US and Canadian goods much cheaper in Mexico.

Separately, America's newest trading block kicked off on Sunday, bringing one step closer the dream of a continental free trading zone stretching from Alaska to Tierra del Fuego. The Mercosur customs agreement brings together Argentina, Brazil, Uruguay and Paraguay in a market of 190 million people with a combined gross national product of $800bn.