Mexico's economy heads for meltdown

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The Independent Online
Mexicans celebrated the 185th anniversary of their independence struggle against Spain at the weekend with even more gusto than usual. Most agreed the flag-waving and tequila-swigging holiday was a welcome relief from the hardship of the latest economic crisis.

Many, however, were asking ``What independence?'' This year's $50bn (pounds 33bn) bail-out by the US and the international financial community has led many Mexicans, even former government supporters, to ask whether their country is trapped within a vicious circle as the United States's poor relative destined to beg continually for its survival.

Mexico is paying $57bn in foreign-debt repayments this year alone. Even then, the total foreign debt it will owe by the end of the year will still be around $170bn, according to estimates released last week.

Preferring to ignore such statistics, President Ernesto Zedillo, in his first annual State of the Nation address earlier this month, insisted his austerity plan was working and the worst of the economic crisis was over. Mexicans, and foreign investors, had heard it all before.

Even before Mr Zedillo's address, many expressed concern that he was mistakenly following the same policies, based on borrowing, that led to the ostracising, and exile, of his predecessor and mentor, Carlos Salinas de Gortari.

``This is deja vu all over again,'' the economic analyst Carlos Heredia told the Miami Herald. ``I am really puzzled by the fact people can and do make the same mistake twice in such a short time.''

Walker Todd, a former US Federal Reserve official, said: ``What kind of economic success is there in filling the Bank of Mexico's reserves with borrowed money? This debt is quite simply unpayable.''

Salvador Becerre, manager of the Tardan headwear shop on Mexico City's zocalo (main square), which has sold sombreros and other hats to countless presidents, as well as to the revolutionary Pancho Villa, said: ``We're celebrating our independence but we've always been dependent on those to the north.

"The government's trying to tell us the crisis will be over in the New Year but they're not fooling anybody. This has been our worst year ever ... When people have to give up buying something, they don't give up their shoes, or their shirts. But they'll do without a new hat.''

As he spoke, protesting refuse collectors from Tabasco state marched around the square, whooping and whistling as they passed beneath the National Palace balcony where Mr Zedillo would make his first grito of independence. The traditional cry of ``Viva Mexico'' re-enacts the first such grito raised against the Spanish by the rebel priest Miguel Hidalgo on 16 September 1810.

Mr Zedillo's own celebration was muted this year, with the usual champagne party and dinner scaled back. ``The President does not want a fiesta in the palace while there is nothing to celebrate outside,'' said his press office.

A banner carried by the marchers, demanding decent wages, read: ``We refuse collectors are human beings, not animals.'' It was just another day in Mexico City, where protest marches are so common they often get intertwined on the square. It is a key part of the survival strategy of the Institutional Revolutionary Party (PRI), which has ruled Mexico for 66 consecutive years, to allow, even encourage, such protests as an escape- valve for discontent that might otherwise take a more threatening course. Encouraging traditional fiestas such as the independence bash, with much flag-waving, is another way of releasing steam.

Is Mr Zedillo coming clean when he says the worst is over and there is light at the end of the tunnel? No, says one of Mexico's strongest US critics, Senator Alfonse d'Amato, who heads the Senate Banking Committee. ``Mexico's economy is in shambles ... financial alchemy is concealing a massive hole in Mexico's banking system,'' he said at a hearing on the rescue package. Many foreign investors say Mexico is still prone to hiding or disguising economic indices and statistics that should be public knowledge; they are key factors in investment planning. A European banker in Mexico City said: ``The Mexicans talk of investor confidence returning to Mexico. But it's not confidence in Mexico. It's confidence in the US and the IMF that they'll keep bailing this country out in the foreseeable future,''

Although new foreign money has been creeping back in, the reality is that foreign holdings in the Mexican stock market were down by almost $21bn at the end of August, or 37 per cent, compared with last December's pre-crisis levels.

On Friday, the day of President Zedillo's grito, stocks closed down 17.11 points and the Bolsa's own ringing shout of ``Viva Mexico'' by a trader resembling Father Miguel was scrapped. At El Monte de Piedad, the huge pawnshop across from the palace, hundreds of people queued to hock jewellery and home furnishings; employees said more than $12m in possessions have been pawned in the first eight months of this year, their take for all of 1994.

A growing group of ordinary citizens affected by the financial crisis, calling themselves El Barzon (The Yoke) and including farmers, businessmen, housewives and others, was holding a rival independence celebration.

Its members are refusing to pay their debts - on loans, mortgages and credit- card bills - a grass-roots precedent that is making some foreign lenders to Mexico nervous. The group, which claims several hundred thousand members, is protesting at sky-high interest rates - base rates topped 100 per cent earlier this year and are now around 70 per cent.

``The bankers are not charging interest in pesos. They're charging in blood,'' said a placard at an El Barzon rally last week outside the Mexico City offices of the United Nations.

Mr Zedillo faces an estimated 9 million unemployed - 28 per cent of the workforce. One million are said to have lost their jobs so far this year. Real wages are expected to plunge by around 12 per cent as a result of high inflation - likely to end the year at 45 to 50 per cent - and a freeze in pay rises.

Amid the confetti, fireworks and bell-ringing on independence night, Mr Zedillo shouted the traditional grito of ``Long Live Mexico''.

But many Mexicans do not have a chance to live long: the National Nutrition Institute says 80 children aged one year or younger die each day of malnutrition.