First there was Mexico City itself. It might be Miami in its wealth and in its sense of civic pride. Doubtless the city hides Miami's menace as well, but it seems in a different league from the frightening squalor of Bogota or the post-authoritarian drabness of Buenos Aires. Just as Milan's wealth is measured in more than hapless lira, so Mexico City's is measured in more than devalued pesos.
Then there is the underlying state of the battered economy. A Chilean economist, Mr Andres Velosco of Harvard University, opened my eyes to the relative soundness of Mexico's economic management before the crash. Mexico ran a fiscal surplus last year, while the average state sector in the European Union was borrowing 6 per cent of its national GDP. Mexico's stock of outstanding public debt at the end of 1994 was equivalent to 28 per cent of GDP: in the European Union, the average was almost 73 per cent. Mexico was investing 23.6 per cent of its GDP last year: across the EU the average was only 18.6 per cent.
The cocktail that got Mexico into trouble was a blend of over-enthusiastic foreign lenders and murky politics. For the second time in less than 15 years Mexico found itself the victim of its own image-making, with foreign loans being pressed into its unresisting hands. In the early Eighties, bankers queued up to lend the Mexican government dollars, leading to state excesses that culminated in the debt crisis of 1982. This time, foreign portfolio investors dealt mainly with the private sector, urging it to accept some $60bn between 1991 and 1993, too much of it short-term, volatile money.
What followed was uncannily reminiscent of Britain's finances under Nigel Lawson and Norman Lamont. Do you remember when Britain's current account deficit did not matter to Nigel Lawson because it was an affair between private lenders and private borrowers? That was Mexico's situation last year. Do you remember when the credible proof of Britain's determination to beat inflation was its commitment to a testing exchange rate? People from the Economist will never forget it. Nor will people from the Bank of Mexico forget their equivalent. As the investment fashion for the Mexican peso died, the bank depleted its reserves to defend the peso. The government replaced short-term borrowing in pesos that no one wanted to be owed with short-term borrowing in dollar `tesobonos' - folly with hindsight, but at the time proof only of its dedication to the peso/dollar rate.
The death of peso fashion was due to a year's worth of evidence that Mexico's politics are still a great deal less modern than its economics. There was an uprising in the state of Chiapas in January 1994; the murder of the probable next president, Luis Donaldo Colosio, in March; the murder of the secretary-general of the ruling party, Jose Francisco Ruiz Massieu, in September; plus sundry kidnappings. And as each story unfolded, it became clear that each of them was part of the pain of reforming the sumptuously-named Party of Institutionalised Revolution, or PRI, that has had Mexico in a one-party grip since the 1920s. Local thugs are not going to go quietly. The patronage machine refuses to be dismantled in the name of free-market economics. The drugs-money network within the party has a way with all those who promise transparency.
Praise, then, must go to the mild-mannered President Ernesto Zedillo, who, after getting off to a rotten start with his version of Britain's ERM crisis, is standing by his promises to go on opening up the economy and the political system. He has appointed an opposition man to the post of attorney- general; arrested the brother of the ex-president, Salinas, for alleged complicity in the Colosio murder; allowed an opposition party to win the state governorship of Jalisco - quite something in Mexico; embraced negotiation with the rebels in Chiapas; and removed a series of tools of political manipulation from the PRI. He shows no sign of being diverted from this crusade by economic difficulties. He is probably risking a bullet in the head from the "dinosaurios" within his own party. This, or some lesser form of internal revolt, creates the greatest single risk that my optimism will prove massively misplaced.
That apart, his government is now imposing sudden austerity on the Mexican people, by means of swingeing tax increases and interest rate rises. This will cause bitterness right across Mexican society, but my guess is that it will not lead to political violence. The most notable tension could well be with the US, where the Mexican export bonanza with which the contentious North American Free Trade Area opened is now an import bonanza that will have Ross Perot chortling. But it is too late for any serious rift: such is the mutual involvement of Mexico and the US that they are financially welded to each other, rather as East Germany was to West when the time came for their economic reunification.
The peso will now be left to find a new low level that the markets will believe in, one that will allow the burnt central bank to rebuild its reserves. This could be in the region of seven pesos to the dollar, making Mexican labour and assets roughly half as expensive as they were before the Mexican private sector began its hot money binge.
Six years as foreign editor of the Financial Times taught me this: foreign correspondents are wise just twice about their appointed countries: during their earliest days, when their minds are unclouded by facts, and during their fourth year, when they put the facts into a reasonably fresh perspective. In between, they are eloquently wrong about half-baked convictions. And by year five, all but the best are so well informed as to see both sides of everything.
After three days in Mexico, this unclouded mind says this: if the dinosaurios of the PRI do not go on the rampage, Mexico at seven pesos to the dollar (at today's Mexican prices) will prove to be a bargain route into the great North American economy.Reuse content