Mexicans gag on Clinton's greenbacks

As American troops overran Mexico City's Chapultepec Castle in September 1847, a group of young Mexican cadets wrapped themselves in their national flag and jumped from the ramparts to their deaths rather than surrender to the gringos. Within five months, the vanquished Mexicans were forced to relinquish almost half their territory to their expanding northern neighbour, including Texas, New Mexico, Arizona and southern California. The US, of course, had a heart. It paid out $15m in compensation.

To understand Mexico's complex relations with its big neighbour, it is essential to consider the trauma ingrained just a century and a half ago. Mexicans love to wear baseball caps, love American football, and risk their lives to cross the border in the hope of work or a better life.

Yet their inferiority complex is counter-balanced by a polite disdain for the American way of life. As for Americans, they look and act more foreign in Mexico than tourists from almost anywhere else in the world.

All the more surprising then to see a Mexican newspaper headline last week that screamed, in giant letters, "Viva Clinton". You only had to look at the sub-heading, however, "Money, money, money", in English, to get a sense of the paper's sarcasm. President Bill Clinton had just announced he would bypass Congress and organise a $47.8bn loan guarantee scheme, using funds from the US Treasury, the International Monetary Fund and the Bank for International Settlements.

His surprise move came after Republicans and Democrats in Congress stalled voting on the President's original proposal for a $40bn loan guarantee scheme using US funds alone. If the Mexican President, Ernesto Zedillo, looked relieved in a broadcast lateron Tuesday, it was hardly surprising. The Banco de Mexico revealed later that the country's foreign exchange reserves, standing at $30bn a year ago, had plunged to less than $3.5bn. With its foreign debt payments estimated at more than $50bn this year alone, the message was clear. Mexico, until two months ago darling of US and other investors betting on high returns from "emerging economies", had been on the verge of default.

Like Mr Zedillo, Mexico's Bolsa (stock exchange) expressed relief, shooting up 10 per cent after Mr Clinton's announcement. The peso, too, sliding almost daily since December's devaluation, turned the tide against the dollar.

In the less-than-subtly named "Yuppie's Sports Cafe" in Mexico City, young brokers celebrated over imported Budweiser beer. Apart from their day's gains at work, the brokers could take comfort in the fact that the "Bud" might now keep flowing.

The falling peso had threatened to slash US exports to Mexico from last year's estimated $50bn to around half that figure, and to make the import of American beer prohibitively expensive. While the peso continued to strengthen, the stock exchange slippedback, as investors returned to a sense of realism over Mexico's economic crisis and Mr Zedillo's growing domestic political problems.

Criticism of the Mexican President grew as it emerged the US had drafted "side letters" laying down distinctly political conditions for US assistance, including a crackdown on mojados(wetbacks) who slip across the border, tougher moves against powerful Colombian-linked drug cartels and less support for the Cuban leader, Fidel Castro.

As with the North American Free Trade Agreement (Nafta), it was noticeable how little the average Mexican, excluding the investors and business people, knew or cared about Mr Clinton's package. Among those who did, the reaction was perhaps weighted towards those who felt the big bail-out was another humiliation from the northern neighbour and that it aimed to rescue investors rather than helping Mexicans.

Such sentiment was fuelled by a series of remarks from US politicians, including Mr Clinton himself but notably from his Secretary of State, Warren Christopher. "It [the loan package] is about American leadership, in this hemisphere and in the world," MrChristopher said. "It is about American jobs, the security of our borders. Only the United States has the capacity to offer this leadership."

Hardly surprising then that many Mexicans saw Mr Clinton's package as saving the skins - or wallets - of banks and wealthy investors who had pumped short-term money into Mexico and pulled it out in panic after Mr Zedillo devalued the peso.

It is one of the fundamental problems of the Mexican economy that only 20 per cent of the much-touted "international investors" have put their funds in the concrete, job-creating economy. The rest were attracted by short-term gain through high interest rates, at first happily pocketing their profits, but now whingeing over their losses.

On the political front, Mr Clinton's package will give oxygen to a government and party the US has criticised for human rights abuses, which has been linked with drug cartels and which may only remain in power because Mr Zedillo and his predecessor, Carlos Salinas de Gortari, spent the nation's reserves to hide the extent of the economic crisis and ensure the continuation in power of the ruling Institutional Revolutionary Party (PRI) in elections held last August.

In an article highly critical of "our accidental President" - referring to the fact that Mr Zedillo stood in after the original PRI presidential candidate, Luis Donaldo Colosio, was assassinated - the Mexican writer Carlos Fuentes noted that "a minority (of Mexicans) were living with an eye on the New York stock exchange, the majority with an eye on the price of beans". Warning of the danger of a power vacuum in Mexico, Fuentes wrote: "The financial and political crisis of Italy and Germany after the First World War led not to democracy but to fascism."