Those praises from abroad, though, are increasingly out of tune with Mexican reality. As the U.S. Congress prepares to vote on a free-trade agreement that would crown Mexico’s historic reforms, and as Mexicans look toward next August’s vote to choose his successor, Salinas’s economic revolution is looking tattered. Income per person, which rebounded smartly during Salinas’s first four years, is falling for the first time since 1988. The economy is verging so close to recession that the government last month abandoned fiscal stringency to prime the pump, handing out $2 billion in tax cuts and boosting the $4.50-a-day minimum wage. Amid complaints that a handful of billionaires have gotten rich off the government’s reforms, Mexicans who reluctantly accepted Salinas’s prescription of short-term pain in return for long-run prosperity are losing patience. “I’m a card-carrying member of the president’s party,” says Esperanza Garcia, 67, who runs a country store in Ocampoo, 200 miles west of Mexico City. “But I have to say that his program simply has not done enough for people like me. Something’s missing.”
Where did the Mexican miracle go astray? The problem, Salinas’s economic advisers claim, is simply that a torpid, state-dominated economy, plagued by high inflation and low investment, can’t be modernized overnight. Bloated companies must slim down and new, more dynamic ones need to gain speed. Workers must be trained to handle jobs more complex than low-skill mass production, and a dismal phone system must be rebuilt almost from scratch. “it takes about 10 years,” figures a senior Mexican official.
The general sluggishness of the world economy and uncertainty over free trade have hurt Mexico’s growth prospects, but many of the problems are homemade. Finance Minister Pedro Aspe worked a miracle by eliminating a budget deficit that accounted for 14 percent of Mexico’s total output, but he did so mainly by slashing spending on projects like sewers and roads. “Eventually, you pay a price for that,” says Brookings Institution economist Nora Lustig. “The infrastructure isn’t there.” Salinas rushed to privatize without ensuring that free enterprise would lead to more competition and efficiency. The phone-company sell-off that was so popular two years ago is now widely criticized; in a recent poll, one Mexican in four said that the company officials who led the buyout should go to jail. Although there’s a new antitrust commission, near monopolies like TV giant Televisa still use their might to crush upstart challengers. The new, privately financed expressway between Cuernavaca and coastal Acapulco cuts five hours off the former eight-hour ride, but it hasn’t cut Mexico’s high freight costs: the one-way truck toll is $436.
The most critical problem, though, involves the Mexican peso. Stabilizing the peso-dollar exchange rate was an essential step in restoring economic confidence. To keep it stable, the Banco de Mexico must keep interest rates high in order to entice foreigners to invest in bonds. That strategy has decimated smaller companies that can’t afford to pay 24 percent for short-term bank loans. Acriton, which makes waterproofing materials, is among the lucky ones. Owner Miguel Bernal, 52, won financing for a plant in Morelia from one of the new venture-capital partnerships known as SINCAs–but so far, only about 100 companies in all of Mexico have been able to obtain SINCA loans, Thousands of small manufacturers faced with import competition are lavina off workers in droves.
Some experts urge lower interest rates and devaluation. Others, recalling that former president Jose Lopez Portillo threw Mexico into crisis in 1982 by devaluing after promising to “defend the peso like a dog,” warn that devaluation now would destroy the confidence the government has labored so hard to create. The risk that Washington will reject the free-trade pact only adds to the anxiety. At least until the election, only small exchange-rate changes are likely, so interest rates will remain high and business investment will lag.
If the free-trade agreement is approved, Mexico will get an immediate boost. But free trade by itself won’t be enough to bring back a 1991-style boom. What will? If it stays the course of economic reform, one high-ranking official predicts, “Mexico should be enjoying continuously strong economic growth in the second half of this decade.” The basis for that hope is Chile: although dictator Augusto Pinochet made it the first Latin American country to steer away from statism in 1982, Chile struggled for seven years before the economy finally soared. David De Ferranti, head of the World Bank’s Mexico division, says that experience will repeat itself in Mexico as decaying infrastructure is rebuilt and businesses restructure. “We do see a turnaround,” he says. “We do see a takeoff.” But the possibility that taking off may require big changes is, of course. most unpleasant for officials who thought they had created a miracle.
