The peso’s near collapse, accompanied by soaring interest rates and a crashing Mexican stock market, provided a stunning demonstration that Mexico has far to go in convincing the business world that it has outgrown a past of autocratic politics and erratic economics. The crisis may bring more unrest to a country that has experienced a guerrilla uprising and two political assassinations in the past 12 months, and it will end the U.S. export boom that followed the controversial North American Free Trade Agreement with the United States and Canada. Foreign investors, many of whom had jumped into hot Latin American securities with barely a glance at the risks, are also among the casualties. If they pull out their money, Mexico will have an even tougher time restoring economic growth.

The tumult leaves a shadow over President Ernesto Zedillo, himself an economist, who took office on Dec. 1. Zedillo’s predecessor, Carlos Salinas de Gortari, had all but cured Mexico’s inflation by anchoring the wobbly peso to the U.S. dollar. He was aided by foreigners, drawn by interest rates topping 20 percent, who poured so much money into Mexico that the peso stayed strong. But when the dollar inflow slowed last spring, Salinas was left with an ugly choice. Allowing the peso to slide would fuel inflation and tempt the fates: Mexican governments are normally weak near the end of a six-year term and memories of 1982, when outgoing president Jose Lopez Portillo promised to defend the peso “like a dog” and then saw it plummet, are vivid, Trying to hold the peso firm, though, would mean hiking interest rates at election time.

Instead of either unwelcome choice, Salinas’s government began using its $30 billion in foreign-currency reserves to buy up pesos, at times spending $1 billion a day. Zedillo, sources say, asked Salinas in October to let the peso fall -a request Salinas is said to have flatly rejected. By Dec. 19, reserves were below $10 billion and falling fast. Zedillo had no choice but to abandon the pretense that 3.5 pesos were worth one dollar The peso tumbled 70 percent before climbing back to 5 last Friday, leaving carnage from Buenos Aires to Wall Street. The government’s silence made matters worse. Says economist Rogelio Ramirez, “Zedillo inherited a situation that required surgical care, but he performed the operation like a veterinarian.”

Last Thursday Zedillo finally fought back, jettisoning Finance Minister Jaime Serra Puche and blasting the policies of his patron, Salinas. Serra’s replacement, Stanford-educated economist Guillermo Ortiz, will need years to regain the international confidence that Mexico had so painfully won. Save for U.S. tourists eying cheap vacations, the crisis has few winners. “You have to stretch to look for a silver lining,” says James Kelly, an economist with Smith New Court securities. Among the victims:

Here’s how the fall of the Mexican peso affected some selected mutual funds:

% change Mexico Funds Dec. 19-Dec. 29 Wright EquiFund Mexico National Fund -29.7% The Mexico Fund -17.6 Latin American Stock Funds Scudder Latin America -19.0 Fidelity Latin America -16.3 GT Latin America Growth Fund -12.4 Latin American Bond Funds Alliance North American Government Income -18.8 TCW/Dean Witter North American Government Income -8.2 Emerging Market Stock Funds Scudder Emerging Market Income -7.8 Fidelity Emerging Markets -5.4