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373 August 16, 1984 GROWING PROBLEMS CHALLENGE US. POLICY INTRODUCTION Mexico today faces a growing political and economic crisis. Because of its proximity to the U.S and because of its'strate gic, economic and political importance, domestic developments in Mexico must be of interest to the U.S. While the U.S. should not directly interfere in Mexico's internal affairs, it does have a role to play in encouraging a politically stable and economically developing Mexico. U.S. relations with Mexico have been hobbled by historical wounds inflicted by war, U.S. interventions, and competition for resources. These wounds at best are healing slowly. The two countries nevertheless are bound by a common border, extensive trade, a nd recently, by political upheavals in Central America. The U.S. is Mexico's largest trading partner, and Mexico is the United States' third largest after Japan and Canada. Mexico has replaced the Middle East as the principal foreign source of oil for Amer ica, while the U.S. supplies Mexico with 82 percent of its imports. Americans have invested an estimated $7 billion in Mexico. The economic situation in Mexico therefore directly affects the U.S. economy--a problematic affect today, as Mexico confronts th e worst economic crisis of its history, precipitated by a $90 billion foreign debt, the largest in the developing world. Recovery is not in sight. One result of Mexico's economic plight has been a rigorous austerity imposed by the International Monetary Fu nd. This cut Mexican imports drastically, substan tially affecting U.S. exporters. The $3.8 billion,trade surplus with Mexico enjoyed by the U.S. in 1981 last year I?lunged to an 8 billion deficit. The political consequences.of the economic crisis could be severe. Because of its proximity, size, population, and petroleum 2 resources, a politically destabilized Mexico would be much more dangerous for the U.S. than are Soviet-backed Cuba and Nicaragua. The extensive oil fields in Mexico's largely unprotected southern flank would be a natural Soviet target.l To the north, millions of poor, desperate Mexicans would joining the millions who already have poured illegally into the U.S. A weak Mexican gow.xnment might not be able to contain the spread of externall y supported violence and subversion at home or stop it from spilling into the U.S. The costs to the U.S. for protecting its 1,952-mile border with Mexico would be enormous and would adversely affect U.S commitments to the defense of Western Europe and othe r strategic areas. The economic crisis has begun to shake Mexico's political foundations, which have been during the last 50 years the most stable in Latin America. Corruption, electoral fraud, an over bearing state government, and the effects of economic deteriora tion have led to growing public alienation with the Mexican govern ment: The unity of the ruling Institutional Revolutionary Party PRI) is being strained for the first time in its history. If it collapses or splinters before an organized and cap a ble alternative emerges, Mexico could be engulfed in political chaos. This could result in severe security and economic problems for the U.S. Thus it is in the U.S. interest to help Mexico to solve its economic and political problems. This can be done thr o ugh the encouragement of greater private sector participation in Mexico's economy, en hanced cooperation between the U.S. and Mexico on trade and invest ment issues, and greater encouragement for those elements within Mexico who support moderate and democ ratic reform THE MEXICAN SYSTEM Despite multiple U. S Mexico summits and negotiations, sharp differences remain over Central America and trade-related matters. At the heart of these differences is the Mexican political-economic system, which is more monarc hical than democratic, more socialist than nationalist. U.S. interest in promoting democracy and pro ductive market economies thus does not find much support among Mexican government officials. This has been-a constant source of friction between the two g overnments Edward Lynch MOSCOW Eyes the Caribbean," Heritage Foundation Backgrounder No. 284, August 17, 19 83. See also Jiri and Virgina Valenta Soviet Stra tegy and Policies in the Caribbean Basin," in Rift and Revolution, The Central American Imbroglio (Washington, D.C American Enteprise Institut 1984 p. 221, for the Soviet point of view Mexico traditionally has been viewed by the Soviets as one of the most friendly countries in Latin America and as one of the most important owing to its independence, l a rge physical size and population, and location at the southern frontier of the United States 3 Under President Luis Echeverria The presidency of Luis Echeverria (1970-1976 breaking'with the pragmatism of his predecessors, inaugurated social and economic p o licies in accordance with a socialist model of development.2 Through nationalization, the state's role in the economic, cultural and political affairs of the individual Mexican was steadily en larged while concessions to the private sector and the middle class diminished. Under the aegis of the dominant and authoritarian Institu tional Revolutionary Party (PRI Echeverria and his successor Lopez Portillo reinterpreted the 1917 Constitution to transform Mexico into a socialist state. Instead of soc'ialism, t hey called it nationalism, making use of the always popular rhetoric associ ated with the 1910 Mexican revolution. Indeed, President Miguel de la Madrid currently employs revolutionary rhetoric as gener ously as his predecessor Horacio Labastido Munoz, Je s us Reyes Heroles, and Porcidio Munoz Ledo. Under their guidance, Echeverria launched a set of foreign and domestic policies to establish the "New Society" and the !!New International Society,Il the IIRevolutionary Economy and a program for a larger state r ole in education. The intended effect of these reforms was to increase the role of the state in Mexican Luis Echeverria relied on three Marxists as key advisers The administrations that followed Lazaro Cardenas tended to be more mode rate in their approac h to revolutionary reform, less dogmatically interested in a socialist transformation of Mexico. Although the revolutionary party by then had consolidated much of its power base, particularly among the important labor and peasant sectors it was still vulne rable to opposition among the conservative elements in Mexico. As a result, the ruling party modified the more radical direction of its founder Cardenas and adopted a more pragmatic position to undercut the force of the opposition. The term "revolutionary nationalism" has another meaning as well that has raised the concern of many Mexican political analysts revolutionary Eudocio Ravines has pointed out that it was invented by Lenin to describe the first phase of revolution in Latin America revolutionary na t ionalism was a transitional phase that "used the emotional amd rational forces of nationalism to promote the necessary action and policies In.this early phase the private sector and the production of goods would not be taken over and managed by the state; rather this would occur later and was the responsibility of the Communist Party. The main purpose of revolutionary nationalism would be to lay the groundwork for socialism by attacking the capitalist system as the source of all misery and underdevelopment , and the target of this attack would be the United States Former Marxist For Lenin 4 society the announced goal was an "Estado SocialIl--a socialized state. President Jose Lopez Portillo Echeverria s successor, Jose Lopez Portillo, influenced by Marxist E nrique Ramirez y RamirezS and emboldened by the windfall from Mexicols oil wells, pursued the ideological and concrete struggle for the "New Society.Il The country's new wealth bene fitted almost.every sector of Mexican society and allowed the president t o go forward relatively unopposed with his Ilrevolu tionaryll policies In the early years of Portillo's administration, Mexico's development proceeded at such a rapid pace that it was called an economic miracle. It He relied, however, too heavily on foreig n borrowing and public spending based on anticipated oil revenues. Thus when the oil boom fizzled, he was faced with huge loan pay ments that far exceeded Mexico's revenues. To duck blame for the crisis, Lopez Portillo nationalized the banks in September 1 982 just months before he was to leave office. In this one step reminiscent of Lazar0 Cardenas' nationalization of the oil com panies in 1938, Portillo restored his revolutionary image and found a scapegoat-the private banks--for the economic crisis. At the same time, he dramatically increased the role of the state in Mexico's economy. Administration of Miquel de la Madrid Miguel de la Madrid was inaugurated in December 19 82. One of his first acts as President of Mexico was to amend the Consti tution of.l917--by decree--to make the state the Ifsupreme rector of economic lifei1 in Mexico.6 De la Madrid's motives in doing this are unclear Some argue that he was trying to app e ar to side with the Left which had criticized him for supporting the The concepts of revolutionary nationalism, New Society, Social Industries Social State, Social Democracy, Social Economy, Social Sector, Social Rights, first appeared in the official dec larations of the years 1972-78. Mexican analysts believe they have been extracted from the Declaration of Principles of the Socialist International in Frankfurt in 1951, and from the Soviet thesis The Non-Capitalist Way of Development expounded by the Marx ists Oscar Lange and Paul Baran of Poland. In 1975 the Commission for National Ideology was founded by Horacio Labastido, Enrique Ramirez y Ramirez, and Socorro Diaz--all self-proclaimed Marxists to the President and his cabinet. Amendments to. the Mexic an Constitution by Mexican presidents are not unusual; however, the number of constitutional amendments since the admin istration of Luis Echevsrria has been significantly greater. There have been a total of 391 modifications to the Constitution. Fifty pe r cent of the Constitution is new I The Commission recommends policy and is usually closely tied I i i 5 Right; others maintain that he reformed the Constitution so that he could continue socializing Mexico's economy when economic con ditions improved. Thus far, he seems to have been moving steadily with minor interruptions, toward enlarging the power of the state in the economy. Many de la Madrid policies have been simply responses to the economic crisis he inherited. He has implemented International Moneta ry Fund austerity measures, cutting back imports, restrict ing credit, and continuing to borrow money to make the payments on the rescheduled loans. Yet the economy remains fundamentally weak. Although the Mexican trade account has posted a surplus in the past two years, this has been the result of reduced imports rather than increased exports. Domestic output, in fact, has fallen, with many plants and small businesses closing for lack of vital imported parts and machinery as well as lack of capital. Most industries are operating at 50 percent capacity. Without imports and credit, and without incentives for private direct in- vestment, the economy will continue to stagnate. Further, with out new infusions of capital from private investment, Mexico will not be able to provide jobs for the 850,000 new entrants into the labor force this year, which will only exacerbate political ten- sions and instability De la Madrid has failed to address adequately these structural weaknesses, prefering to rely on foreign bo r rowing and increased state economic management. He has refused also to denationalize the banks, has increased state control over the fishing and tourist industries, and is pushing policies to give state companies ad vantages over private firms. For exampl e , the government this year began "restructuring" the pharmaceutical industry to enable it eventually to substitute for Mexico's $105 million in imported pharmaceuticals. State-owned labs will be given preference over private labs, will receive special fin ancing, research and devel opment support, and tax incentives, and will be protected from foreign competition by import quotas.8 Excerpted from a speech "Foreign Investment in Mexico," given by U.S. Ambassador to Mexico John Gavin to create wealth and jobs will result in an increase in the level of migra tion to the U.S which will only heighten tensions between the two countries. Already the pending U.S. Simpson-Mazzoli bill to control and monitor illegal immigration into the U.S.is causing resentment among Mexican officials and protest among leftist groups in Mexico who view the bill as discrimina tory. U.S. Trade Representative William Brock recently stated that the Mexican government's actions against the foreign-owned pharmaceutical companies would aff ect U.S. concessions in the bilateral trade agreement that has been under negotiation since May of this year It should be added that Mexico's inability 6 I These policies and the trend they portend are convincing the private sector that de la Madrid will n ot take a new tack in eco nomic matters. As a result, there has been a sharp drop in investment and a rise in capital fleeing the country.g PRIVATE SECTOR VS. GOVERNMENT A continuing debate within government circles has been over plans to offer to the pri v ate sector the shares in 500 bank-owned companies that were acquired by the state when Portillo nation alized the private banks to private hands, claiming that they represent "strategic" inter ests for Mexico's national development sector confidence must b e restored in the government, as only this will blunt the opposition of the Right and its middle class and private sector allies. This June, in a move that encouraged private businessmen and bankers, the government offered on the j Mexican stock market ma n y of the nationalized shares, including those that the opposition claimed were necessary for the national development. Skeptics, such as the powerful private industry organization COPARMEX, view this as an effort to divest the government of nonprofitable i ndustries and businesses rather than as a real attempt to start privatizing.the Mexican economy. Oppo sition'to this move within the government and the labor sector is powerful; serious splits may develop in the party as a consequence The private sector a lso has been criticizing the recent involvement of the government affiliate CONASUPO, a food importing company, in the market where it has set price controls and become a buyer and seller, giving it advantages over private companies. Similarly, the government has announced price controls on all construction materials and has begun to participate, through its affiliates in the market as a principal seller. A key sector in Mexico's economy has been the metal and mechanics industry. The majority of its 26,000 businesses are small or medium-sized and rely for backing on Mexican capital recent study by Mexico's National Manufacturing Industry Chamber Canacintra) warned that the unfair advantages of state-affiliated companies are destroying Mexico's privately ow n ed capital goods and metal industries.1 The study criticized the practice of state-owned companies demanding payment in advance when supply ing raw materials, but delaying up to six months paying for goods delivered. This has rapidly eroded the capital ba se of private companies and seriously damaged productivity.ll The Left opposes returning these shares Others argue that private A I Capital flight from Mexico surpassed $1 billion in 1984's first quarter. Journal of Commerce, July 10, 1984. For a recent a nalysis of the private sector's decline see Alejandro Junco Mexico's Private Sector Reels Under Government Control," The Wall Street Journal, June 29, 1984, p. 31 lo The Mexico City News, March 21, 1984. I 1 7 The release of the long awaited government pl a n for i-ndus trial development and foreign trade has met with considerable private sector criticism and has underscored the divisions growing within the government over Mexico's economic policy the plan calls for reduced protectionism, it defends governme n t price controls and subsidies is to continue government intervention in the marketplace and to discourage foreign private investment.12 I I Although The overall effect of the proposal I I LABOR The largest labor organization in Mexico and the major pilla r of the PRI is the Confederation of Mexican Workers, known as CTM. In its early years, CTM was led by the Marxist Vicente Lombardo Toledano. He argued that under the Mexican revolution, socialism could be achieved through a gradual process whereby the state would slowly absorb the country's economy. I As Mexican administratio ns bekame more conservative, Lombardo's power waned until he was replaced in 1949 by the present CTM leader Fidel Velazquez. Under Velazquez, CTM became less ideological and more pragmatic administration, however, the Left has regained considerable in flu e nce within CTM and there are signs of the resurrection of the Lombardo thesis. In a December 5, 1983, manifesto, CTM officials urged de la Madrid to take advantage of the economic crisis to increase the state's role in the economy. CTM also called for fur ther state control over such industries as pharmaceuticals, construction, petrochemicals, export, and manufactured goods. So far de la Madrid appears to be following these proposals. As Mexico's largest labor organization, the CTM has been effective in kee ping labor quiet during the economic crisis has cooperated with government austerity measures by accepting lower wage increases tinued flows of foreign credit to Mexico. Despite these areas of agreement, there are serious conflicts between the government a nd labor. Last June's strikes for emergency wage increases are expected to be repeated this summer. pressed by more radical leftist unions who urge opposition to the government. This has strengthened leftist forces within the CTM be created when the 89-ye a r-old Velazquez dies. Mexican analysts believe his death will trigger an ideological power struggle inside CTM between the pragmatic anti-communist and the Toledano style Marxists. CTM could splinter into factions, which could lead to greater labor instab i lity Since the beginning of the Luis Echeverria It Such cooperation is vital to ensure con Further, the CTM is being Adding to future uncertainty is the power vacuum that will l2 Steve Frazier Mexico Divided On Plan to Spur the Economy The Wall Street Jou r nal, July 31, 1984, p. 39 I I a I CORRUPTION Along with its severe and worsening economic crisis, Mexico is suffering a moral crisis. Many Mexicans now blame large-scale corruption and fraud among government officials for the economic situation and the en ormous debt. This has damaged the PRIIs image badly and forced de la Madrid to make "moral renovation1 the capstone of his inaugural address. He promised to eradicate corruption in the government. To date his campaign has produced few convictions. The best -known suspects, including former officials believed to have stolen $2 to $3 billion, have yet to be indicted. Other sus pected offenders are believed to be in the oil unions and the hierarchy of the government oil company, PEMEX. De la Madrid has been re l uctant to go after them for fear of retaliatory strikes in the oil fields. This not only would interrupt the flow of oil and stanch oil revenues but would expose the vulnerable oil fields to externally Supported subversion POLITICAL AND CIVIL LIBERTIES Th e social policies of the Mexican government since Echeverria in many cases have violated individual rights. Since the adminis tration of Echeverria, for instance, state control over education has been viewed as a major ingredient in making the New Society. " Prominent ideologist for the revolutionary Left and president of the PRI, Jesus Reyes Heroles, is Secretary of Education. His announced plan to lldecentralizell the Mexican education system has been viewed by analysts as a means of undercutting the power ful teachers' unions to ensure greater government control. Meanwhile the government has been putting increased pressure on .the,rela tively small number of private teachers' schools. The conflict so far has resulted in the government backing off when it t ried to close several private schools. Yet the pressure remains from the Left to Itrationalize1l the educational system to conform with I'revolutionaryll goals. PRESS FREEDOM Although the press is officially independent, it is heavily dependent on the Mexican government for its economic well-being. The government agency PIPSA regulates the import of paper and the distribution of newsprint. These two products have been withheld when the government wished to pressure a newspaper or magazine or shut them down ~omplete1y.l l3 One well-known instance of the government using this method of control was in 1968 when the outspoken and critical magazine Politica attempted to outmaneuver the government by purchasing its own newsprint. The government slappe'd a 75 per c ent ad valorem tax to the transaction and Politica subsequently went out of business 9 Some press dissent from the official view is tolerated but generally criticism of the government is vague and refers to events in the distant past. Criticism is further discouraged by the government practice of granting concessions and favorable treatment to those newspapers that are most supportive. Although the government by law can intervene to suppress unfavorable news the practice of auto-cen~orshipl~ is so prevalen t that it rarely has to do so.15 ELECTIONS AND THE OPPOSITION In 1983 the FRI suffered the worst electoral defeats of its 50-year history minds. The major beneficiary has been the National Action Party PAN a conservative Catholic nationalist party formed i n 19 39. In the July 1983 elections, PAN scored significant victories in Chihuahua and Durango, two large states in the north of Mexico. When PAN seemed certain to win again in the following November's municipal elections in the state of Puebla, PRI offic ials forci bly took possession of the ballot boxes and returned them stuffed with ballots the morning of the elections. When Pueblan.citizens attempted to stop the government officials, they were violently ousted and sometimes beaten. The PRI also annulle d PAN victories in some districts b The economic crisis clearly was on voter's refusing to recognize the results and calling for new elections. 16 Although the PRI Ilwonlr electoral victories, its public image suffered a serious and possibly permanent setb a ck. It was enough to allow the following in a leading Mexican newspaper toral contest of 1985 is going to be a historic one; the.people The elec 14 15 16 The term "auto-censorship" was first employed by Evelyn P. Stevens in Protest and Response in Mexico ( Cambridge: MIT Press, 1974 p. 52 in which she stated This uniformity of behavior is so impressive at first sight as to make us think that we are in the presence of a completely controlled press There is no necessity of police censorship because there is i ndividual auto-censorship on the part of each journalist and collective self-restraint by the publishers of each newspaper. There is little doubt among press and media circles in Mexico that the government would take action directly against those violating this almost unwritten code. In 1974 the controversial magazine Porque? was shut down following a sacking by government officials of the magazine's office and the arrest of its manager. Porque?'s main offense had been to point out with regularity the gove rnment's restrictions of the press. Steve Frazier Instability Gnaws at Mexico's Ruling Party," The Wall Street Journal, March 21, 1984, p. 36. In contrast to many Latin American states, the role of the Mexican military in politics is insignificant. The mil itary has I' I, been enlarged and modernized in the last decade but has remained I largely dependent on the government for career appointments and I 10 are already tired of populism, corruption, and revolutionary nationalism with its clear bolshevique ten d encies.lIl7 PAN'S New Allies Of increasing concern to de la Madrid is the new alliance forged between the private sector, the Church, and PAN. Alienated by the bank nationalizations, the private sector has given PAN considerable funds and organizational s upport. The support of the Church, meanwhile, with its call to ''vote freely and vote for change" has fortified PAN'S moral authority and appeal. To a great extent, however, PAN'S support at the polls is a rejection of the PRI system. The PRI's Response Pu blic' anger at the PRI' vote fraud' prompted some PRI offi cials to institute reforms democratizing candidate selection at the lower levels. In many cases this has meant that candidates favored by the left within the party were not selected by popular vot e at the local levels. These reforms have met with stiff opposition among'some sectors of the party, particularly from Fidel Velazquez, who stated in April that the labor sector was prepared to launch paralyzing strikes and kf necessary leave the PRI and f orm a new party. Much will depend on th-e PRI's reaction during the important gubernatorial and congressional elections next year. If the economy has not substantially improved and the conservative PAN continues to grow in strength, the PRI will be faced w ith'either accepting losses in power or taking anti-democratic measures to thwart its rival. Already these pressures are creating deep fissures within PRI. The private sector, once a powerful PRI supporter, has bolted and joined the opposition; labor, PRI's main strength threatens to join the Left or form its own party; and the bureau cracy, meanwhile, is polarizing into left and right factions. In an unprecedented paralysis of action, PRI has been unable to con vene its annual n ational assembly because of party disunity and uncertainty over its future course. If these trends continue caution many analysts, Mexico could sink into political chaos bringing an end to 50 years of stability and strong rule. The Military l7 El Heraldo, February 24, 1984, article by columnist Juan de la Borbolla. 11 for its economic sustenance.18 As a result, most analysts do not believe the military will intervene politically despite the crisis facing the government and the rising popular discontent. Ho w ever should the economic and political situation deteriorate drastic ally the military may conclude that it should take a greater role in reestablishing domestic equilibrium, although right now it clearly would like to avoid doing so POLICY RECOMMENDATION S There is no question that the crisis in Mexico has forced greater cooperation between the governments of Mexico and the U.S. For the first time in years, an opportunity exists for the U.S. to further its own policy goals while help,ing Mexico resolve its crisis private sector development as the means to dynamic economic growth and an end to the debt problems may be willing to pursue this apdroach and overrule leftist statist opposition in his party the PRIIs approach to governing that offend Americans, it is not in U.S. interest for Mexico's political system to collapse. U.S policy should support de la Madrid's attempts to rebuild the economy and fulfill his pledges of moral renovation and democratic reform. With negotiations for a bilateral trade agreemen t now underway, the U.S. can offer to exchange more favorable treatment of Mexican imports for a loosening of Mexican restrictions over pharmaceutical, auto, and other industries currently subject to increasing state interference and competition The basis o f U.S. policy should be to encourage As his economic and politicdl troubles mount, de la Madrid Although there are aspects of In addition, this-agreement should open Mexico to foreign capital and investment as a principal means of mobilizing produc tive c apital to retire the huge foreign debt. Mexico is relying too heavily on import restrictions, which have a negative impact on Mexico's productive sectors that depend on foreign parts and machinery. Mexico's economic problems would be eased greatly if debt repayments could be stretched over a longer period of time; it is working toward this goal with foreign banks. The U.S. should offer to encourage the banks to cooperate in return for greater private sector and foreign investor participation in Mexicols ec onomy. The U.S. should seek to open channels of communication with pro-democratic groups and institutions in Mexico. These would l8 Under Echeverria and Lopez Portillo the military was enlarged and modern ized mostly in response to growing Central American instability and the vulnerability of its oil rich southern flank. These efforts came to a halt as the economic crisis forced clamping down on public spending. include individuals within PRI who support democratic reform greater economic freedom, and indi v idual liberties, as well as pro-democratic opposition groups such as PAN and private sector organizations informed Mexican policy but would demonstrate that the overall U.S. aim in the region is to support democratic movements and governments. The Nationa l Endowment for Democracy, created to encourage cooperation between democratic groups throughout the region, could play an important role in this. effort. Similarly the Inter-American Foundation could add to this effort with a greater emphasis in its progr a ms on private sector development This not only would result in more effective and Although Mexico has been enlarging and modernizing its military, it still could not deter a major threat to its vulnerable southern flank. As the crises in Central America i n crease and as Cuban-supported guerrilla activities spill into Mexico, Mexico has begun quietly to improve relations with the U.S. on security matters. In 1981 Mexico purchased the first major U.S. equipment for its forces in years--13 F-15 aircraft and tw o old U.S. destroyers for its navy.lg In the wake of the debt crisis, however, Mexico has made few additional arms pur chases, and its efforts to improve its military have slowed to a halt. To encourage cooperation between the U.S. and the Mexican military , and to help Mexico develop a flexible counter-insurgency force, the U.S. should offer military assistance if and when needed as well as low-cost arms sales. Recent increases in drug traffic in Mexico that are widely believed to be supported from the outs ide have brought the Mexican government and the U.S. into closer cooperation. This coopera tion is crucial and should be fostered with the implementation of U.S. proposals to create integrated enforcement programs along the land border, exchange of intell i gence between the U.S. and Mexican Customs, mutual verification of narcotic growing sites and an agreement to grant U.S. Customs aircraft authority to over fly Mexican territory in pursuit of aircraft suspected of involve ment in smuggling operations.20 I i I CONCLUSION U.S. policy toward its Mexican neighbor has been characterized by a remarkable degree of complacency and accommodation that is no longer warranted. Mexico is in the throes of a severe political and economic crisis of which the outcome is st ill uncertain, but l9 During the period when Mexico was purchasing arms, U.S. arms comprised a small percentage of its total purchases. Western Europe, in particular France, was the major source of Mexican acquisitions. Proposals made by the Senate Drug En forcement Caucus in a report following a Senate delegation mission to Mexico, Colombia, Bolivia, Peru, Argentina Uruguay and Brazil, June 19-July 15, 1984 2o 13 which in any event will significantly affect U.S. economic and strategic interests in the regi o n moral and political bankruptcy in the government, which has caused the widespread public opposition now taking shape. The political tremors are affecting the Institutional Revolutionary Party, PRI, which has ruled unchallenged for over 50 years; it now n o longer commands th-e support of major sectors of Mexican society ing severe strains on PRI unity, as some favor moderating statist nondemocratic government policies, while others favor continued socialization of Mexico cumstances when restoring confiden c e in the economy is possible only by encouraging private sector participation is a major prob lem. The signs are not encouraging matters, the U.S. might be able to assist those moderate elements in Mexico who would promote economic growth over ideological agendas stable, and democratic Mexico The Mexican economic crisis was a natural consequence of The question of how to recapture popular support is produc Maintaining party unity under these cir In view of this situation and its own influence in economic I The fruit of such actions would be a more prosperous Esther Wilson Hannon Policy Analyst
373 August 16, 1984 GROWING PROBLEMS CHALLENGE US. POLICY INTRODUCTION Mexico today faces a growing political and economic crisis. Because of its proximity to the U.S and because of its'strate gic, economic and political importance, domestic developments in Mexico must be of interest to the U.S. While the U.S. should not directly interfere in Mexico's internal affairs, it does have a role to play in encouraging a politically stable and economically developing Mexico. U.S. relations with Mexico have been hobbled by historical wounds inflicted by war, U.S. interventions, and competition for resources. These wounds at best are healing slowly. The two countries nevertheless are bound by a common border, extensive trade, a nd recently, by political upheavals in Central America. The U.S. is Mexico's largest trading partner, and Mexico is the United States' third largest after Japan and Canada. Mexico has replaced the Middle East as the principal foreign source of oil for Amer ica, while the U.S. supplies Mexico with 82 percent of its imports. Americans have invested an estimated $7 billion in Mexico. The economic situation in Mexico therefore directly affects the U.S. economy--a problematic affect today, as Mexico confronts th e worst economic crisis of its history, precipitated by a $90 billion foreign debt, the largest in the developing world. Recovery is not in sight. One result of Mexico's economic plight has been a rigorous austerity imposed by the International Monetary Fu nd. This cut Mexican imports drastically, substan tially affecting U.S. exporters. The $3.8 billion,trade surplus with Mexico enjoyed by the U.S. in 1981 last year I?lunged to an 8 billion deficit. The political consequences.of the economic crisis could be severe. Because of its proximity, size, population, and petroleum 2 resources, a politically destabilized Mexico would be much more dangerous for the U.S. than are Soviet-backed Cuba and Nicaragua. The extensive oil fields in Mexico's largely unprotected southern flank would be a natural Soviet target.l To the north, millions of poor, desperate Mexicans would joining the millions who already have poured illegally into the U.S. A weak Mexican gow.xnment might not be able to contain the spread of externall y supported violence and subversion at home or stop it from spilling into the U.S. The costs to the U.S. for protecting its 1,952-mile border with Mexico would be enormous and would adversely affect U.S commitments to the defense of Western Europe and othe r strategic areas. The economic crisis has begun to shake Mexico's political foundations, which have been during the last 50 years the most stable in Latin America. Corruption, electoral fraud, an over bearing state government, and the effects of economic deteriora tion have led to growing public alienation with the Mexican govern ment: The unity of the ruling Institutional Revolutionary Party PRI) is being strained for the first time in its history. If it collapses or splinters before an organized and cap a ble alternative emerges, Mexico could be engulfed in political chaos. This could result in severe security and economic problems for the U.S. Thus it is in the U.S. interest to help Mexico to solve its economic and political problems. This can be done thr o ugh the encouragement of greater private sector participation in Mexico's economy, en hanced cooperation between the U.S. and Mexico on trade and invest ment issues, and greater encouragement for those elements within Mexico who support moderate and democ ratic reform THE MEXICAN SYSTEM Despite multiple U. S Mexico summits and negotiations, sharp differences remain over Central America and trade-related matters. At the heart of these differences is the Mexican political-economic system, which is more monarc hical than democratic, more socialist than nationalist. U.S. interest in promoting democracy and pro ductive market economies thus does not find much support among Mexican government officials. This has been-a constant source of friction between the two g overnments Edward Lynch MOSCOW Eyes the Caribbean," Heritage Foundation Backgrounder No. 284, August 17, 19 83. See also Jiri and Virgina Valenta Soviet Stra tegy and Policies in the Caribbean Basin," in Rift and Revolution, The Central American Imbroglio (Washington, D.C American Enteprise Institut 1984 p. 221, for the Soviet point of view Mexico traditionally has been viewed by the Soviets as one of the most friendly countries in Latin America and as one of the most important owing to its independence, l a rge physical size and population, and location at the southern frontier of the United States 3 Under President Luis Echeverria The presidency of Luis Echeverria (1970-1976 breaking'with the pragmatism of his predecessors, inaugurated social and economic p o licies in accordance with a socialist model of development.2 Through nationalization, the state's role in the economic, cultural and political affairs of the individual Mexican was steadily en larged while concessions to the private sector and the middle class diminished. Under the aegis of the dominant and authoritarian Institu tional Revolutionary Party (PRI Echeverria and his successor Lopez Portillo reinterpreted the 1917 Constitution to transform Mexico into a socialist state. Instead of soc'ialism, t hey called it nationalism, making use of the always popular rhetoric associ ated with the 1910 Mexican revolution. Indeed, President Miguel de la Madrid currently employs revolutionary rhetoric as gener ously as his predecessor Horacio Labastido Munoz, Je s us Reyes Heroles, and Porcidio Munoz Ledo. Under their guidance, Echeverria launched a set of foreign and domestic policies to establish the "New Society" and the !!New International Society,Il the IIRevolutionary Economy and a program for a larger state r ole in education. The intended effect of these reforms was to increase the role of the state in Mexican Luis Echeverria relied on three Marxists as key advisers The administrations that followed Lazaro Cardenas tended to be more mode rate in their approac h to revolutionary reform, less dogmatically interested in a socialist transformation of Mexico. Although the revolutionary party by then had consolidated much of its power base, particularly among the important labor and peasant sectors it was still vulne rable to opposition among the conservative elements in Mexico. As a result, the ruling party modified the more radical direction of its founder Cardenas and adopted a more pragmatic position to undercut the force of the opposition. The term "revolutionary nationalism" has another meaning as well that has raised the concern of many Mexican political analysts revolutionary Eudocio Ravines has pointed out that it was invented by Lenin to describe the first phase of revolution in Latin America revolutionary na t ionalism was a transitional phase that "used the emotional amd rational forces of nationalism to promote the necessary action and policies In.this early phase the private sector and the production of goods would not be taken over and managed by the state; rather this would occur later and was the responsibility of the Communist Party. The main purpose of revolutionary nationalism would be to lay the groundwork for socialism by attacking the capitalist system as the source of all misery and underdevelopment , and the target of this attack would be the United States Former Marxist For Lenin 4 society the announced goal was an "Estado SocialIl--a socialized state. President Jose Lopez Portillo Echeverria s successor, Jose Lopez Portillo, influenced by Marxist E nrique Ramirez y RamirezS and emboldened by the windfall from Mexicols oil wells, pursued the ideological and concrete struggle for the "New Society.Il The country's new wealth bene fitted almost.every sector of Mexican society and allowed the president t o go forward relatively unopposed with his Ilrevolu tionaryll policies In the early years of Portillo's administration, Mexico's development proceeded at such a rapid pace that it was called an economic miracle. It He relied, however, too heavily on foreig n borrowing and public spending based on anticipated oil revenues. Thus when the oil boom fizzled, he was faced with huge loan pay ments that far exceeded Mexico's revenues. To duck blame for the crisis, Lopez Portillo nationalized the banks in September 1 982 just months before he was to leave office. In this one step reminiscent of Lazar0 Cardenas' nationalization of the oil com panies in 1938, Portillo restored his revolutionary image and found a scapegoat-the private banks--for the economic crisis. At the same time, he dramatically increased the role of the state in Mexico's economy. Administration of Miquel de la Madrid Miguel de la Madrid was inaugurated in December 19 82. One of his first acts as President of Mexico was to amend the Consti tution of.l917--by decree--to make the state the Ifsupreme rector of economic lifei1 in Mexico.6 De la Madrid's motives in doing this are unclear Some argue that he was trying to app e ar to side with the Left which had criticized him for supporting the The concepts of revolutionary nationalism, New Society, Social Industries Social State, Social Democracy, Social Economy, Social Sector, Social Rights, first appeared in the official dec larations of the years 1972-78. Mexican analysts believe they have been extracted from the Declaration of Principles of the Socialist International in Frankfurt in 1951, and from the Soviet thesis The Non-Capitalist Way of Development expounded by the Marx ists Oscar Lange and Paul Baran of Poland. In 1975 the Commission for National Ideology was founded by Horacio Labastido, Enrique Ramirez y Ramirez, and Socorro Diaz--all self-proclaimed Marxists to the President and his cabinet. Amendments to. the Mexic an Constitution by Mexican presidents are not unusual; however, the number of constitutional amendments since the admin istration of Luis Echevsrria has been significantly greater. There have been a total of 391 modifications to the Constitution. Fifty pe r cent of the Constitution is new I The Commission recommends policy and is usually closely tied I i i 5 Right; others maintain that he reformed the Constitution so that he could continue socializing Mexico's economy when economic con ditions improved. Thus far, he seems to have been moving steadily with minor interruptions, toward enlarging the power of the state in the economy. Many de la Madrid policies have been simply responses to the economic crisis he inherited. He has implemented International Moneta ry Fund austerity measures, cutting back imports, restrict ing credit, and continuing to borrow money to make the payments on the rescheduled loans. Yet the economy remains fundamentally weak. Although the Mexican trade account has posted a surplus in the past two years, this has been the result of reduced imports rather than increased exports. Domestic output, in fact, has fallen, with many plants and small businesses closing for lack of vital imported parts and machinery as well as lack of capital. Most industries are operating at 50 percent capacity. Without imports and credit, and without incentives for private direct in- vestment, the economy will continue to stagnate. Further, with out new infusions of capital from private investment, Mexico will not be able to provide jobs for the 850,000 new entrants into the labor force this year, which will only exacerbate political ten- sions and instability De la Madrid has failed to address adequately these structural weaknesses, prefering to rely on foreign bo r rowing and increased state economic management. He has refused also to denationalize the banks, has increased state control over the fishing and tourist industries, and is pushing policies to give state companies ad vantages over private firms. For exampl e , the government this year began "restructuring" the pharmaceutical industry to enable it eventually to substitute for Mexico's $105 million in imported pharmaceuticals. State-owned labs will be given preference over private labs, will receive special fin ancing, research and devel opment support, and tax incentives, and will be protected from foreign competition by import quotas.8 Excerpted from a speech "Foreign Investment in Mexico," given by U.S. Ambassador to Mexico John Gavin to create wealth and jobs will result in an increase in the level of migra tion to the U.S which will only heighten tensions between the two countries. Already the pending U.S. Simpson-Mazzoli bill to control and monitor illegal immigration into the U.S.is causing resentment among Mexican officials and protest among leftist groups in Mexico who view the bill as discrimina tory. U.S. Trade Representative William Brock recently stated that the Mexican government's actions against the foreign-owned pharmaceutical companies would aff ect U.S. concessions in the bilateral trade agreement that has been under negotiation since May of this year It should be added that Mexico's inability 6 I These policies and the trend they portend are convincing the private sector that de la Madrid will n ot take a new tack in eco nomic matters. As a result, there has been a sharp drop in investment and a rise in capital fleeing the country.g PRIVATE SECTOR VS. GOVERNMENT A continuing debate within government circles has been over plans to offer to the pri v ate sector the shares in 500 bank-owned companies that were acquired by the state when Portillo nation alized the private banks to private hands, claiming that they represent "strategic" inter ests for Mexico's national development sector confidence must b e restored in the government, as only this will blunt the opposition of the Right and its middle class and private sector allies. This June, in a move that encouraged private businessmen and bankers, the government offered on the j Mexican stock market ma n y of the nationalized shares, including those that the opposition claimed were necessary for the national development. Skeptics, such as the powerful private industry organization COPARMEX, view this as an effort to divest the government of nonprofitable i ndustries and businesses rather than as a real attempt to start privatizing.the Mexican economy. Oppo sition'to this move within the government and the labor sector is powerful; serious splits may develop in the party as a consequence The private sector a lso has been criticizing the recent involvement of the government affiliate CONASUPO, a food importing company, in the market where it has set price controls and become a buyer and seller, giving it advantages over private companies. Similarly, the government has announced price controls on all construction materials and has begun to participate, through its affiliates in the market as a principal seller. A key sector in Mexico's economy has been the metal and mechanics industry. The majority of its 26,000 businesses are small or medium-sized and rely for backing on Mexican capital recent study by Mexico's National Manufacturing Industry Chamber Canacintra) warned that the unfair advantages of state-affiliated companies are destroying Mexico's privately ow n ed capital goods and metal industries.1 The study criticized the practice of state-owned companies demanding payment in advance when supply ing raw materials, but delaying up to six months paying for goods delivered. This has rapidly eroded the capital ba se of private companies and seriously damaged productivity.ll The Left opposes returning these shares Others argue that private A I Capital flight from Mexico surpassed $1 billion in 1984's first quarter. Journal of Commerce, July 10, 1984. For a recent a nalysis of the private sector's decline see Alejandro Junco Mexico's Private Sector Reels Under Government Control," The Wall Street Journal, June 29, 1984, p. 31 lo The Mexico City News, March 21, 1984. I 1 7 The release of the long awaited government pl a n for i-ndus trial development and foreign trade has met with considerable private sector criticism and has underscored the divisions growing within the government over Mexico's economic policy the plan calls for reduced protectionism, it defends governme n t price controls and subsidies is to continue government intervention in the marketplace and to discourage foreign private investment.12 I I Although The overall effect of the proposal I I LABOR The largest labor organization in Mexico and the major pilla r of the PRI is the Confederation of Mexican Workers, known as CTM. In its early years, CTM was led by the Marxist Vicente Lombardo Toledano. He argued that under the Mexican revolution, socialism could be achieved through a gradual process whereby the state would slowly absorb the country's economy. I As Mexican administratio ns bekame more conservative, Lombardo's power waned until he was replaced in 1949 by the present CTM leader Fidel Velazquez. Under Velazquez, CTM became less ideological and more pragmatic administration, however, the Left has regained considerable in flu e nce within CTM and there are signs of the resurrection of the Lombardo thesis. In a December 5, 1983, manifesto, CTM officials urged de la Madrid to take advantage of the economic crisis to increase the state's role in the economy. CTM also called for fur ther state control over such industries as pharmaceuticals, construction, petrochemicals, export, and manufactured goods. So far de la Madrid appears to be following these proposals. As Mexico's largest labor organization, the CTM has been effective in kee ping labor quiet during the economic crisis has cooperated with government austerity measures by accepting lower wage increases tinued flows of foreign credit to Mexico. Despite these areas of agreement, there are serious conflicts between the government a nd labor. Last June's strikes for emergency wage increases are expected to be repeated this summer. pressed by more radical leftist unions who urge opposition to the government. This has strengthened leftist forces within the CTM be created when the 89-ye a r-old Velazquez dies. Mexican analysts believe his death will trigger an ideological power struggle inside CTM between the pragmatic anti-communist and the Toledano style Marxists. CTM could splinter into factions, which could lead to greater labor instab i lity Since the beginning of the Luis Echeverria It Such cooperation is vital to ensure con Further, the CTM is being Adding to future uncertainty is the power vacuum that will l2 Steve Frazier Mexico Divided On Plan to Spur the Economy The Wall Street Jou r nal, July 31, 1984, p. 39 I I a I CORRUPTION Along with its severe and worsening economic crisis, Mexico is suffering a moral crisis. Many Mexicans now blame large-scale corruption and fraud among government officials for the economic situation and the en ormous debt. This has damaged the PRIIs image badly and forced de la Madrid to make "moral renovation1 the capstone of his inaugural address. He promised to eradicate corruption in the government. To date his campaign has produced few convictions. The best -known suspects, including former officials believed to have stolen $2 to $3 billion, have yet to be indicted. Other sus pected offenders are believed to be in the oil unions and the hierarchy of the government oil company, PEMEX. De la Madrid has been re l uctant to go after them for fear of retaliatory strikes in the oil fields. This not only would interrupt the flow of oil and stanch oil revenues but would expose the vulnerable oil fields to externally Supported subversion POLITICAL AND CIVIL LIBERTIES Th e social policies of the Mexican government since Echeverria in many cases have violated individual rights. Since the adminis tration of Echeverria, for instance, state control over education has been viewed as a major ingredient in making the New Society. " Prominent ideologist for the revolutionary Left and president of the PRI, Jesus Reyes Heroles, is Secretary of Education. His announced plan to lldecentralizell the Mexican education system has been viewed by analysts as a means of undercutting the power ful teachers' unions to ensure greater government control. Meanwhile the government has been putting increased pressure on .the,rela tively small number of private teachers' schools. The conflict so far has resulted in the government backing off when it t ried to close several private schools. Yet the pressure remains from the Left to Itrationalize1l the educational system to conform with I'revolutionaryll goals. PRESS FREEDOM Although the press is officially independent, it is heavily dependent on the Mexican government for its economic well-being. The government agency PIPSA regulates the import of paper and the distribution of newsprint. These two products have been withheld when the government wished to pressure a newspaper or magazine or shut them down ~omplete1y.l l3 One well-known instance of the government using this method of control was in 1968 when the outspoken and critical magazine Politica attempted to outmaneuver the government by purchasing its own newsprint. The government slappe'd a 75 per c ent ad valorem tax to the transaction and Politica subsequently went out of business 9 Some press dissent from the official view is tolerated but generally criticism of the government is vague and refers to events in the distant past. Criticism is further discouraged by the government practice of granting concessions and favorable treatment to those newspapers that are most supportive. Although the government by law can intervene to suppress unfavorable news the practice of auto-cen~orshipl~ is so prevalen t that it rarely has to do so.15 ELECTIONS AND THE OPPOSITION In 1983 the FRI suffered the worst electoral defeats of its 50-year history minds. The major beneficiary has been the National Action Party PAN a conservative Catholic nationalist party formed i n 19 39. In the July 1983 elections, PAN scored significant victories in Chihuahua and Durango, two large states in the north of Mexico. When PAN seemed certain to win again in the following November's municipal elections in the state of Puebla, PRI offic ials forci bly took possession of the ballot boxes and returned them stuffed with ballots the morning of the elections. When Pueblan.citizens attempted to stop the government officials, they were violently ousted and sometimes beaten. The PRI also annulle d PAN victories in some districts b The economic crisis clearly was on voter's refusing to recognize the results and calling for new elections. 16 Although the PRI Ilwonlr electoral victories, its public image suffered a serious and possibly permanent setb a ck. It was enough to allow the following in a leading Mexican newspaper toral contest of 1985 is going to be a historic one; the.people The elec 14 15 16 The term "auto-censorship" was first employed by Evelyn P. Stevens in Protest and Response in Mexico ( Cambridge: MIT Press, 1974 p. 52 in which she stated This uniformity of behavior is so impressive at first sight as to make us think that we are in the presence of a completely controlled press There is no necessity of police censorship because there is i ndividual auto-censorship on the part of each journalist and collective self-restraint by the publishers of each newspaper. There is little doubt among press and media circles in Mexico that the government would take action directly against those violating this almost unwritten code. In 1974 the controversial magazine Porque? was shut down following a sacking by government officials of the magazine's office and the arrest of its manager. Porque?'s main offense had been to point out with regularity the gove rnment's restrictions of the press. Steve Frazier Instability Gnaws at Mexico's Ruling Party," The Wall Street Journal, March 21, 1984, p. 36. In contrast to many Latin American states, the role of the Mexican military in politics is insignificant. The mil itary has I' I, been enlarged and modernized in the last decade but has remained I largely dependent on the government for career appointments and I 10 are already tired of populism, corruption, and revolutionary nationalism with its clear bolshevique ten d encies.lIl7 PAN'S New Allies Of increasing concern to de la Madrid is the new alliance forged between the private sector, the Church, and PAN. Alienated by the bank nationalizations, the private sector has given PAN considerable funds and organizational s upport. The support of the Church, meanwhile, with its call to ''vote freely and vote for change" has fortified PAN'S moral authority and appeal. To a great extent, however, PAN'S support at the polls is a rejection of the PRI system. The PRI's Response Pu blic' anger at the PRI' vote fraud' prompted some PRI offi cials to institute reforms democratizing candidate selection at the lower levels. In many cases this has meant that candidates favored by the left within the party were not selected by popular vot e at the local levels. These reforms have met with stiff opposition among'some sectors of the party, particularly from Fidel Velazquez, who stated in April that the labor sector was prepared to launch paralyzing strikes and kf necessary leave the PRI and f orm a new party. Much will depend on th-e PRI's reaction during the important gubernatorial and congressional elections next year. If the economy has not substantially improved and the conservative PAN continues to grow in strength, the PRI will be faced w ith'either accepting losses in power or taking anti-democratic measures to thwart its rival. Already these pressures are creating deep fissures within PRI. The private sector, once a powerful PRI supporter, has bolted and joined the opposition; labor, PRI's main strength threatens to join the Left or form its own party; and the bureau cracy, meanwhile, is polarizing into left and right factions. In an unprecedented paralysis of action, PRI has been unable to con vene its annual n ational assembly because of party disunity and uncertainty over its future course. If these trends continue caution many analysts, Mexico could sink into political chaos bringing an end to 50 years of stability and strong rule. The Military l7 El Heraldo, February 24, 1984, article by columnist Juan de la Borbolla. 11 for its economic sustenance.18 As a result, most analysts do not believe the military will intervene politically despite the crisis facing the government and the rising popular discontent. Ho w ever should the economic and political situation deteriorate drastic ally the military may conclude that it should take a greater role in reestablishing domestic equilibrium, although right now it clearly would like to avoid doing so POLICY RECOMMENDATION S There is no question that the crisis in Mexico has forced greater cooperation between the governments of Mexico and the U.S. For the first time in years, an opportunity exists for the U.S. to further its own policy goals while help,ing Mexico resolve its crisis private sector development as the means to dynamic economic growth and an end to the debt problems may be willing to pursue this apdroach and overrule leftist statist opposition in his party the PRIIs approach to governing that offend Americans, it is not in U.S. interest for Mexico's political system to collapse. U.S policy should support de la Madrid's attempts to rebuild the economy and fulfill his pledges of moral renovation and democratic reform. With negotiations for a bilateral trade agreemen t now underway, the U.S. can offer to exchange more favorable treatment of Mexican imports for a loosening of Mexican restrictions over pharmaceutical, auto, and other industries currently subject to increasing state interference and competition The basis o f U.S. policy should be to encourage As his economic and politicdl troubles mount, de la Madrid Although there are aspects of In addition, this-agreement should open Mexico to foreign capital and investment as a principal means of mobilizing produc tive c apital to retire the huge foreign debt. Mexico is relying too heavily on import restrictions, which have a negative impact on Mexico's productive sectors that depend on foreign parts and machinery. Mexico's economic problems would be eased greatly if debt repayments could be stretched over a longer period of time; it is working toward this goal with foreign banks. The U.S. should offer to encourage the banks to cooperate in return for greater private sector and foreign investor participation in Mexicols ec onomy. The U.S. should seek to open channels of communication with pro-democratic groups and institutions in Mexico. These would l8 Under Echeverria and Lopez Portillo the military was enlarged and modern ized mostly in response to growing Central American instability and the vulnerability of its oil rich southern flank. These efforts came to a halt as the economic crisis forced clamping down on public spending. include individuals within PRI who support democratic reform greater economic freedom, and indi v idual liberties, as well as pro-democratic opposition groups such as PAN and private sector organizations informed Mexican policy but would demonstrate that the overall U.S. aim in the region is to support democratic movements and governments. The Nationa l Endowment for Democracy, created to encourage cooperation between democratic groups throughout the region, could play an important role in this. effort. Similarly the Inter-American Foundation could add to this effort with a greater emphasis in its progr a ms on private sector development This not only would result in more effective and Although Mexico has been enlarging and modernizing its military, it still could not deter a major threat to its vulnerable southern flank. As the crises in Central America i n crease and as Cuban-supported guerrilla activities spill into Mexico, Mexico has begun quietly to improve relations with the U.S. on security matters. In 1981 Mexico purchased the first major U.S. equipment for its forces in years--13 F-15 aircraft and tw o old U.S. destroyers for its navy.lg In the wake of the debt crisis, however, Mexico has made few additional arms pur chases, and its efforts to improve its military have slowed to a halt. To encourage cooperation between the U.S. and the Mexican military , and to help Mexico develop a flexible counter-insurgency force, the U.S. should offer military assistance if and when needed as well as low-cost arms sales. Recent increases in drug traffic in Mexico that are widely believed to be supported from the outs ide have brought the Mexican government and the U.S. into closer cooperation. This coopera tion is crucial and should be fostered with the implementation of U.S. proposals to create integrated enforcement programs along the land border, exchange of intell i gence between the U.S. and Mexican Customs, mutual verification of narcotic growing sites and an agreement to grant U.S. Customs aircraft authority to over fly Mexican territory in pursuit of aircraft suspected of involve ment in smuggling operations.20 I i I CONCLUSION U.S. policy toward its Mexican neighbor has been characterized by a remarkable degree of complacency and accommodation that is no longer warranted. Mexico is in the throes of a severe political and economic crisis of which the outcome is st ill uncertain, but l9 During the period when Mexico was purchasing arms, U.S. arms comprised a small percentage of its total purchases. Western Europe, in particular France, was the major source of Mexican acquisitions. Proposals made by the Senate Drug En forcement Caucus in a report following a Senate delegation mission to Mexico, Colombia, Bolivia, Peru, Argentina Uruguay and Brazil, June 19-July 15, 1984 2o 13 which in any event will significantly affect U.S. economic and strategic interests in the regi o n moral and political bankruptcy in the government, which has caused the widespread public opposition now taking shape. The political tremors are affecting the Institutional Revolutionary Party, PRI, which has ruled unchallenged for over 50 years; it now n o longer commands th-e support of major sectors of Mexican society ing severe strains on PRI unity, as some favor moderating statist nondemocratic government policies, while others favor continued socialization of Mexico cumstances when restoring confiden c e in the economy is possible only by encouraging private sector participation is a major prob lem. The signs are not encouraging matters, the U.S. might be able to assist those moderate elements in Mexico who would promote economic growth over ideological agendas stable, and democratic Mexico The Mexican economic crisis was a natural consequence of The question of how to recapture popular support is produc Maintaining party unity under these cir In view of this situation and its own influence in economic I The fruit of such actions would be a more prosperous Esther Wilson Hannon Policy Analyst
