NATION IN JEOPARDY MEXICO'S FUTURE GORWS EVEN MORE INCALCULABLE AFTER THE EARTHQUAKE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90-00965R000402650039-6
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 3
• Document Creation Date: December 22, 2016
• Document Release Date: February 8, 2012
• Sequence Number: 39
• Publication Date: September 26, 1985
• Content Type: OPEN SOURCE

STAT T
3 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP90-00965R000402650039-6
WALL STREET JOURNAL
ARTICLE APPEARED
ON PAGE /
Nation in Jeopardy
Mexico's Future Grows
Even More Incalculable
After the Earthquake
Prior Plan to Spur Economy
Now Seems Incompatible
With Speedy Rebuilding
Some Fear Disorderly Change
By JOHN HUEY and STEVE FRAZIER
Staff Reporters of THE WALL STREET JOURNAL
MEXICO CITY-All bets are off on the
future course of Mexico.
Even before the horrible human trag-
edy and economic devastation of last
week's earthquake, the world's 13th-largest
economy lurched along in a state of unde-
clared disaster. A showdown with U.S. and
other foreign banks holding $96 billion in
unpayable Mexican debt seemed inevita-
ble.
Mexico's leaders governed on borrowed
time. At home, their austerity measures
MEXICO
BORROWED lME
FIRST OF A SERIES
required painful
long-term sacrifice
from a constituency
eager for short-term
relief; abroad, they
feared that a further
decline in oil prices
coupled with a rise
in interest rates
would make it im-
possible even to pay
the interest on the
foreign debt-much
less obtain badly needed new credit.
When last week began, the apocalyptic
vision worrying the Western financial or-
der was: Mexico fails to pay its interest;
major U.S. banks are forced to swallow
huge losses; other Latin debtors-who look
to Mexico for leadership-tumble. Reflect-
ing these fears, and a sag in world oil
prices, the peso hit a record low last
Wednesday.
Then on Thursday, Mexico City suffered
its worst disaster since Hernan Cortes de-
stroyed it in 1521. and the scope of Mex-
ico's problems moved beyond measure-
ment. In some ways, the tragedy pushed
the country through a sort of economic
"looking glass," making its difficulties al-
most impossible to evaluate in real terms;
black is no longer black, white no longer
white.
26 September 1985
"This really is likely to be a watershed
in the country's history," says Alan Stoga.
a senior analyst at Kissinger Associates
Inc., the Washington consulting firm. "One
of the consequences of the earthquake is
that it probably shortened even further the
time that the president has to show re-
suits."
As tragic as the quake was, it could
have been worse. Most of the country's in-
dustrial plant held together, and Mexican
authorities moved quickly to assure social
order. Also, it seems likely that the disas-
ter will temporarily forestall pressure
from creditors. Nevertheless, the earth-
quake must be assessed within the crisis
context in which it struck.
President Miguel de la Madrid had al
ready been giving grave warnings about.
Mexico's debt. "The domino theory mush
be kept in mind," he said in an interview
with this newspaper shortly before the
earthquake. "If a heavy piece falls, the
whole game can collapse." His finance
minister, Jesus Silva-Herzog, was equally
blunt. Asked what strategy he would take
if oil prices continue their decline he made
a motion of washing his hands of the prob-
lem.
These two Ivy-League-educated techno,
crats, along with others of similar back-
Miguel de la Madrid
ground like central
bank president Mi-
guel Mancera, have
charted a course of
long-term recovery
that calls for a
greatly reduced pub-
lic budget and the
opening of competi-
tion in key indus-
tries. It is difficult
now to see how such
a plan is compatible
with the speedy re-
construction of the
world's most popu-
lous city-already gasping for services be-
fore suffering damages estimated in the
tens of billions of dollars.
In all this, the U.S. holds a stake of in-
estimable importance. Some Washington
analysts, such as Mr. Stoga, believe that
U.S.-Mexican relations should rank just be-
hind superpower politics and maintenance
of the Western alliance as Washington pri-
orities. Yet, as Mr. Stoga notes, "there has
been a tendency to look at Mexican prob-
lems only when they blow up." Even with
Mexico threatening the Western banking
system's stability, it has received attention
that rises and falls with interest rates-or
earthquakes.
While the U.S. gropes to embrace its
prickly neighbor as an ally, Mexico, for its
part, is bound by history and political tra-
dition to oppose the U.S. in public forums.
The U.S Marine invasion of Veracruz and
Hymn are part of Mexico's living history,
kept alive by a Museum of Intervention in
Mexico City. A recent editorial on the front
page of Mexico City's leading newspaper,
Excelsior, began: "The United States is
the worst political problem in Mexico,"
and went on to denounce the U.S. ambassa-
dor, economic policy and the press.
The visceral anti-U.S. sentiment perme-
ates Mexican policy in the cause of inde-
pendence, often at great cost. Fearing
domination by the U.S., Mexico refuses to
join such developed-world forums as the
General Agreement on Tariffs and Trade
although it talks about doing so, and it
erects barriers to foreign venture capital.
Having borrowed to finance grandiose de-
velopment, Mexico now finds itself resent-
ful at sliding.back into Third World status.
Instead of developing into an independent
industrial power, it now depends on the-
prices of natural-resource exports and the
whims of foreign bankers to survive.
"There is absolutely a real need to ori-
ent this country to the external world,"
says Othon Ruiz Montemayor, head of
Monterrey's Grupo Visa, a huge beer and
food conglomerate.
Uncooperative Intimacy
Amid all the rhetoric, though. Mexico
remains intimate with the U.S. Its mon-
eyed classes, even high-ranking govern-
ment officials, continue to turn their pesos
into dollars and invest them across the
border. Still, cooperation even in the sim-
plest humanitarian matters is sacrificed.
When a natural-gas facility exploded on
the outskirts of Mexico City last fall, the
Mexicans rejected U.S. Embassy offers to
fly badly burned victims to special treat-
ment centers north of the border.
And again, after last week's earth-
quake, Mr. de la Madrid's first response
was to say that Mexico could handle the di-
saster on its own, even as rescue workers
tried to dig through the rubble with their
bare hands and pickaxes. When the gov-
ernment finally realized that specialized
foreign equipment might help save lives,
the foreign minister offered the convoluted
explanation that Mexico wasn't asking for
help but that it wouldn't refuse it, either.
The earthquake will divert attention in
the short term from Mexico's other prob-
lems. The country now has legitimate rea-
son to claim that its most pressing prob-
lems are beyond its control. But even be-
fore, it had begun to blame its troubles on
the external devil of oil prices. Asked re-
cently how much of Mexico's problems
were its own fault and how much the out-
side world's, Mr. Silva-Herzog, the finance
minister, said: "17.9%, but I'm not saying
whose percentage that is."
Continued
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 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP90-00965R000402650039-6
a.
Many doubted the extent to which the
government had control even before the
earthquake. "This is one of those dramatic
moments in history when you can see the
direct consequences of dependency and de-
velopment," said Lorenzo Meyer, a politi-
cal scientist at the prestigious Colegio de
Mexico, days before the quake. "We aren't
in control."
Now the job of taking control and guid-
ing this huge, complex nation through per-
ilous straits falls squarely on Mr. de la Ma-
drid, a man, by most accounts, of small
ambition.
When he served as minister of planning
and budget in the previous administration
of President Jose Lopez Portillo, for exam-
ple, it is said that he complained of being
frozen out by a ministerial rival, then
asked to be awarded a lifelong goal: the
governorship of Colima, Mexico's smallest
state and the birthplace he left at age
three. Instead, Mr. Lopez Portillo named
him to be the next president. Just a few
years ago, says one detractor, "He was the
guy businessmen went to see. when they
had foreign-exchange problems."
His leadership style leans toward tech-
nical planning rather than crisis manage-
ment. It reflects his graduate studies in
public administration at Harvard, accord-
ing to one adviser, who says that Mr. de la
Madrid administers his cabinet meetings
like a corporate board of directors. "His
style is managerial and almost devoid of
traditional politics," says Rogelio Ramirez
de la 0, a respected economic consultant
and a close observer of the administration.
"He hates politics so much he even for-
bade applause at his inforine (state-of-the-
union speech). But he is also a man who
doesn't want to take any risks. He wants
everything for free."
Supporters Worry
Even so, Mr. Ramirez believes that Mr.
de la Madrid should be credited for all the
mistakes he hasn't made-for not making
wild promises raising expectations, for ex-
ample-and argues that a man of caution
could prove to be exactly what is
needed.
While most critics fault Mr. de la Ma-
drid more for errors of omission than com-
mission, even supporters worry about how
long a president with little political cha-
risma can sell a platform consisting solely
of "reduced expectations."
His marked failure to woo Mexico's
alienated middle class and growing urban
poor into the political base of the ruling In-
stitutional Revolutionary Party (PRI), or
to capture the imagination of any existing
factions, is viewed as a serious lapse. Such
worries are really aimed at the general di-
rection that the PRI has taken since Luis
Echeverria was named president in 1970.
Messrs. Echeverria, Lopez Portillo and de
la Madrid each have run for only one pub-
lic office: the presidency. Thus they
brought no loyalty from any of the party's
powerful popular constituencies into of-
fice.
They are all viewed as creatures of
Mexico's swollen bureaucracy, rather than
as persuasive political leaders. One resent-
ful politician calls Mr. de la Madrid and
his cabinet "the first generation of North
Americans born in Mexico."
In Monterrey, where business disaffec-
tion with the system has been growing
steadily with each new crisis, industrialists
say attempts by Mr. de la Madrid's prede-
cessors to solve problems only created new
ones. Having shocked the nation with its
bloody repression of the 1968 leftist student
movement, the PRI launched a steady,
long-term expansion of the state and un-
leashed rapid, poorly financed economic
growth. In a more convulsive gesture,
when Mr. Lopez Portillo's dreams of Mexi-
can glory through oil began to crumble, he
nationalized the banking system, claiming
he had been betrayed by bankers who
shipped money abroad.
Business Lacks Faith
The Mexican business class prefers Mr.
de la Madrid to either of his two predeces-
sors, but they lack faith in tangible pro-
gress. "I think what they say about how to
get out of the crisis is quite acceptable;
they just don't know how to do it," says
Eugenio Clariond, a PRI member and
president of Monterrey's Grupo Imsa, a
metal-products conglomerate. He, like oth-
ers, fears disorderly change. "Unless there
is a change from within the system," he
says, "there will have to be change from
without. How long will the Mexican popula-
tion tolerate this?"
Apparently uncertain of its own political
capital, the de la Madrid administration
has been slow to implement reforms that it
deems necessary-such as trimming the
bureaucracy, lowering protectionist bar-
riers, opening up domestic competition and
reining in the powerful oil workers' and
teachers' unions-but that would anger en-
trenched interests.
Top bureaucrats, for instance, recently
received 50% pay increases while their un-
derlings received single-digit raises. And
because of the administration's failure to
break the powerful oil workers' union lead-
ership's notorious corruption, Mr. de la
Madrid's so-called "moral renovation" is
considered a flop. In spite of such gestures
as opening a Museum of Corruption in the
former Mexico City police chief's gro-
tesquely extravagant mansion, no one
really believes that corruption has
abated.
`Paralyzed by History'
(The collapse of shoddy construction in
the earthquake has aleady spotlighted cor-
ruption as a possible major villain in the
disaster, and the reconstruction effort will
pose a major test of Mr. de la Madrid's
control of public money.)
Regarding the administration's inability
to implement its well-intentioned reforms,
Mr. Meyer, the political scientist, says:
"They are paralyzed by the history of the
country, by the history of the government
and the history of the system. They can't
move in a dramatic way, and the times re-
quire dramatic moves. There is no techni-
cal answer to what is happening."
No one, of course, knows what the solu-
tion will be. In Washington, centrists share
the Mexican government's view that the
PRI has every likelihood of somehow con-
tinuing its remarkable 56-year record of
stability and rule by consensus. But a mi-
nority group of right-wine analysts-con-
centrated in the National SecuriCoun-
cil-has turned the attention of such
powers as CIA director William asev to
the possibility that a stagnating PRI could
tale losing its grip on Mexico altogether.
The White House also bears tremendous
resentment toward Mexico for its coziness
with the Sandinista regime in Nicaragua.
At one time, according to sources in the in-
telligence community, the CIA developed a
covert-action roam aimed at pressuring
Mexico, but there is no evidence that
was ever implemented.
Mexicans still believe they are the tar-
get of U.S. destabilization efforts. They
blame critics within the Reagan adminis-
tration for such events as a leak to colum-
nist Jack Anderson of an unsubstantiated
report-which Mr. de la Madrid vehe-
mently denied-that the Mexican leader
was shipping money to a Swiss bank ac-
count.
For now, though, a moderate view
seems to prevail in Washington. Even after
being pressed to come up with as tou h a
report as facts would su rt, a recent as-
sessment by the CIA set the chances of a
complete breakdown of Mexico's system at
only 20%. And though U.S. ambassador
John Gavin is viewed in Mexico as an "in-
terventionist devil," he has been a moder-
ating influence on the White House.
For his part, Mr. e a Madrid's unspe-
cific optimism about the future came
through strongly in the Journal interview.
"If circumstances worsen, we could very
well have problems," he said. "But it must
also be taken into account that at every
stage in its history Mexico has been able to
find the right path and the right solutions
in its own particular way."
These solutions, he added, "sometimes
appear strange when viewed from abroad
if the history of the country and the enor-
mous complexity of Mexican society are
not known in depth."
Continued
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 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP90-00965R000402650039-6
A Country in Cross Section
Mexico: A look at Its People, Its Commerce, Its Resources and Its Role
In the International Economy
Size and Population
Land Mass
Mexico is the 13th largest country in
the world. With 764,000 square miles,
it is larger than all of Continental
Western Europe and about three times
the size of Texas.
Population Rank (1984)
1 China 1.1 billion
2 India 747 million
3 Soviet Union 276 million
4 U.S. 236 million
5 Indonesia 162 million
6 Brazil 133 million
7 Japan 120 million
8 Pakistan 99 million
9 Bangladesh 98 million
10 Nigeria 92 million
11 Mexico 77 nice
Mexico's 1985 population is 78,900,000.
In 2025, Mexico will have an estimated
154 million people and will be the 10th
most populous nation. Japan will drop to 11.
The country's 3.5% growth rate in the
1960s slowed to 2.6% in 1984.
12 W. Germany 61 million
13 Vietnam 58 million
14 Italy 57 million
15 United Kingdom 56 million
Median Age
Mexico 18.4 years
U.S. 32 years
Infant Mortality
Live births not surviving one month
,
per 1,000 births
Mexico 53
U.S. 12
Sorror.? Uni4d Natimu
Trade and Debt
Balance of Payments
SURPLUS
First half 1986 $ 3.9 billion
1984 7.47 billion
1983 6.8 billion
Current Account
Trade plus certain unilateral transfers
SURPLUS
First half 1986 $24 million
1984 3.4 billion
1983 2.8 billion
Total Foreign Debt
Brazil $ 103 billion
Mexico 96.5 biSoe
Argentina 50 billion
Somas Banco de Mexico
Energy Resources
Mexico ranks fifth in oil reserves
after
,
Saudi Arabia, Kuwait, the Soviet Union
and Iran. Iraq is sixth. The U.S. is
seventh.
Mexico is the third-largest oil exporter to
the non-communist world after the
United Kingdom and the Soviet Union.
Saudi Arabia currently ranks fourth.
OIL GAS
RESERVES RESERVES
(billion bbla) (trillion cu. ft.)
Soviet Union 63 1,450
Mexico 43.6 77
U.S. 34.5 198
OIL NET OIL
PRODUCTION* EXPORTS
(million bblyday) (million bbWday)
Soviet Union 12.4 3.375
Mexico 3.01 1.5
U.S. 10.38 0
'Includes crude oil, shale of l sands and natural
gas liquids recovered separately.
Standard of Living
And Migration
Per Capita Income
GNP per capita in 1983 dollars for
selected countries. (Mexico's $2,240 is
relatively high, but only 9% of all income
is shared by 40% of the population. By
comparison
in Ban
lad
h
h
,
g
es
, t
e poorest
40% share 17% of total income.)
U.S. 14,110
W. Germany 11,430
Japan 10,120
Mexico 2,240
Brazil 1,880
Nigeria 770
China 300
Bangladesh 130
Migration
Mexico is the biggest source of legal and
illegal migration to the U.S.
1984
Legal migration
from Mexico 57,557
Illegal immigrants
apprehended 1,169,000
Housing
1970 1980
Homes with water 61% 71%
Homes with electricity 59 75
L teracy
For those in population who are 10 years
of age or older
1970 1988
Illiterates 34.9% 11.9%
Completed primary
school 24.9 31.9
Completed secondary
school 9.4 23.8
Soiir t World Bank INS, Mssicaw edwaahoa
nuniatry
Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP90-00965R000402650039-6