As oil prices fall, Mexicans lose confidence government can cope

Mexico is suffering an increasingly serious crisis of confidence. One blow after another has struck Mexico's economy, culminating with the downward cascade of oil prices in recent days and weeks.

But more than that, Mexicans are losing confidence in their government's ability or willingness to come to grips with the string of disasters, which has included:

Suddenly tumbling prices for Mexico's largest revenue earner, oil.

Declining prices, also, for non-oil exports, which were supposed to help the country pay back its huge international debts.

The September earthquakes, which killed thousands of people and which are now expected to cost $4 billion in damage repairs.

The sharp decline of tourist revenues, Mexico's second-largest moneymaker, as a result of the earthquakes. Tourism ``collapsed'' after the quakes, Tourism Minister Antonio Enr'iquez Savignac admits.

Foreign reserves have sunk to the dangerously low level of about $3 billion, according to bankers, while international debts add up to nearly $100 billion.

The combination of events -- and the authorities' uncertain handling of them, especially the earthquake tragedy -- has accelerated many ordinary Mexicans' considerable cynicism about their government.

``The economic problems are tough, and the political system is not responding,'' one banker here says. ``You can't run a government on economic theory without the confidence of the people.''

One result has been a rush to move capital out of the country. According to bankers, capital flight has amounted to about $2 billion since March.

``There is a mood of impending crisis,'' says a senior Western diplomat who asked not to be identified.

The government has told Mexicans that they must expect still more austerity. Prices are beginning to accelerate upward along with inflation, which will probably top out at about 60 percent for this year.

The sudden drop in oil prices, due to the decision by the Organization of Petroleum Exporting Countries in effect to discard its official price and fight instead for its share of the world market, presents the government with one of its most difficult challenges. Mexico is not an OPEC member, but it is caught in the same bind. An all-out price war would be devastating.

Mario Ram'on Beteta, director general of the state oil company, PEMEX, says Mexico will try to protect itself from abrupt falls in prices and volume. He hopes any declines will be tolerable.

Diplomats say oil will have to stay above $20 a barrel if Mexico is to keep afloat financially. But even without a further fall in oil prices, economists and bankers predict Mexico may not be able to pay the interest on its $96.4 billion foreign debt by the end of 1986.

Moreover, they warn that the country may be seized by hyperinflation about the same time unless the government acts decisively -- and soon. But few Mexicans appear to have much faith in the government's ability to move decisively.

``The earthquakes catalyzed discontent,'' a senior diplomat says. It showed the government incapable of acting.

A group of sociologists, scientists, lawyers, and engineers from prestigious institutions are studying what they call the rupture between the state and society caused by the tremors. The group's spokesman, Daniel Molina, comments:

``What surprised us the most was the breadth of the volunteer participation. It was as if the state did not exist. The people had to do everything themselves. The famous National Emergency Plan failed.

``From this arose a great many spontaneously formed autonomous groups. The society organized itself democratically, and now it wishes to make these groups permanent. But there is a countermove-ment in which the government is trying to recapture its initiative.''

Several incidents during the earthquake crisis increased distrust. The government refused to let in foreign rescue teams right away, saying Mexico did not need help. A few days later, the government had to back off.

The administration of President Miguel de la Madrid Hurtado still contends that about 8,000 people died in the quakes. But Mexicans ranging from vegetable vendors to college students and professionals say at least 20,000 died. That's what officials say off the record, too.

Another big controversy was the government's sweeping expropriation of land in the capital intended for building homes for those made homeless by the quakes. A furor developed when it became obvious much of the confiscated land was private, undamaged property not owned by slumlords exploiting the poor.

The earthquake mismanagement came on top of evidence that the government had never really made cutbacks in public expenditure and layoffs in the gigantic bureaucracy which it had announced throughout 1985.

``It is likely that they had spent the year's budget by September if not sooner,'' says a US banker. ``The earthquake didn't make that much difference. The boat was sinking before, and they were and still are using Band-Aids to stop it.'' The problem, adds the banker, is that the government is not following through on the cures it itself prescribes.

Sectors of society that have always supported the Institutional Revolutionary Party, which has ruled since 1929, show signs of irritation. But they are a long way from pressing for change.

The chief of the Confederation of Mexican Workers Union, Fidel Vel'azquez, has made unusually harsh remarks about Mr. de la Madrid's government. ``The Mexican Revolution has lost part of the political control of the country,'' he warned. ``Labor doesn't back the government. It backs only Mexico.''

Big business, normally silent in political affairs and acquiescent to government, is grumbling, too, according to bankers with close ties to the entrepreneurs largely based in the northern city of Monterrey.

Recent changes in banking laws and a proposal to allow dollar bank accounts along the border -- both of which are attempts to keep money in the Mexican banking system -- were greeted with incredulity. Few have forgotten how the government seized dollar bank accounts when it nationalized banks in 1982. It paid the money out in pesos considerably below the market rate.

Bankers, economists, and even many ordinary people expect another devaluation of the peso in the next few months.

Mexico is joining the General Agreement on Tariffs and Trade, the noncom-munist basic trading network. Economists say it will take about a decade for Mexico to benefit from the trade GATT should stimulate.