Mexico's Peso Crisis May Worsen -- But That's Only Half the Story

AMID the chaos and confusion in Mexico, remember that the present crisis carries with it both dangers and opportunities. To examine the possibilities, let's divide the situation into familiar halves: the good news and the bad news.

Bad news first. The massive financial collapse and domestic deflation that began in December only partially has run its course. The new peso has fallen more than 100 percent since the start of 1994, yet the deflated Mexican currency will continue to drop in value through the end of 1995. Indeed, there are signs that the US Federal Reserve is already backing away from Mexico in order to limit losses when the United States-led peso support effort falls apart.

Fed officials in Washington express dismay and great concern about the direction of the Mexican economy, particularly the austerity measures forced upon Mexico by the US Treasury and the International Monetary Fund. Speaking on background, these officials say Mexican austerity measures are designed only to satisfy foreign creditors and eventually will lead to social instability.

Incredibly, Fed officials experienced in managing the 1982 Mexico debt crisis were not consulted by the Clinton administration and are now backing away from the Treasury-led Mexico bailout. Meanwhile, a schism also is developing on Capitol Hill between conservatives who oppose the rescue package and the ''moderate'' coalition of Republicans and Democrats that supports President Clinton's decision to use Treasury's reserves, normally employed to defend the dollar, to instead prop up the peso.

GOP conservatives indicate that, in fact, the idea to use the Exchange Stabilization Fund (ESF) reserves rather than seek an explicit congressional appropriation was first suggested by Republicans -- not by the Treasury Department under former Wall Street executive Robert Rubin. Following a Jan. 29 meeting on Capitol Hill that included House Speaker Newt Gingrich, House Banking Committee chairman Jim Leach, and Sens. Trent Lott and Robert Bennett, GOP leaders are said to have called Treasury Secretary Rubin and put forward the idea of using the ESF, although they were not the originators of the idea.

''The Republicans told Rubin that they would make no trouble about the alternative rescue package,'' according to one disgruntled Republican. ''The subsequent hearings held by Mr. Leach and Senate Banking Committee chairman Alfonse D'Amato actually were designed to preempt opposition to the bailout, not to really attack the Clinton administration as many people believe.''

Public criticism of the Mexico bailout has fallen off the front page of major newspapers, but freshmen in both parties continue to wage low-intensity guerrilla warfare against their respective leaders' ''bipartisan'' support for this $20 billion bailout of private debts by the US taxpayer.

There is little immediate chance of congressional passage of legislation affecting the Clinton bailout, but any new developments that bring the financial collapse south of the border back into the domestic political spotlight will be damaging for Mr. Clinton -- and for supportive Republicans like Speaker Gingrich. Democrats and Republicans alike -- including GOP leaders who support the $20 billion Treasury-financed giveaway -- ultimately will attack an already enfeebled White House.

When, not if, the peso stabilization effort fails, Mexico will become a major political issue that endures well into the 1996 presidential race. One Democrat even suggests that Mexico could become ''Clinton's Iran.'' With avowed protectionists such as Pat Buchanan and California Gov. Pete Wilson stalking the presidency, the ongoing collapse of the Mexican economy and revelations about drug dealing and official corruption in that country could become inflammatory.

Now the good news. As Mexico descends into a prolonged period of currency depreciation and falling real wages, the economic pressures in Mexico are forcing profound political change. The ruling party, known as the PRI, is in big trouble and will be unable to win -- that is, steal elections -- in the foreseeable future.

An already angry and militant electorate has been forced into action by inflation and crushing interest rates over 100 percent annually. The door is open for Mexico's long-suppressed political opposition.

In days past, the notion of political change in Mexico sent shudders down Washington's bureaucratic spine. The beneficiary of the latest economic disaster engineered by the PRI might have been the country's nationalist, center-left party, known as the PRD, led by former presidential candidate Cuauhtemoc Cardenas and PRD chief Porfirio Munoz Ledo. But for a number of reasons, the left in Mexico is neither a threat to the stability of the country nor a viable political alternative.

The PRD is in the process of splitting into several large factions divided between those willing to work with the Zedillo government, led by Mr. Munoz Ledo, and radical elements who seek confrontation and social anarchy. The position of Mr. Cardenas, a fierce nationalist who eschews violence, is somewhere in between these extremes.

In fact, as the PRI's grip on power gradually weakens and the PRD fragments, the real beneficiary of the current financial turmoil will be the center-right National Action Party, or PAN. The PAN just won a sweeping victory in the state of Jalisco in February. On May 28, Guanajuato and Yucatan will have major elections for governors, federal deputies, mayors, and local deputies.

PAN is favored in Yucatan, and the charismatic ''pannista'' businessman, Vicente Fox Quesada, is the big favorite in Guanajuato. Mr. Fox was defrauded from the same office by PRI ballot tampering in 1991 and was persecuted by the Salinas government through bogus tax audits. If Fox wins in Guanajuato, look for him to lead the PAN national ticket in the year 2000.

Fox has an excellent chance to be Mexico's first freely elected president in decades. Thus Mexico's current financial turmoil might be turned to a positive purpose, providing our southern neighbor with a sounder political foundation -- which is a prerequisite for economic stability.