Expensive Trade-Offs Of Free Trade

Despite the "globalization" boom going on around them, Mexicans are scraping by amid the ruins of ground zero.

Few countries have so dramatically curtailed both state intrusion in the economy and barriers to foreign trade and investment. And few of them, as a result, have endured such bone-jangling tumult.

In the mid-1980s, Mexico started slashing government spending and turned huge budget deficits into surpluses. It cut import tariffs, freed interest rates, and sold off state assets, including steel mills, banks, and utilities.

Foreign investment gushed in. The value of the peso rocketed; real incomes surged; Mexico was declared an emerging powerhouse.

One of the world's most profound free-market initiatives, the North American Free Trade Agreement (NAFTA), spurred exports and supercharged investor enthusiasm.

Money from the United States and other countries flooded into a liberalized service sector. In a dramatic display of the riches and risks of the free market, businesses financed by new foreign money drove hundreds of weak Mexican companies to ruin and threw thousands of Mexicans out of work.

Still, foreign capital also created new service-sector jobs, especially in transportation, communications, and construction.

Uncertainty crept up on the economy with the approach of a presidential election in August 1994 and investors began to cool to the sizzling peso. A flaring of domestic turmoil, including an uprising in the southern state of Chiapas and the assassination of a presidential candidate and other politicians, choked the flow of foreign capital to a trickle.

The government financed the capital shortfall by dipping into the county's sizable reserves. But what began as a dipping rapidly became a draining. By year end, the peso and the stock market collapsed.

The "peso crisis" plunged Mexico into recession, threw millions of workers into idleness, undercut hourly wages by 30 percent, and widened the gap between rich and poor.

A typical worker like Ruben Rubio (see story, Page B1) last year had to toil about three times longer than in 1987 in order to buy the same basket of groceries, according to a study by economists at the National Autonomous University of Mexico in Mexico City.

There is bitter debate over whether NAFTA triggered the peso crash or merely intensified existing trends. Still, the trade agreement and free-market zeal raised hopes for prosperity among workers - a potent recipe for unrest.

"Initially NAFTA created very high expectations, but those have not been realized, conditions for workers have gotten worse and so has their discontent," says Benedicto Martinez, national coordinator of the Authentic Labor Front in Mexico city.

Voters last July, for the first time in nearly 70 years, denied the dominant Institutional Revolutionary Party a majority in Congress and elected an opposition candidate to the powerful Mexico City mayorship. So far, a nascent economic recovery has proved too weak to blunt unrest.