The Hidden Costs of Free Trade: Mexico Bites the Bullet

by David Werner and Jason Weston

The financial and economic catastrophe that has befallen Mexico and its poor has brought into focus the call by the Zapatistas for a government that is characterised by honesty, accountability and responsibility to the people.

‘We thought we were on the path to the First World and suddenly something went wrong. One minute the World Bank and IMF were saying Mexico was the best example. Now we are the worst example…. We are losing control. If we don’t find another type of development, we are finished. We surrender.’
— Enrique del Val Blanco, Mexico’s Human Service Ministry

‘Tell him I’m sorry’. ‘I miss him and very much want to visit him. But now I just can’t! For one thing, I don’t have the money. As you know, since the drop in the peso, the cost of everything has gone up. Bus fares have doubled. But my wages are still the same. I can barely feed my other children.’
— A Mexican mother explaining why she cannot make a 100-mile bus trip to see her son, Jesus, recuperating from spina bifida and visual impairment.

Few could have forseen the horrendous catastrophe which has suddenly converted Mexico from the success story of trade liberalisation into a global economic basket case. To keep the wolf from the door, Mexico has already borrowed billions of dollars, and has a line of credit for billions more. Even if the peso can be kept from slipping further, the burden of repaying the debt, along with the hardships of the devaluation itself, will fall largely on the backs of the poor, whose real wages continue to plummet.

To pay off these loans, Mexico will have to escalate its austerity measures (similar to those often demanded by the World Bank’s structural adjustment programmes). In other words, the Mexican people can expect further reductions in public services, further reductions in real wages, increased taxation, and more user fees for health and other social services. Already this has involved a huge increase in the price of oil (35%) and basic goods, while wages have been frozen. Meanwhile, federal sales tax on most goods was raised from 10% to 15%. If Jesus’s mother had a hard time making ends meet before these latest austerity measures, what will her situation be now?

When systems begin to fail, their patrons look for a scapegoat, trying to place blame on faulty individuals rather than faulty structures. In the case of Mexico’s ‘Meltdown’, blame is being thrust upon ex-President Carlos Salinas. Salinas, who until the end of 1994 was lauded by international financial institutions and had been nominated by the White House to head the new World Trade Organisation, was suddenly transmuted from golden boy to boogie-man.

No doubt Salinas did contribute to the crisis by propping up Mexico’s image of prosperity and stability until his hand- picked successor was elected in November. But surely economists in both Mexico and the US knew the Mexican economy was living on borrowed time and money. In order to maintain the trade euphoria of the North American Free Trade Agreement (NAFTA) and keep the flow of speculative investment pouring into the Mexican market, the Mexican government made huge amounts of high-interest short-term loans (called Tesabonos). Reserves fell so low that it had no possibility of paying back these loans unless speculators continued to invest billions in their southern trading partner. As Mexico’s trade deficit grew by leaps and bounds in response to deregulation through NAFTA, Mexico had little choice but to devalue the peso in the hopes of increasing exports. It postponed the move too long, and when the peso was finally devalued, US investors panicked. A vicious spiral followed as US speculators pulled their money out of Mexico, and the peso plummeted even more.

Yes, Salinas was partly to blame. He was to blame for listening to the World Bank, to US Presidents Bush and then Clinton, and to the money-hungry big-business community both north and south of the border (those who put their own economic growth before more basic human and environmental needs). He was to blame for not listening to the ordinary people, the peasant farmers and urban workers and students who demonstrated by the thousands against the signing of NAFTA. He was to blame for not listening to the Zapatistas in Chiapas, who strategically launched their uprising on 1 January 1994, the day NAFTA was put into effect.

But much more to blame than Salinas or the Mexican government is the global market system, manipulated by powerful interests that try to increase their wealth by wheeling and dealing on an international scale, rather than by productive labour. Salinas, Bush, Clinton, Gingrich, and Helms whether they try to resist or simply go with the flow are still but pawns in the system.

Whether Bill Clinton’s multi-billion-dollar attempted bailout of the Mexican economy was an act of courage, cunning, or cowardice is hard to say. But it is certainly a response to the powerful business interests that helped put him in office. Clinton, in his own way, is as much at the mercy of global greed as are Salinas and Zedillo.

One thing is certain. Sufficient wealth exists in Mexico to rescue the nation’s economy if only it were more fairly distributed. While the real earnings of workers have dropped over 40% in the past decade, a handful of people have profited enormously. In 1991 Mexico had only two billionaires. Today it has 28. Reportedly, one of these billionaires, Carlos Slim, controls as much wealth as 17 million of his poorer compatriots.

If anyone has a clear vision of what is needed for sustainable development in Mexico, it is perhaps the Zapatista rebels in Chiapas. Although the uprising is small in numbers, the Mexican government has been unable to crush it because a large sector of the Mexican population from poor folks to intellectuals sympathise with the Zapatistas and concur with their humanitarian demands.

The Zapatistas call for the government to respond to the needs of the people. They demand that it respect the Mexican Constitution, reinstate its land reform statutes, and not sell out to the monied class north With ‘subversive’ demands such as these, renewed at a time when Mexico’s economic and social stability is in shambles, it is not surprising that powerful interests in both Mexico and the US want to see the Zapatistas silenced. Indeed the new attacks against the Zapatistas and the impoverished indigenous communities that support them may in part have been triggered by the US business community. On 14 January, news was leaked that representatives of Merrill Lynch and Goldman Sachs investment firms had told Mexican government officials that it was time to regain investor confidence by wiping out the Zapatistas. Also, an internal memo of Chase Manhattan Bank said, ‘The [Mexican] government will need to eliminate the Zapatistas to demonstrate their effective control of national territory and security policy.’

In the spirit of solidarity (with Northern bankers), two days after Zedillo got the word from Chase Manhattan, he issued his now infamous order to apprehend Sub-commandante

Marcos and launched an attack on the indigenous communities of Chiapas where the Zapatistas had their stronghold. Thousands of men, women, and children fled into the Lacandon forest, where they faced hunger and outbreaks of illness. Reports of a ‘massive Zapatista arms cache’ discovered in Vera Cruz (actually three revolvers and three grenades, plus some ammunition and some Zapatista pamphlets) were used as a pretext to justify the massive invasion. A portion of the money from President Clinton’s bailout fund was reportedly used to purchase helicopters and tanks, and to contract professional torturers from Colombia, Argentina and Texas to the Mexican armed forces in Chiapas.

The Mexican military put up blockades to prevent the press from reporting on the brutal attacks on indigenous towns and villages. However, the Zapatistas managed to get word out about the atrocities,including the deaths of children and torture of civilians. Although the government has denied any wrong-doing, its case is weakened by its refusal to allow human rights observers or the press into the area. It was largely the international protest of the press, charging that the Mexican government and military were violating the Mexican constitutional rights of civilians and freedom of the press, which forced Zedillo to again call back the military, lift the barricades, and reopen negotiations with the Zapatistas. As a result, demonstrations in support of the Zapatistas took place around the world. The Mexican newspaper La Jornada showed photographs of demonstrators inside Chase Manhattan in New York. And it ran articles of demonstrations at Mexican embassies in Madrid, Brussels, Paris, Los Angeles, and San Francisco.

This international grassroots response has put the Mexican government at bay. As of this writing, Zedillo has reportedly pulled the military out of the towns and villages that had been supportive of the Zapatistas in order to convince the Zapatistas to resume talks for reconciliation.

Social scientists have pointed out that the Zapatista uprising is fundamentally different from popular revolutions of the past. It makes maximum use of modern communication, ethical pragmatism, and international solidarity. The Zapatistas have made it clear that they do not want to take over the government or form a political party. Rather they want to create a broad-based demand for honesty, accountability, and responsibility of the government to the urgent needs of the people.

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A version of this article also appears in Newsletter #31.