He wasn’t the only Mexican technocrat to fall from grace over the peso crisis. The blame is shared by former president Carlos Salinas de Gortari, new President Ernesto Zedillo and a host of other young, Armani-clad, U.S.-educated officials known as los perfumados – “the perfumed boys.” With the crash of the peso, their economic miracle now looks something like a mirage, raising doubts about the smug technocracy – and the Clinton administration’s reliance on free-market economics as the solution to the problems of the Third World. “Mexico was supposed to be the model, and now it has become a warning,” says economist Rudi Dornbusch of MIT, who taught some of Mexico’s leading technocrats.
Last week Zedillo – another economist from Yale, who took office Dec. 1 with embarrassingly little political experience – finally presented an austere “economic emergency plan.” Hoping to reduce the huge trade deficit that crippled the peso in the first place, the plan calls for cuts in public spending, the sale of some state-owned industries and tight limits on wage and price increases. The new finance minister, Guillermo Ortiz, made a fence-mending visit to Wall Street, and at the end of the week, the peso had dropped to 17.25 cents, a loss of 45 percent since Serra decided the currency would no longer be pegged to the U.S. dollar. The United States agreed to put up half of an $18 billion international bailout package. “There is a tremendous feeling that we’ve all been had,” says a Latin America analyst on Wall Street. “One year after NAFTA’s passage, the United States should not have to spend billions of dollars to rescue Mexico again.”
The technocrats got a good start after Salinas took office in 1988. They pulled Mexico out of a dreary “Lost Decade,” taming hyperinflation, balancing the budget, privatizing hundreds of state properties and opening the insular nation to foreign investment and trade. They thought they could turn their country into another Singapore, but for that, they needed massive foreign investment, and to attract it, they kept the peso artificially strong. Political unrest helped to do them in. Last year the peasant uprising in Chiapas and two major political murders made foreign investors nervous. Capital began to flow out of Mexico’s booming stock market, the Bolsa. With imports vastly exceeding exports, devaluation of the peso seemed inevitable. But Salinas and the other perfumados ignored that reality for the rest of his term. In an authoritarian state like Mexico, the government doesn’t have to listen to anyone. “They kept dogmatically insisting that they were right and the markets were wrong,” says an analyst at a large Mexico City securities firm. “The irony is that they ignored the same market signals that they were supposed to be such experts on.”
Instead of devaluing, Salinas virtually drained Mexico’s foreign reserves to prop up the peso – and his own image – leaving it to Zedillo to bite the bullet. To make the austerity plan work, his technocrats will have to persuade business, labor and investors to cooperate; the perfumados will have to become something they are not: skillful politicians. The Mexican government will also have to become more democratic, a reform Zedillo seems to want. The only alternatives to the technocrats – dictators of the right or the left – were discredited long ago. The perfumados may no longer smell like roses, but their skills could still be all that stands between Mexico and another Lost Decade.
Dec. 19, 1994 $0.2886 Jan. 6, 1995 $0.1725
