Salinas Will Pay Dearly For Peace

Demolition experts search under the hoods and trunks of cars entering mall parking lots. Trucks loaded with rifle-toting army troops cruise the streets of the capital. And foreign executives from such companies as General Electric Co., McDonald's Corp., and several foreign banks have been forced out of their offices twice in just five days because of bomb threats.

If the intent of the rebels in the southern state of Chiapas was to shake Mexicans out of their complacency, they succeeded. Suddenly, Mexico is thrust into a national identity crisis, as the rebellion tears off the country's polished facade of modernity to show the poverty beneath. Debates are now raging over the rebels' charge that the fruits of the economic "miracle" of President Carlos Salinas de Gortari have bypassed the poor. Salinas was forced to reshuffle his Cabinet, and he sent a top-level envoy to the jungles of Chiapas to offer an olive branch.

Most of all, Salinas may have to loosen up economic discipline to regain social peace. That could set off a reassessment of Mexico as a stable trading partner by foreign investors. "What Chiapas tells us is that the financial and international institutions that have bankrolled the Mexican strategy have been oblivious to the social consequences of those policies," says Jerome I. Levinson, a Latin America expert at the Economic Policy Institute in Washington. Meanwhile, opponents of NAFTA in the U.S. are watching for human rights slipups. They could use them to wring concessions from Salinas when NAFTA comes up for a review this spring.

No one is predicting that Mexico's hard-won economic reforms will unravel or that the Institutional Revolutionary Party (PRI), which has ruled for 65 years, will lose the elections. But the smooth ride for Mexico's leaders is over. After years of giving his technocrats free rein, sometimes with callous disregard for the social implications, Salinas now must send his most skilled politicians into the field to repair the damage.

It extends far beyond Chiapas. Across Mexico's countryside, small farmers are feeling threatened. Even though Mexico won gradual tariff reductions under NAFTA for its most import-sensitive crops, Salinas is eliminating price supports on corn and beans in 1995. Although temporary cash payments to farmers will buffer them, a flood of cheaper crops from the U.S. is expected to push millions of Mexicans off their farms in coming years.

But the price tag for putting politics before economics could be high. Thanks to strict fiscal policy, Mexico has turned what was a hefty budget deficit in 1988 into a surplus. Now, the ink is about to turn red again. Until the rebellion, military spending had been just 4.2% of government spending. But the 15,000 troops in Chiapas, the beefed-up security in government buildings, and election year spending aimed at stimulating growth could help blow open the budget.

Then there's the open checkbook Salinas will have to show Mexico's poor. The President had already vowed to spend the $6 billion budget surplus on emergency projects and tax breaks. Billions more may be needed. The Solidarity anti-poverty program has spent $10 billion over the past five years, largely for running water, paved roads, and health clinics. Now, says one top adviser, poor regions need seed money and aid for more job-producing projects, such as family companies and cooperatives.

THE JITTERS. As Mexico copes with its sudden crisis, it will be looking over its shoulder at the U.S. After months of massive promotion about Mexico's stability, U.S. executives could begin to have second thoughts about setting up shop and courting Mexican partners. Rockwell International Corp., which recently opened an auto-parts plant in Queretaro, is going ahead with plans to triple its staff within a year. But Executive Vice-President Robert Calder admits: "These are situations that test your determination."

The jitters also reached the floor of Mexico City's stock exchange. The Bolsa Mexicana de Valores plunged 6.32% on Jan. 10, after a weekend of hostilities. But it rebounded some on the news of Salinas' Cabinet shuffle and his decision to call off bombing of the rebels in order to start talks. And analysts who have lured billions into the market continued to praise Mexico's prospects.

Even if the markets bounce back, politics in Mexico won't be the same. The two leading opposition parties, the centrist National Action Party and the left-leaning Party of the Democratic Revolution, got a boost from the turmoil, having made economic inequality a campaign issue. But the PRI's candidate, former Social Development Secretary Luis Donaldo Colosio, showed that he heard the message loud and clear. "The events in Chiapas are a call to conscience for all Mexicans," he said. "Social reform and a healthy economy are mutually compatible goals." Along with Mexicans of all stripes, the world will be watching to see just how the PRI intends to prove it.