Mexico: The Road To The Presidency Runs Through Chiapas

All eyes in Mexico are on the negotiations between the government and the hooded Zapatista rebels in Chiapas. The talks are now in recess while the rebels consult with their supporters and mull over the government's offer to improve living conditions in the impoverished state. But whatever the outcome, the January rebellion in Chiapas is having a profound effect on Mexico.

The Institutional Revolutionary Party (PRI), which has ruled virtually unchallenged for 65 years, now finds itself embattled on several fronts. Faced with discontent at home and greater scrutiny from abroad because of the North American Free Trade Agreement, the PRI was forced to accept sweeping electoral reforms for the Aug. 21 presidential vote. It also needs to appease the increasingly vocal workers and debt-strapped farmers, while at the same time keeping the economic program that has helped attract $42 billion in foreign investment on track.

While the PRI candidate, Luis Donaldo Colosio, is running ahead in the polls, victory is by no means assured. His strongest challenger is Cuauht moc C rdenas of the left wing Democratic Revolutionary Party (PRD). Many observers think C rdenas was cheated of a victory over President Carlos Salinas de Gortari in 1988. Although he is unlikely to win, C rdenas is going to have more access to both the local and foreign media to make his populist case against Salinas' privatizations. That could spook the stock market and put pressure on the peso.

"BITTER FRUIT." The PRI is clearly worried about the challenge. Even party spokespeople such as Santiago O ate admit that Colosio got off to a slow start and that he has been overshadowed by Salinas' negotiator in Chiapas, Manuel Camacho, a former rival for the PRI presidential nod. The Chiapas rebellion by poor Indians and peasants shocked the PRI. Now, party officials worry that the 500,000 workers who have lost their jobs in the past year and other losers under Salinas' economic policies will seize on the election as a venue for protest. "This bitter fruit from the economic opening is ripening at the worst possible time," says a top Colosio aide.

Although party stalwarts say Colosio has no intention of reversing Salinas' economic reforms, there will certainly be adjustments. Under Salinas, this large, diverse country has been tightly disciplined by Ivy League technocrats who considered Western investors their main constituency. Already, the rebels and their sympathizers have forced a shift. For instance, the government last week made Mexican banks back off from foreclosing on thousands of farms. Colosio says that if elected, he would emphasize training and small-business loans as well as improving such basic needs as health care and education. Fearful that Colosio will relax economic discipline, some technocrats are thinking of bailing out.

OPTIMISTIC TALK. But economists say investors shouldn't worry about Colosio loosening up a bit. Having run a surplus the last three years, the government can now go slightly into deficit without sapping its financial strength. Already Salinas has dropped interest rates from 16% to 8.8%, and growth is expected to kick up to 3.0% this year. "The government has the resources to spend more without too much problem," says Arturo Acevedo, an economist at Vector, a brokerage house.

The risks are higher on the political side. Mexico is heading into uncharted territory as the ruling party relaxes its hold. One hears lots of optimistic talk about Camacho eventually heading a centrist opposition party that will give Mexico a two-party system mirroring its neighbor to the north. But such a conflict-free outcome is far from assured.

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