Mexico: Day Of The Dinosaurs

The ruling party's old guard moves to curb the reformers

Call him Luis. The thirtysomething Mexican career technocrat holds an MBA from a major U.S. university, toils 80-hour weeks in a senior post at a government ministry, and earns one-third what his former college buddies and his kid brother make in the private sector. Although he disdains politics, Luis joined the long-ruling Institutional Revolutionary Party (PRI) at an early age, knowing it was a prerequisite for advancement. But now, his future is in doubt. The PRI decided at its recent convention that it will no longer choose technocrats such as Luis as its nominees for governorships or the presidency of Mexico unless they have held previous elective office. "They're changing the rules of the game," Luis complains bitterly, slumping in his chair. "There's no point in slaving away anymore if you can't aspire to the top jobs."

Indeed, Mexico, a country of 95 million people with ever deepening ties to the U.S., is in the throes of profound changes in the way it is governed, and far more than the career prospects of aspiring civil servants such as Luis are at stake. The PRI's decision signals the gradual erosion of the influence of U.S.-educated technocrats, led by President Ernesto Zedillo and his immediate predecessors, Carlos Salinas and Miguel de la Madrid. In the 14 years since de la Madrid took office, they have transformed Mexico from a closed, statist country into a market-driven economy that's part of the North American Free Trade Agreement (NAFTA). Future Mexican leaders, shaped more by electoral politics, aren't likely to match these reformers in zeal and arbitrary power.

Although Zedillo's term runs until 2000, he is going to be increasingly less able to command the loyalty of the party. That's partly because he has finally convinced skeptics that he won't handpick the PRI's candidate to succeed him, as his predecessors for more than 60 years have done. With that decision he has relinquished much of the near-dictatorial leverage that Mexican Presidents have wielded over the party's machine, the PRI-controlled Congress, and the vast government apparatus.

FRACTIOUS. In effect, says political scientist Federico Estevez, Zedillo is becoming a lame duck four years before his term ends. The result seems bound to be a politically less stable, less predictable Mexico, with a more fractious PRI and a more assertive Congress, even if the PRI survives challenges by newly energized opposition parties in midterm elections next year.

Short-term, the political ferment is strengthening factions who argue that a relaxation of Zedillo's austere economic policies and a slowdown in his market reforms (table) will lure voters back to the PRI. In the strident convention attended by 4,400 delegates, old-guard political bosses, widely known as "dinosaurs" for their resistance to change, orchestrated the attack. Delegates shouting "out with the technocrats" vowed to distance the party from free-market reforms and restore the party's traditional embrace of populist "revolutionary nationalism." Although few would turn the clock back to Mexico's statist past, the split in the PRI between old-line pols and technocratic reformers could give the opposition parties--the center-right National Action Party (PAN) and the center-left Party of the Democratic Revolution (PRD)--an unprecedented chance to end the PRI's control of Congress in next year's elections.

No one expects a dramatic about-face by Zedillo, 45, a Yale University-trained economist and former central banker, on his policies. He insisted in an interview with BUSINESS WEEK that the PRI will continue supporting the basic reforms that have helped Mexico start to recover from its worst recession in 60 years. Industrial activity was up 13% in the year ending in August, thanks to brisk exports. Interest rates are down to 23% from 45% last January. Mexico has repaid all but $3.5 billion of the $12.5 billion emergency bailout loan from the U.S. in 1995. And the peso has held steady at 7.5 to the dollar for several months, though there is growing worry that it is becoming overvalued.

Still, domestic consumption is stagnant, and Zedillo is coming under pressure from the party bosses to kick-start the economy by boosting public spending before the elections, when the PRI risks losing its congressional majority for the first time since 1929. To win back investor confidence after the 1994 devaluation, Zedillo imposed brutal fiscal and monetary discipline that has kept the budget deficit near zero. But now, PRI leaders are saying that prolonged austerity will generate sympathy for protesters, such as the deadly new leftist guerrilla movement, the Popular Revolutionary Army, or less violent El Barzon, a middle-class group that is agitating for debt relief for small businesses. On Sept. 30, El Barzon, or Yoke, named for the heavy burden of indebtedness, marched elephants from a bankrupt circus through the streets of Mexico City and dumped a truckload of rotten tomatoes at the front door of the Mexican Banking Assn. "Frustration is running high," says independent economist Jonathan Heath.

Francisco Suarez Davila, chairman of the congressional finance committee and an influential leader of the PRI mainstream, argues that Mexico needs to prime the economy by running a fiscal deficit bigger than this year's expected 0.5% of GDP. Otherwise, "we're going to have social problems," he warns. "The international financial community has to understand that."

Zedillo also faces pressure to back off from politically unpopular measures that formerly would have been rubber-stamped by the Congress. After months of waffling, Zedillo appears ready to back down on a key privatization goal--the sale of secondary petrochemical plants owned by oil monopoly Pemex, a nationalist sacred cow. The petrochemical workers' union is a bastion of PRI power, and the sale would cause layoffs among the party faithful.

BIG LEGACY. Economist Heath argues that less doctrinaire policies by Zedillo would be understandable after a decade of single-minded pursuit of austerity and economic restructuring by Mexican Presidents: "What we need is breathing room to let the economy recover and to create jobs." With an election year approaching, "the time has come to put more politics into the economic equation," Heath suggests.

Indeed, recent signs of political pragmatism by Zedillo have made him a paradox to many Mexicans. As an economist with little political experience, he's the kind of technocrat the PRI is trying to bar from running for higher office. Yet the biggest legacy he will leave is political: dismantling the all-powerful presidency and severing its autocratic control over the party.

The process is fraught with risks: The abrupt decline in presidential power will create a real leadership vacuum. It could be filled by the sometimes brutally undemocratic forces in the party, including governors who rule their states as fiefdoms, as in Guerrero. Among party strongmen who are stepping in to fill the void are such figures as Puebla Governor Manuel Bartlett and Tabasco Governor Roberto Madrazo. Both have faced charges of irregularities in recent elections.

The party's attack on the technocrats, meanwhile, creates another gaping hole in the power structure. Before, each party member and bureaucrat was loyal to his immediate boss, or jefe, in a chain of command that ran to the President, and lasted until he transferred power by picking the party's candidate to succeed him.

With the technocrats and reformers losing ground, one of Zedillo's key priorities--the battle against corruption--may be facing difficulties. In the investigation of jailed former First Brother Raul Salinas on charges of murder and conspiracy, as well as "illicit enrichment," a verdict hasn't yet come down from the judge assigned to the case in Mexico's nonjury system. There are concerns that the probe may be getting bogged down as prominent businesspeople with close ties to the PRI have become implicated in Raul's dealings. Similarly, Zedillo's administration has made little progress in solving the 1994 assassination of PRI presidential candidate Luis Donaldo Colosio. The party is split between those who want to see the crime solved and those who fear that discovery of a PRI murder conspiracy might implicate party bigwigs.

GET OUT THE VOTE. One big reason the PRI dinosaurs are fighting back is bad polls. Recent voter surveys show that the PRI is losing political support. Some 25% of voters say they would choose the PAN if elections were held today, compared with 29% for the once invincible PRI and 10% for the PRD. Crime is the No.1 issue in Mexico City, but in most of the country, unemployment is the big worry. The PRI still has a powerful electoral machine, however, to get out the vote. Just in the state of Mexico, which adjoins Mexico City, the PRI claims it has 300,000 operatives who aim to get 3 million voters to the polls in next year's elections.

Regardless of the outcome, Zedillo will be President until 2000. But with his party opponents on the rise, he will have less power to push through his programs as the era of Mexico's technocrat-reformers winds down.

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