Mexico's role weakened by devalued president

Mexico's finance minister, Guillermo Ortiz, yesterday wound up a whirlwind confidence-building visit here, the success or failure of which may determine the fate not just of plans to rescue the country's economy, but of the struggling presidency o f the newly installed Ernesto Zedillo.

After a hectic day of meetings in New York to reassure the US investment community, Mr Ortiz was in Washington to seek the blessing of the Clinton administration, and the International Monetary Fund for the austerity package that Mr Zedillo presented on Tuesday.

He should have little trouble with either. Deeply committed to the economic and political stability of its North American Free Trade Area partner, the administration is contributing half of an $18bn (£12bn) international credit line to shore up the peso.

The IMF, meanwhile, is expected to approve a standby facility that would be its imprimatur of the Zedillo plan.

But early reaction has been mixed at best. In New York, Mr Ortiz's promise to privatise a further $12bn-$14bn of state holdings - whose proceeds should help to finance a sharply reduced 1995 current account deficit - went down well with US investors, nownursing increased losses as Mexico's currency and stock markets have crashed since the botched devaluation of 20 December. But Mexico, the Finance Minister insisted, could meet its financial obligations.

But his honesty was also troubling: the Mexican economy, said Mr Ortiz, will grow only by 1.4 per cent this year, compared with 4 per cent in 1994, while inflation, at 16 per cent, will be four times the previous target rate. Yesterday both the Mexican stock market and currency declined further. The peso stood at 5.40 to the dollar, far below the 4.50 rate at which Mr Ortiz predicted it would stabilise in the medium term.

But, even if that does happen, the prestige of Mr Zedillo may have been fatally wounded by events of his first month in office. One analyst said unless the leader proved he was firmly in command, Mexico risked a "six-year lame duck presidency". Indeed, many see the financial crisis as proof that the Institutional Revolutionary Party, which has monopolised power, is at the end of the line.

Thus far, Mr Zedillo has yet to assert his authority. Rebellion simmers in the southern Chiapas province, while the economic plan was challenged by more than 30,000 protesters in two separate demonstrations in Mexico City on Thursday.

Traditionally docile labour unions, too, are bridling at the 10 per cent cap on 1995 wage increases.

Washington has little choice but to watch and wait developments south of the border. But the turbulence has been a rude shock for many, and not only the financial advisers and others who a month ago were still touting Mexico as a Latin American success story and a gleaming investment opportunity.

The administration, too, has been completely wrongfooted. Exactly a month ago, Mr Zedillo stood alongside the leaders of the US and Canada to welcome Chile as the next member of the Nafta club, theoretically as early as 1996. Instead the financial collapse suggests Mexico (and by implication most of the rest of the hemisphere) is not politically or economically ready to enter a free trade area with its rich and fully democratic partners to the North - exactly as Ross Perot claimed in his vitriolic 1993 campaign against the agreement.

Clinton supporters tout Nafta as his greatest visionary success. But an enfeebled Mexican economy and a currency devalued by 30 per cent in barely a fortnight may merely combine to drive a new, highly unpopular tide of illegal immigrants across the border. That would be a calamity for Mr Clinton, when his own political fortunes are already at a nadir.