SWIFT action to get Mexico through its financial crisis is critically important.
But even more important is making sure this whole scenario of the plummeting peso doesn't happen again.
This is why if Congress approves the proposed $40 billion loan guarantee to Mexico, it should do so only with strong financial conditions.
The Clinton administration, bravely insisting that Mexican economic fundamentals remain sound and that this isn't a ``bailout,'' has been making a strong case for aid, saying it is in the US interest: Over 700,000 American jobs depend directly on exports to Mexico. If left unresolved, the Mexican crisis could shave a full percentage point off economic growth in the US this year, according to Laura D'Andrea Tyson, chairwoman of the president's Council of Economic Advisers. The troubles are seen as likely to spread to other ``emerging markets,'' such as Argentina and Chile, whose stock markets have already taken some hits.
Moreover, the concerns about illegal immigration to the United States increasing even further in the event of a Mexican economic and/or social collapse are not unfounded.
But US taxpayers' good money should not be thrown after bad.
It is now clear that there were warning signs that the Mexican economy was overheating, and that the peso was being allowed to trade too long at too high a value. These signs were ignored in the US and Mexico for political reasons, including Mexico's desire to support outgoing President Carlos Salinas de Gortari in his bid to head the new World Trade Organization. Finance Minister Guillermo Ortiz, who has impressed New York bankers on his recent visits, now says he had been calling for devaluation of the peso in September, to avoid the collapse the peso suffered last month.
Sen. Phil Gramm (R) of Texas is asking for an independent monetary authority for Mexico - a Federal Reserve system, in effect. This kind of reform will make a difference. But Congress should resist attempts to attach other conditions not strictly related to Mexican ability to repay loans. As it is, Mexicans will raise concerns about sovereignty, and in fact, the US would have few legal tools to enforce any conditions it would impose. But these are reforms Mexico needs anyway.
The North American Free Trade Agreement was passed by the Congress on a ``fast track'' basis. The White House and the congressional leadership are clearly moving on a similar fast track now. The Mexican government needs to understand that being part of NAFTA, something it clearly sought, may oblige it, too, to move on a fast track with economic reforms that will be convincing not only to the Congress and the financial markets but to the Mexican people.