Another Plan for the Peso

PRESIDENT Clinton has fashioned a new package to support the peso - a substitute for the one for which there clearly weren't the necessary votes in Congress.

But the fundamental problems that got Mexico into trouble in the first place remain unaddressed.

Concerned about the prospect of a Mexican default on short-term obligations before his $40 billion loan guarantee cleared Congress, Mr. Clinton said that he was withdrawing his original proposal, and was going ahead, on his own executive authority, with $20 billion in loans, drawing on an emergency fund intended to help defend the dollar in the currency markets.

The new package, which could total $50 billion, includes help from other sources too, notably the International Monetary Fund and Canada.

The peso rose sharply in value and the Mexican stock market rallied after the president's announcement Tuesday.

But the peso rebound and the market rally should not be confused with fundamental economic soundness.

Why wouldn't the peso rally if speculators are given the idea that they will be protected against downside risks?

Despite an early agreement among the White House, the congressional leadership, and the Federal Reserve that something had to be done for Mexico, the votes for the loan guarantee simply weren't there - nor was the public support.

Opposition to the plan ranged across the political spectrum, and House Speaker Newt Gingrich, nominally a supporter of the deal, was evidently disinclined to push his colleagues for votes.

The United States, and the American people, clearly have an interest in Mexico's success, as an economy and as a democratic polity.

The North American Free Trade Agreement did not create economic interdependence between the two countries; it reflects it.

Insofar as resistance to the aid package reflects sheer parochialism, it is ill-considered.

But insofar as such resistance represents an expectation that Mexico should and can correct its economic and political problems -

by establishing an independent monetary authority and allowing true multiparty democracy, to mention two reforms - it is fully understandable.