Mexico's Rough Road

MEXICO'S financial picture is still cloudy, at best. But the combination of a US-backed economic aid package and an austerity plan put in place by the Mexican government is beginning to have a stabilizing effect. The peso, after plunging in value, is settling down -- though at a weaker level than officials in Mexico had hoped.

It is still anyone's guess how soon international investors will return to Mexico in the strength needed to help revive the economy. So far, most have chosen to cash in their Mexican bonds, thanks to the funds available through the aid package, and beat a retreat.

There are, however, hints that investor confidence may be growing. But positive signs are clouded by the generally dismal state of Mexico's economy at the moment, with soaring inflation and interest rates battering both families and businesses.

A critical question is how long President Ernesto Zedillo Ponce de Leon can stick to his austerity policies in the face of public protest.

The tight money policy implemented by Mr. Zedillo is in line with what Washington and the International Monetary Fund, the other large contributor to the $50 billion aid package, prescribe.

But social and political strains could grow as important state and local elections approach in Mexico. Zedillo's Institutional Revolutionary Party has felt its grip on power loosening in recent years. With upcoming votes looming dark for the PRI, the president is probably under extreme pressure to weaken his economic policies.

That could invite the renewed financial panic those policies are designed to quell. Zedillo has to hold the line. And so does President Clinton, who took a calculated risk in pushing the aid package. He's now taking some shots from those in Congress who see the package as a bailout for wealthy investors.

But the stakes are greater than that, as even such Clinton critics as Newt Gingrich recognize. Mr. Gingrich, in statesmanlike fashion, has strongly backed administration efforts to help Mexico past its financial crisis. He rightly recognizes Mexico's role as a crucial trading partner and a neighbor whose people instinctively trudge north when economic opportunity evaporates at home.