Bankers in Mexico skeptical of changes
Economic changes announced by the Mexican government last week have had an initially salutary effect on the business and finance community here. But many Mexicans and foreign bankers do not think the changes are sweeping enough to bring the economy under control. Moreover, they doubt the measures will ever be fully carried out.
The government devalued the rate for the peso used most often in commercial transactions by 20 percent, abolished thousands of government jobs, decreased government operating budgets, and virtually eliminated import licensing in favor of tariffs.
The aim was to save 150 billion pesos ($537 million, using the new controlled peso rate) in revenue and avoid drawing more on foreign reserves, which are thought to have declined from about $8 billion to $6 billion in the last few months.
Many foreign bankers and economists wonder whether the government has the political stamina to enforce the new plans.
``If they really do all these things, I say that's good, but now let's see if they stick to it,'' said an American banker, echoing the opinions of many others.
The government originally said 51,000 workers would be laid off, then conceded that 23,000 of these were protected by their union contracts, which whittled the number down to 28,000, or less than 3 percent of the federal work force.
It is even uncertain how many of these will actually be fired, because Carlos Sal'inas de Gortari, secretary of budget and planning, said the government would ``negotiate'' the cutbacks and in some cases departments would be ``merged.''
By Mexican standards, the measures were harsh, but the private sector has been quick to complain they weren't harsh enough.
Arturo Trev'io Castelazo, president of the Mexican Institute of Finance Executives, termed the cut in public expenditure ``conservative,'' adding that it would not be enough to free up resources for the private sector. He noted that the public-sector deficit at the moment amounted to 8 percent of gross domestic product, as opposed to the 5 percent goal set by the government.
``The amount of available credit is limited,'' this official said, ``because banking resources are not abundant and the authorities channel a major part of the financial resources to the public sector.''
He, too, emphasized that the government must actually carry through its program.
The president of the Mexican Employers' Association, Alfredo S'andoval Gonz'alez, insisted the government do more, saying that the measures ``are on the right track although delayed in coming and incomplete.'' Public spending should come down even more by the sale of unprofitable nationalized industries, he said, and price controls should be eased.
The 20 percent devaluation of the so-called controlled peso rate was expected to have the most immediate effect.
``The peso was so overvalued before, we could no longer compete in the market,'' said Arturo Zavala Colome, president of the Mexican Association of Importers and Exporters.
The government hoped to see exports rise again and the dollars earned come back into Mexico. Because of the exchange rate before the devaluation, many exporters hid their dollar earnings to avoid exchanging them into pesos.
But the government's problem was not solely bringing figures into line. In a rare admission that previous policies had not worked, Finance Secretary Jes'us Silva Herzog noted that ``the market is dominated by criteria that I would dare say are of a pyschological character -- lack of confidence, uncertainty, fear -- which are very difficult to combat. And there has to be a passage of a certain amount of time so things calm down a bit.''
Despite rumors that the government would seize bank accounts -- denied by Mr. Silva Herzog -- the government's announcements appeared to have a calming effect.
The intense demand for dollars dropped off, bringing the uncontrolled peso zate down from a high of 395 to an average of 350. The Mexican Stock Exchange surged by an unprecedented 20 points.