Future of Mexican government tied to handling of quake

How Mexican President Miguel de la Madrid Hurtado handles the reconstruction of his nation's capital, after the serious damage of two earthquakes, will determine his political effectiveness and the long-term influence of his ruling party, political analysts say. ``Today, de la Madrid is on the edge of a very vicious circle, or a positive one,'' says one United States academic analyst. ``His position was weak before the earthquake. If he handles the reconstruction well -- and the serious economic pressures which it will bring -- he will benefit from a wave of support generated by the disaster. If however, the government reconstruction effort begins to be perceived as corrupt or inept, de la Madrid will be on a very rapid downward spiral.''

President de la Madrid's political standing had already been seriously weakened before last week by what many Mexicans perceived as the President's indecisive handling of the country's economic crisis. Confidence in the ruling PRI (the Institutional Revolutionary Party) was even more seriously undermined by revelations of blatant corruption and economic mismanagement in previous administrations.

This view is shared by Mexican analysts. ``The scenario will either be a very positive one for the President, one in which he will benefit from the strong feelings of national solidarity we see now, or it will quickly become a very negative one, one that could almost lead to the disintegration of his administration,'' says a Mexican academic analyst.

The danger period, according to Susan Kaufman Purcell, Latin American Program Director for the Council on Foreign Relations, is not right now, when Mexicans are all ``pulling together and all their most decent instincts'' are at play.

The reconstruction process will be a long one, and within a few months, when enthusiasm has waned, there is a serious danger that corruption might rise and that some of the large amounts of money needed for reconstruction might be mishandled, warns Ms. Purcell.

Reconstruction will put a serious economic strain on Mexico no matter how much foreign aid it receives. It will hit hard at the two areas Mexico has been struggling most to control: government expenditure and imports. At a time of economic crisis, when the Mexican government should be spending a lot less money, it will have to spend a lot more.

One Mexican economist warns that any answer now would be ``extremely speculative.'' But he estimates the cost of rebuilding damaged buildings and infrastructure in Mexico City could amount to $5 billion to $7 billion.

Even taking the $5 billion figure, he says, a majority of the money will probably have to come from within Mexico. In the last few days, the International Monetary Fund (IMF), has said that Mexico would be eligible for emergency relief loans. The highest figure it has mentioned was $800 million.

There have been international offers of technical help, but it is unlikely outside countries will provide the funds needed.

One US analyst says he did not foresee either the Reagan Administration or the US Congress sending $3 billion or $4 billion to Mexico at a time when the US is trying to cut its budget.

The burden of assuming a large part of the reconstruction costs comes at a difficult time for Mexico. Since the price of its main export -- oil -- fell in l982, Mexico has been in one of the worst economic crises in its history.

It has one of Latin America's highest debts -- $96 billion. It borrowed huge sums of money from foreign banks when oil prices were high. While the country had been making progress in paying back its debts and meeting IMF-imposed austerity requirements, the situation suddenly worsened this spring.

An improved economy and large-scale, pre-electoral campaign spending by the Mexican government sent both inflation and government budget deficits soaring. This undermined the confidence of both the IMF and the business sector. A further decrease in oil prices dealt the economy another strong blow. This July, after midterm elections, the government announced massive budget cuts, fired federal employees, and proposed selling off inefficient government-owned industries.

In the midst of scaling down expenditures, the government now has to spend large sums of money, much of it on imports needed for massive rebuilding. Shortly before the earthquake, the IMF suspended loans to Mexico because it was not meeting austerity requirements.

Even before the earthquake, the Mexicans were finding it difficult to stick to their debt-repayment schedule, although they had just renegotiated a more flexible agreement. Although the IMF hopes to keep the Mexicans on schedule by offering reconstruction funds, analysts interviewed believe that Mexico will eventually have to substantially alter its terms of payment. This will probably influence other Latin American debtor countries to move in the same direction. Whatever action Mexico takes, it cannot completely alienate the IMF and world banking community, on which it depends financially.

In the midst of this delicate situation, de la Madrid will have to tread carefully to avoid what some call the ``Nicaraguan precedent.'' The massive 1972 earthquake started the political decline of Nicaraguan dictator Anastazio Somoza, who alienated his countrymen by his corrupt handling of international-relief funds.