The Right Way to Reform Mexico's Economy (int'l edition)

I am Mexican and an economist and have used Robert J. Barro's books and papers in my studies. But I have to disagree with his perception of the way President-elect Vicente Fox should face economic challenges (''Mexico: Democracy is great, but what about economic reform?'' Economic Viewpoint, July 31).

For Barro, the ideal situation might be to dismiss our national identity. Instead of having a president, we can have a CEO; instead of yearly ''state of the nation'' addresses, we can have quarterly results announcements like any other enterprise in the U.S. We can start forgetting about our own heroes and start praising other symbols of ''national identity'' created in Hollywood.

This might achieve an optimal equilibrium but will erase our country as a separate entity from the U.S. Our integration into the U.S. economy has been massive, and some of us would probably not like to increase it further. I would rather obtain a second-best non-Pareto solution than a zero-sum game.

Ernesto Beltran
Nicosia, Cyprus

I agree that it would be beneficial for Mexico to have as open an economy as possible, including the privatization of the oil industry. And I understand the benefits of a long-term stable monetary policy that could include a currency board. But given the current political, social, and economic circumstances in Mexico, these things are much easier said than done.

President Fox has consistently demonstrated his vision on economic topics and is recognized for his conviction on the benefits of open markets. However, he is facing decades of political discourse in which the PRI [Institutional Revolutionary Party] governments drilled the concept of oil as a synonym of sovereignty into the Mexican people. More than a matter of national pride, the negative connotations of privatizing Pemex are the result of waves of government propaganda.

Moreover, the previous experiences of failed or flawed privatization (i.e., the banks, Telmex, the petrochemical industry) have created a deep reluctance among Mexicans to accept the concept of private capital in state-owned industries. We should see the deregulation of Pemex as a long-term project.

On dollarization, the major impediment is not the national pride attached to the issuance of its own money, as Barro argues. To establish an effective currency board, Mexico needs to diversify its sources of economic growth. It also needs comprehensive fiscal reform that promotes the culture of paying taxes and has efficient collection instruments. Mexico needs to improve its financial system, reactivate lending practices, and channel funds to the micro-, small-, and medium-size enterprises so that they can be integrated into the country's supply chains.

In essence, Mexico needs to reach a level where the economic (and social) differences between the country and its major trading partners is similar to, say, the difference between Portugal and Germany. A gap, yes, but a workable one. Mexico needs to grow to a point at which it can be considered more like a partner and less as a preferred destination for foreign direct investment because of its cheap labor or its privileged geographic location. This will take a couple of decades of honest and able administrations like the one Fox will lead over the next six years. Barro is fundamentally right, but he is 25 years ahead of this particular curve.

Rafael Elias-Linero
New York

Death Taxes Affect Noncitizens More Severely (int'l edition)

In ''Death knell for death taxes?'' (Economic Trends, July 31), it is only partly correct to state that ''estates passing to spouses aren't taxed at all.'' Probably because so few voters are affected and it has no strong lobby, this statement is true only if the spouse is a U.S. citizen. Unless the death taxes truly disappear, my German-citizen wife will be treated no better than anyone else who shares in my estate.

Eric H. Geiger
Kipfenberg, Germany

''New tricks for old stores'' (Latin American Business, June 26, 2000) (int'l edition)

''New tricks for old stores'' (Latin America, June 26), a story about Chilean retailer Falabella, incorrectly stated that the company's international operations registered a net loss of $30 million in 1999. That year's losses amounted to $8.5 million.