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Zedillo Hits The Road


International Business: MEXICO

ZEDILLO HITS THE ROAD

The Boeing 757 pulled up to the Durango Airport terminal, and President Ernesto Zedillo Ponce de Len strode down the steps to the beat of a military band. The Mexican leader and his wife, Nilda, walked hand in hand to a white bus. The simple caravan, escorted by just two police cars, drove off.

Arriving at the Durango Technological Institute to inaugurate a running track, Zedillo spotted some students who were being barred from the event. Ignoring warnings from security agents, he yanked away the police barriers. "All students were invited to come--let them in," Zedillo ordered.

What's going on here is the remaking of a Mexican President. After a hesitant, near-disastrous start, Zedillo is finally emerging from his cocoon, granting interviews and making bold political moves, such as ordering the arrest of the brother of his predecessor on murder conspiracy charges.

It's about time. His penchant for holing up at his Los Pinos residence rather than going out and defending his policies contributed to the financial panic that has turned his first 100 days in office into a nightmare. He seems to realize this reticence was a mistake. So with a tough, new austerity package in place, he is out selling it to the country. "His image was being handled badly," admits a senior aide charged with sprucing up Zedillo's public persona. "We're trying to change that." The new openness seems to be helping Zedillo shed the aloof and unpolished image that alienated many constituents. After weeks of rumors that he might be ousted, the President's polls now show that his approval rating has risen from 30% to about 60%.

At the university, he seemed to thrive on the students' enthusiasm. He happily donned a maroon-and-white school jacket with his name embroidered on one sleeve and leaped atop a wall to address students. "It's true that Mexico is facing grave economic problems," Zedillo told the crowd. "But when we, the Mexicans, are faced with difficulties, we don't stand there with our arms crossed. We go to work!" he shouted, to resounding cheers of "Zedillo, Zedillo, rah-rah-rah!"

Not everyone he encountered was full of warm wishes. A crowd of 100 or so Duranguenses, protesting the emergency hike of the value-added tax to 15%, blocked an entrance to the government palace where Zedillo was speaking. They hurled insults, drowning out his words. "Where's the well-being for our families that Zedillo promised in his campaign?" yelled 40 year-old nurse Guadalupe Gaviln. "All we've got are more taxes, hunger, and unemployment."

Zedillo dismissed the incident as local posturing for upcoming state elections. But all over Mexico, growing numbers of small business owners and farmers as well as leftists have been protesting the harsh conditions of Zedillo's emergency economic program. They say the tight fiscal and monetary controls, hikes in gasoline and electricity prices, and wage ceilings are pushing the country into a long, deep recession. But Zedillo, a Yale-trained economist, argues that stern measures will shorten the hard times. In an interview on the presidential plane, he confidently argued that a quick if painful adjustment was better than the slow turnaround of previous crises. He predicts recovery by yearend.

Businesses are not so confident. Many think they could be wiped out before the recovery. "We've survived before," says Fernando Urquijo Leal, sales director of his family's aluminum-panel company in Monterrey. "But now there's just no money." The company has already shifted to a four-day workweek.

Zedillo's plan to keep Mexico's economy from tanking is three-pronged: speed up the privatization program to raise billions in needed cash, introduce inflation-indexed facilities to bring the real cost of business and consumer loans down, and help companies increase their export capabilities to take advantage of the cheaper peso.

"MORE COMPETITIVE." Already, the devaluation has had a dramatic effect on Mexico's trade balance: The country showed a $453 million surplus in February, the first in seven years. Most of that resulted from a sharp drop in imports, but a 34% increase in exports from manufacturers other than maquiladoras also contributed to the surplus. "The devaluation makes us much more competitive," says Industry & Commerce Secretary Herminio Blanco.

Officials are also rushing to complete $12 billion to $14 billion in privatizations begun under the previous government. "We're in the final stretch this month," says Communications & Transportation Secretary Carlos Ruiz Sacristn. "A lot of things will happen in April."

While it is questionable whether investors will snap up petrochemical plants and antiquated ports and railroads, there is a lot of confidence that satellite frequencies and phone-service concessions will draw interest. Eight foreign companies, including AT&T and MCI Communications Corp., have linked up with local partners to bid for long-distance slots.

But even foreign investors echo the doubts of many Mexicans. "Tax increases are not the way to save the economy," says Franz Baumgartner, general director of BMW, which plans to roll out its first Mexican-assembled car in March. Then he lists what he'd like to see: tax relief, job creation programs, efforts to control interest rates, and more support for business. The government says it will do all that, but no one seems to believe it. That's where Zedillo's newfound political skills could come in handy.

Zedillo's New Rescue Scheme: A Tough Sell

It's going to feel like major surgery without anesthetic

AUSTERITY MEASURES

PROPOSAL Raise VAT from 10% to 15%. Tighten credit. Boost fuel prices

RISKS Could create deep recession, spark unrest

BANK BAILOUT

PROPOSAL $9.4 billion in help for restructuring bad loans, $3 billion for boosting bank capital

RISKS May not be enough to cover problem loans

JOB PROGRAM

PROPOSAL $245 million to create 550,000 jobs

RISKS Layoffs may be much higher

PRIVATIZATION

PROPOSAL Raise $12 billion to $14 billion through selling ports, railroads, petrochemical plants, telecom licenses

RISKS Investor interest may be weak

DATA: BUSINESS WEEKBy Geri Smith in Durango, Mexico, and Elisabeth Malkin in Mexico City


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