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A Talk With President Zedillo (Int'l Edition)


International -- Special Report: MEXICO

A TALK WITH PRESIDENT ZEDILLO (int'l edition)

Since the crisis: New stability and an economic rebound

Keeping in touch with Mexico's grass roots, President Ernesto Zedillo made a one-day foray on Sept. 26 through Yucatan state in the country's far southeast. Aboard the Boeing 757 presidential aircraft, he discussed his goals and policies with Frank J. Comes, BUSINESS WEEK's senior editor for international affairs, and Geri Smith, Mexico City bureau manager.

Q: Recently, your party, the PRI (Institutional Revolutionary Party), voted to require that its candidates for President and governor must have held previous elective office. But you did not hold any such office before becoming President. Is there a revolt by PRI career politicians against "technocrats" like you?

A: Not at all. If anybody has encouraged reforms by my party, it was me. The reforms will make the PRI more competitive. This is the first time in many years that the party has been able to hold a convention without the strains that its traditional relationship with the presidency has implied. They have taken a decision to reshape themselves as a true political party--just one of many in Mexico. After this reform, the PRI will be better equipped to put up the democratic fight that it will have to put up.

Q: Just yesterday, in Mexico state [adjoining Mexico City], local PRI members objected violently to the slate of candidates chosen: An official was kidnapped, shots were fired, traffic was blocked.

A: Every time there's an internal selection of candidates, in the PRI or any other party, that happens. It happened with the [conservative opposition party] PAN two weeks ago. At the local level, people get very passionate because they are picking their mayor. Don't take that too seriously.

Q: The PRI convention attacked your plans to privatize petrochemical plants. Will your government back off?

A: All of the reforms started by my government--the privatizations, the national pension reform, the stabilization program to face the [peso] crisis--have been fully supported by my party. Most of the privatizations that were started during the course of my administration have required major legal changes, including constitutional changes. The petrochemical privatization was started in 1992 within the old legal framework, and that has given rise to some questions.

You have to have a sense of proportion in such matters. It is much more important to change the Mexican constitution to allow privatization of railroads and satellite communications than to sell a few assets of [national oil monopoly] Pemex in the secondary petrochemical sector.

Q: Are you saying that you might be willing to sacrifice the petrochemical sell-off because other things are more important?

A: I wouldn't use the word "sacrifice." If there is a legal problem, we will fix it and see within that context what the best strategy is for achieving my objective: that is, to maximize investment in the secondary petrochemical sector, putting the emphasis on private investment.

Q: Some businesspeople worry that the present strength of the peso can't last. Will your government be able to sustain it?

A: The only sustainable policy is a freely floating rate. Any other alternative would mean either a commitment to an [exchange-rate] band, which the government would have to sustain, or a crawling peg. Either of those two alternatives would be too risky. The market by itself will adjust the exchange rate to keep a rather moderate current-account deficit in 1996 and l997. That will lead to an exchange rate that keeps the momentum in the export sector and therefore contributes to economic growth.

Entrepreneurs cannot have it both ways. They like it that interest rates are coming down, and I think that has been very positive for the economy. But they cannot at the same time ask for the government to have a system for intervening in the foreign exchange market.

Q: Some investors worry if the recent attacks by the [terrorist group] EPR aren't contained, financial markets will be affected, as they were by the 1994 Zapatista rebellion.

A: Well, they have been contained. They attacked a few military and police stations, and nothing significant other than that has happened. We insist that this group doesn't have any significant force: They don't have a social base. Rather soon, we hope that its leaders will be prosecuted.

Q: Since the North American Free Trade Agreement was signed, has Mexico reverted to a low-wage, weak-peso economic strategy?

A: That's not true. You have to travel around Mexico and see what's happening. For example, Mexico has become one of the leading exporters of computers. And the percentage of integration [of local components] is surprisingly high.

NAFTA has performed extremely well. U.S. exports to Mexico are growing fast, and our exports are growing very fast. More and more American companies are coming here to do part of their manufacturing to go into third markets. Go to the IBM or Kodak plant in Guadalajara, to the Chrysler plant in Ramos Arizpe--what's happening is very impressive.

Q: So, Mexico is living up to its promise of higher value added?

A: That's right. The 1995 devaluation had a lot of negative effects, but it also produced some very positive results. One of them was to accelerate significantly the degree of integration in many industries. At the BMW plant in Toluca, they were planning to have 30% Mexican components. A year later, they have 60%.

Q: What are your most important achievements?

A: They are not mine. They are the achievements of the Mexican people. One is the turnaround in the economy. Second, the political stability that the country has in spite of the economic crisis. Equally important is the kind of respectful dialogue that I have, and all the executive [branch] has, with all political parties. This is without precedent in Mexico's political history. This state [Yucatan] is totally peaceful. You saw at my table the leader of the PAN, the people of the [center-left party] PRD. We were in three municipalities today--two of them are governed by the PAN. You see the kind of relationship we have. And it's like that in every Mexican state. But that doesn't get into the news.

Q: A lot of people were expecting Mexico to be a big issue in the U.S. elections.

A: Me too! I was very afraid!

Q: But it has been very quiet. Why?

A: Three important things have happened. One, we have been working systematically with the U.S. Administration on difficult issues such as drugs and immigration. Second, no one can bring NAFTA to the discussion table saying the U.S. economy is losing jobs, because the opposite can be proved. And third, I think it has helped that we have prepaid the U.S. loan. You're right--in February I was very concerned that there would be terrible Mexico-bashing. Fortunately that hasn't happened.By Geri Smith in Mexico City


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