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Text File | 1994-05-02 | 14KB | 281 lines

<text> <title> Mexico's Leap Forward </title> <article> <hdr> World Press Review, October 1992 Mexico's Leap Forward </hdr> <body> A business editor ponders free trade and the future This interview with Rogelio Cardenas Sarmiento, editor and publisher of the business daily "El Financiero" of Mexico City, was conducted by "World Press Review" editor Linda Rogers and associate editor B. J. Kowalski. -- Do you favor the North American Free-Trade Agreement (NAFTA) among the U.S., Mexico, and Canada? I am for NAFTA, because we must be pragmatic. If you compare statistics on our two countries' imports, exports, capital, and other things, you will discover that, economically, Mexico is already integrated into the United States. But the U.S. is not integrated into Mexico. Both countries have not shared equally the responsibility of expanding the market. It would be silly to try to avoid an agreement. Why have NAFTA in practice without the treaty? One problem is that people see the agreement as a panacea; they think that once NAFTA is ratified, Mexico's standard of living will rise. This is why the Mexican government sometimes seemed to be in such a hurry to sign it. On the other hand, we have to be careful not to step on anyone's toes, especially concerning oil. More than half of our oil exports are to the U.S., so petrochemical products are an important factor. As an American government official has said, NAFTA began as a political matter, and it is going to end as a political matter. In some ways, Mexicans are a little worried. If you compare our economies, Mexico has more free trade--a more open economy--than the United States. In the past five years, we have reduced import taxes and paperwork. This was started under President Miguel de la Madrid, two years before the current president, Carlos Salinas de Gortari, took office. De la Madrid wanted to destroy the old economic model, under which it was understood that each country must be self-sufficient in all products. This model was developed by the Economic Commission for Latin America and the Caribbean, which is the United Nations commission for the economic development of Latin America. From the 1950s through the 1970s, that model was recommended for every country in the region. -- What is the model now? We have a freer, more liberal economic model, in order to attract more competition. Three years ago [when Salinas began an austerity program], we had very high inflation. By increasing imports, the government pushed Mexican companies to reduce their prices. Even before the NAFTA negotiations began, we had started to open up our economy. Mexico had already made a considerable number of concessions to the U.S. by speeding up economic and political reforms. That is why some Mexican politicians were against rushing into NAFTA. But when Salinas took office, he had a lot of problems--the central bank did not have large reserves--and then he started to build on the basis of the new model. We called it the "expectation" model; it projected to the future. We never focused on the current inflation rate. Instead, we tried to project what the coming rate of inflation would be. This is not very orthodox; it is not the classic way to measure inflation. But psychologically, it was very good. For instance, look at the recession and recovery in the United States. It is a very different situation from what we read about in economic textbooks. A lot of people are still not buying things, because they are still worried about losing their jobs. The psychological factor, both in the United States and Mexico, is very important. -- How would you answer those who worry that Mexico's low wages may lead to a loss of jobs in Canada and the U.S.? For example, many concerns center around the 'maquiladoras,'the Mexican factories that assemble goods from materials imported from the U.S. Remember that the maquiladoras are unskilled laborers. In the past 10 years, during the worst of Mexico's foreign-debt crisis, one of the most important policies for the government has been to reduce costs by cutting salaries. If you compare labor costs with other costs, you find that labor accounts for only around 20-25 percent of total costs; the rest is machinery, supplies, transportation, and other things. It is not right to say that Mexico would be competing unfairly with the United States because of low wages. The mix of expenses is different. -- Do you think that NAFTA will allow the U.S. to encroach on Mexican sovereignty? The concept of sovereignty is changing throughout the world. Sovereignty is not what it was 20 years ago, during the cold war, when it was about guns and things like that. Now, sovereignty is based on financial strength. For instance, we have a huge foreign debt, as the United States does. If all the banks decided to increase the interest rate one point, that point would reduce the sovereignty of Mexico's government, because the government then would not be allowed to increase its expenditures for social services. But people are not really aware of this fact. -- Will NAFTA Americanize the Mexican economy? Will there be a Burger King on every corner? There already is. And Coca-Cola, too. We have been very much Americanized, but that has nothing to do with NAFTA. Actually, NAFTA would increase our self-respect. When you have two economies with the same companies and the same trading rights, you discover that you must respect your own culture even more than you did before. Free trade will strengthen our culture. -- How do Mexicans feel about the Supreme Court decision affirming the 1990 arrest of Dr. Humperto Alvarez Machain by U.S. forces in Mexico? Machain was implicated in the death of Enrique Camarena, a U.S. Drug Enforcement Administration agent. I think there is a real feeling against it, not only among Mexicans but in other countries. A lot of Latin American countries and small countries are worried about the implications of the Supreme Court decision. I think they will try to sign treaties to avoid such things in the future. -- Is the Supreme Court decision the reason that Mexico will no longer accept U.S. aid in its anti-drug efforts? No. Several times, the Mexican government has decided to absorb the cost of the drug war on its own, because it is one of the most important areas for the Mexican government to intervene in. But it is not easy to stop it, because in small villages, drugs provide a way to make a living. And these small villages are so far from the big cities that the only way to survive is through that economy. There are two kinds of economy: the real economy and the informal economy. We can only guess at the figures for the informal economy. If you compare trade between Mexico and the United States in the real economy, Mexico always comes out with a deficit. But in the informal economy, Mexico has a surplus. When we try to reduce the informal economy, we very drastically reduce the flow of capital to Mexico. -- Does the government want to control that more? It is not a question of control. When you have a country like Mexico, with 82 million inhabitants, 35 percent of whom live in extreme poverty in hundreds of small villages, it is impossible for the government to provide all the services needed. The informal economy, including the drug business, supports many of those villages. I think the Mexican and U.S. governments are eager to combat drugs. But sometimes I wonder what would happen if they decided to stop everything. During the economic crisis of the past 10 years, the informal economy kept growing. For instance, in Mexico, the informal economy grew perhaps 20 percent more than the formal economy during that period. Today there are many small, unregistered companies without government pap