Mexico and NAFTA 1
Excerpt from Commanding Heights by Daniel Yergin and Joseph Stanislaw, 2002 ed., pp XXXXXXXXXX.
Copyright © 2002 by Daniel A. Yergin and Joseph Stanislaw. Reprinted by permission of Simon &
Schuster, Inc., N.Y. All rights reserved.
The Diffusion of Powe
By mid-1993, the Salinas government seemed to have achieved the impossible—turned
Mexico around—for good, it appeared. Public finances were fundamentally sound for the first
time in decades, and a real political opening seemed to be under way, with the center-right
National Action Party (PAN) in power in some states in the industrial heartland of the north. In
a major achievement, Salinas negotiated the North American Free Trade Agreement (NAFTA)
with the United States. The acceptance of free trade represented a turning in side out of
Mexico's once desperately inward-looking economy. It also ca
ied profound psychological
weight, setting Mexico, at least in the minds of some, on an equal footing with its northern
neighbor.
Yet extraordinary events were to call the entire process into question. On New Year's Day
1994, masked rebels took over the town center of San Cristobal de las Casas in the
impoverished Southern state of Chiapas, which was remote, heavily populated by Indians, and
had little to show for the reform process. There they "declared war" on the Mexican state. It
was a dramatic reminder of the distance to be traveled and the range of interests to be
considered in reform. It was also a reversion to the debilitating peasant wars that had festered
in previous decades all over Central America. Although localized, the Chiapas conflict was to
flare up and down, and to be placated by uneasy compromises over land rights and improved
infrastructure and services. Then, in March 1994, in Tijuana in Baja California, former budget
minister Luis Donaldo Colosio, Salinas's designated successor, was assassinated as he
addressed an electoral rally. It was Mexico's most shocking political murder in 60 years.
Although a suspect was identified and rapidly tried, most Mexicans felt there was more, much
more, to the story. In due course the investigation would become enmeshed with othe
inquiries in a complex weaving of political and financial scandals that appeared to involve
Salinas allies and relatives and co
uption and drugs. (Later, Salinas would prudently remove
himself to Ireland, with which Mexico had no extradition pact.)
To replace the murdered Colosio, Salinas selected yet another unlikely dark horse, Ernesto
Zedillo Ponce de Leon, who assumed office after an apparently clear election victory, although
he became known in the process as the accidental president. He was born to a modest family
in Mexico City but grew up primarily in Mexicali, on the United States border, a rough town at
the crossroads of industry, immigration, and shady dealings. A gifted student, he studied
economics and went on to become another of Mexico's new generation of technocrats, in the
process earning the reputation of being dull and gloomy. He wrote his Ph.D. thesis at Yale in
1981, presciently arguing that Mexico's debt predicament should be blamed on the
government and not on the banks that had provided the loans. That earned him a job, afte
the debt crisis began, at the central bank, whose head shared his views. It also set out an
economic stance that he pursued unwaveringly, if quietly, in various technocratic positions
under de la Madrid and Salinas.
As Mexican presidents often did, Salinas left his successor with a financial crisis on his hands.
The peso had been overvalued for some time, but Salinas had refused to adjust it for reasons
of politics and prestige, prefe
ing instead to defend the cu
ency by dipping into the country's
foreign reserves. By the time Zedillo was sworn in on December 1, 1994, Mexico's economy
was teetering on the verge of a default. Zedillo's government announced a devaluation.
Mexico and NAFTA 2
Unfortunately, it turned out that it had miscalculated the effect on the unsuspecting financial
markets. Mexico's stock exchange fell dramatically, setting off the domino reaction around
Latin America that was du
ed the "tequila effect." It was another unfortunate sullying of
Mexico's financial reputation. It proved much less grave, however, than the debt crisis. The
United States mounted a $20 billion bailout in short order, which served to stabilize
confidence, helping to prevent what might otherwise turned into a major emerging-market
contagion.
But by the end of Zedillo's term six years later, Mexico was, in some fundamental ways, quite
a different country. Thanks to NAFTA, the economy was booming. Dramatic changes had
taken place in the political realm as well. Zedillo's determination to push forward the
investigations of Colosio's death, despite the possible political entanglements, earned him
espect as a champion of the norms of justice. Most strikingly, he had allowed the political
arena to open up substantially, ending the PRI's effective monopoly of political power. In
January 1995, amid the peso crisis, Zedillo called for all political parties to negotiate electoral
eform. His efforts were rewarded in mid-1996, when new electoral legislation was signed into
law. He entrusted elections to an independent commission, effectively distancing the
operations from the PRI old guard. In the midterm elections of 1997, the
esults—remarkably—confirmed the opinion polls: PRI lost its absolute majority in the National
Assembly, as well as in several states. The more market-oriented, center-right Partido Accion
Nacional (PAN) emerged as a strong opponent to PRI in the 2000 presidential election. Its
candidate was the governor of Guanajuanto, Vicente Fox.
"We Must Change Things"
By all measures, the 2000 presidential election was extraordinary. In voting for Fox, Mexicans
ought to an end 71 years of PRI rule, in effect ending the tradition of a one-party state—and
did so in a free and democratic election, unma
ed by the instability that traditionally
accompanied Mexico's transitions of power. "It really was the first time in Mexican history that
power passed from one group to another through the ballot box," said Jorge Castaneda, a
leftist intellectual who was drawn to Fox because of the way he incarnated the possibility of
change and became foreign minister in Fox's cabinet. Adding to the extraordinary nature of
the election was the president-elect himself. Standing six feet five and proudly wearing
ancher's boots embossed with "Vicente Fox Quesada" and a belt decorated with a cowboy
uckle, Fox projected a rough-hewn, rugged image that projected charm and charisma. His
ackground was business, not politics, and he addressed political issues in the
straightforward, down-to-earth style of someone accustomed to dealing with business
problems. He was a self-made man, born and raised on a farm in a family of immigrant
descent (his father was the son of an Irish-American immigrant; his mother came from the
Basque country in Spain). At age 22, Fox joined Coca-Cola's Mexican operation. "I started as a
salesman, right from the bottom," he would recall later. "And I learned that discipline, hard
work, and talent is the way to succeed." There was an additional benefit to the job: "It was a
job that didn't require a suit and tie; I've always had an aversion to them."...
In many ways, the Mexico that Fox inherited was already undergoing rapid change. Six years
after its introduction, NAFTA was proving to be a bigger success than its creators had eve
imagined. The export boom it generated was unprecedented, leading to the tripling of Mexico's
exports between 1994 and 2000. Significantly, the share of petroleum exports, which
contributed more than 60 percent of Mexico's export revenues in 1980, fell to less than 10
percent by 2000, displaced by manufacturing exports. By far the biggest effect was on
Mexico and NAFTA 3
Mexico's trade with the United States. Exports to the United States grew to account for 25
percent of Mexico's economy—up from 13 percent in 1993—and to make up 80 percent of
Mexico's export revenues. By 2000, 70 percent of Mexico's foreign investment and 80 percent
of tourism was coming from the United States Maquiladoras (the export-oriented assembly
factories largely concentrated on the border with the United States), which contribute half of
Mexico's exports and which were NAFTA's most immediate beneficiaries, were employing 1.3
million people, compared with 546,000 in 1993. The legal framework provided by NAFTA had
led to a resurgence of the investment community's confidence in Mexico,
inging in billions of
dollars in foreign investment. Wages had risen as well. It was a new era in Mexico—the era of
expanded trade and increased participation in the global economy—and in voting for Fox,
Mexicans had elected a leader for that era.
The complexity of the changes that the country is undergoing cannot be overestimated. With
the first truly democratic transition of power, Mexico is learning for the first time about the
complexities of running a pluralistic society, in which the government is accountable to its
citizens and where each decision made by the government is subject to public scrutiny and
vigorous discussion. "It's not just that you are having a rotation in power between different
parties or groups," said Castaneda. "It's that it's taking place this way for the first time."
Mexico's economic challenges are enormous. The NAFTA-generated growth remains unevenly
spread—geographically as well as across the various sections of the population—and reduction
of poverty is the central issue for the country. "Inequality is the foremost challenge that this
administration has," said Castaneda. "The first thing to do is to acknowledge that this is an
ancestral problem in Mexico. This is not a problem that emerged with Salinas or with NAFTA o
with PRI. It's been around for centuries. This was a tremendously unequal society since the
Conquest at least." Close economic cooperation with the United States also means that Mexico
is extremely sensitive to the performance of the U.S. economy, as was demonstrated by the
U.S. economic downturn in 2001. Border crime, illegal immigration, and drug trafficking
emain contentious issues between the two countries. In what might be very surprising to the
critics of NAFTA, the increase in wages and incomes means that Mexico is facing tough
competition from lower-wage countries. Entrepreneurship is hampered by bureaucracy. "We
have to deregulate," said Fox. "We have to end with red tape, and we have to give all the
facilities and the flexibility to entrepreneurial efforts, and this is part of things that we are
trying to accomplish."
Today's Mexico is a much more outward-looking country, poised to become a full-fledged
participant in globalization. One afternoon, Fox sat down in a small room in the Los Pinos, the
presidential palace in Mexico City, to talk about how his thinking had evolved. He was wearing
his signature cowboy boots and no jacket, and the long sleeves of his shirt were rolled back
almost to his elbows