From iatp@igc.apc.orgFri Mar 3 21:09:48 1995 Date: Fri, 03 Mar 1995 09:05:03 -0800 (PST) From: IATP To: Recipients of conference Subject: NAFTA & Inter-Am Monitor 3/3/95 The NAFTA and Inter-American Trade Monitor Produced by the Institute for Agriculture and Trade Policy March 3, 1995 Volume 2, Number 5 Summaries: - CONDITIONS IMPOSED IN EXCHANGE FOR U.S. LOAN GUARANTEES - IMPACT OF PESO CRISIS ON UNITED STATES - MEXICAN ECONOMY CONTINUES TO SLIDE - NEGOTIATIONS UNLIKELY IN CHIAPAS - OIL AND REBELLION - REGIONAL FREE TRADE NOTES - RESOURCES/EVENTS CONDITIONS IMPOSED IN EXCHANGE FOR U.S. LOAN GUARANTEES After intense negotiations, Mexico agreed to conditions set by the United States in order to receive the $20 billion in U.S. loan guarantees that make up an essential part of the $40 billion peso bailout package. Some of the conditions were straightforward and public. Others remain secret and objects of speculation. Most of the $20 billion promised by the U.S. to Mexico will come from the Exchange Stabilization Fund, which has $25 billion in foreign currency reserves. Under the plan, the U.S. will exchange these reserves for dollars and will use the dollars to buy pesos. Mexico will have to pay back the dollars within 3-5 years. Mexico agreed to pay a fee for any of the loans that it uses, to raise interest rates, and to end the year with a budget surplus. On February 20, as the conditions were finalized, the Bank of Mexico raised short-term interest rates from 38 percent to more than 47 percent. The rate on some government debt rose to 50 percent. Mexico will also deposit all oil receipts in the U.S. Federal Reserve, though the Mexican central bank can draw freely on the funds unless there is a default on loan payments. Concession of any control over Mexican oil is a blow to Mexican nationalists. Other conditions also exist, but their terms have not been made public. Some of these "political" conditions involve control of undocumented immigration from Mexico into the U.S. and action to stop drug trafficking, "Putting Mexico Together Again," THE ECONOMIST, 2/4/95; Leslie Crawford, "Peso Rallies Strongly as Bank of Mexico Raises Interest Rates," FINANCIAL TIMES, 2/21/95; Anthony DePalma, "Rates Up Sharply in Mexico," NEW YORK TIMES, 2/21/95; Tim Carrington, "U.S., Mexico Make Headway on Rescue Pact," WALL STREET JOURNAL, 2/21/95; Tim Golden, "Mexico Said to Promise Some Steps in Exchange for U.S. Loans," NEW YORK TIMES, 2/23/95; David E. Sanger, "Peso Rescue Sets New Limits on Mexico," NEW YORK TIMES, 2/22/95. IMPACT OF PESO CRISIS ON UNITED STATES Dreams of massive exports to Mexico under NAFTA have given way to harsher realities since the December 20 peso devaluation -- lines of trucks back up on the Mexican side of the border, but southbound traffic has fallen dramatically. Last year Mexico was the second- largest market for American exports, with the U.S. running a large trade surplus. This year, the U.S. will suffer a bi-lateral trade deficit and job losses. Mexican ranchers have shipped herds north of the border to get dollars, and Mexican consumers can no longer afford North American beef, so U.S. beef prices have fallen. Auto sales in Mexico fell 22.2 percent in January, with bigger declines expected in the months to come. Manufacturers inside Mexico are shutting down many plants. Grupo Dina, Mexico's largest manufacturer of buses and trucks, closed three plants for three months. U.S. auto-makers have also stopped production for the Mexican market. Federal Reserve economists forecast a $13 to $28 billion loss in U.S. production this year as a direct result of lost exports, and job losses of 380,000 in the United States over the next four years as a direct result of the peso devaluation. Texas (which provides one-third of all U.S. exports to Mexico), Arizona, and California will be the most dramatically affected, but other places will also be hurt. In Kansas, food export businesses fueled by NAFTA during 1994 will be hurt and in Delaware, chemical sales that rose in 1994 will now fall. Wal-Mart has stopped work on 25 new stores in Mexico and has cut shipments to Mexico. Nike, attracted in part by lower labor costs in Mexico, is shifting production of some of its athletic shoes from China to Mexico. The director of development for an industrial park in Mexico reports that at least five companies plan to accelerate their plans to move south because of falling labor costs in Mexico. Textile manufacturers who supported NAFTA initially continue to benefit by relocating south of the border. Labor leaders point out that the cost to U.S. workers comes also in lower settlements agreed to by unions when owners threaten to move south. The U.S. dollar has also suffered from Mexico's economic crisis, falling sharply against the German mark and the Japanese yen on February 16, due to concerns over the Mexican bailout package and economy. Traders also expressed concern that the U.S. balance of trade will suffer as it loses a substantial portion of its export market because of Mexico's economic crisis. Paul Lewis, "Dollar Falls on Fears in Peso Crisis," NEW YORK TIMES, 2/17/95; Philip Gawith and Philip Coggan, "D-Mark Rises as Mexican Financial Crisis Hits Dollar," FINANCIAL TIMES, 2/17/95; Frederick Rose, "Mexican Crisis to Hurt U.S. Economy With Substantial Loss of Jobs, Exports," WALL STREET JOURNAL, 1/24/95; Neal Templin, "Mexico's Financial Crisis Sparked Tumble in Auto Sales Last Month," WALL STREET JOURNAL, 2/23/95; Allen R. Myerson, "U.S. Firms Cutting Shipments, Dumping Workers as Peso Falls," MIAMI HERALD (from NEW YORK TIMES), 2/15/95; "Mexico's Dina to Close Its Three Factories for 60 Working Days," WALL STREET JOURNAL, 2/7/95; Ken Geppert, "Nafta Booster Scrambles to Adapt to Unstable World of Free Trade," WALL STREET JOURNAL, 1/25/95; Allen R. Myerson, "Strategies on Mexico Cast Aside," NEW YORK TIMES, 2/14/95. MEXICAN ECONOMY CONTINUES TO SLIDE The president of the Consejo Coordinador Empresarial (CCE - a business organization) warned that the economy is practically paralyzed due to unaffordably high interest rates and uncertainty about the future, and that more than 250,000 workers have lost their jobs since the December 20 devaluation of the peso. The director of the Confederacin de Ejecutivos de Ventas placed the number of jobs lost at 500,000, and warned that a precipitous drop in food imports and the failure of support programs in the countryside could lead to a national food scarcity. Both business executives warned that high interest rates are severely damaging businesses. Rates on some government treasury certificates have reached 59 percent, with one interbank interest rate rising to 74 percent and home mortgage, car loan, and credit card interest rates now hovering at 97 percent per year. Two months after the devaluation, inflation is soaring, the stock market continues to fall, and the peso remains unsteady. Inflation for the first two weeks of February was 2.2 percent, an annualized rate of 67 percent. The market fell 212 points during the last full week of February, for a 15 percent decline, despite the finalization of the "bailout" package. On Monday, February 27, the market slid another 106 points, or 6.85 percent, to its lowest point since 1992. Grupo Sidek, a tourism and construction conglomerate, became the first major Mexican company to default on its debt since the economic crisis began in December, failing to meet a February 15 debt payment of $19.5 million. A week later, after Mexican finance officials and bankers arranged credit lines for Sidek, the company released a payment of $29.5 million to short-term creditors. On February 27, Banamex, one of Mexico's largest banks, announced that it will let go up to 35 percent of its 33,000 employees, further shaking investor confidence. Devaluation of the peso has increased the bad loan problems of Mexican banks, already weakened by bad loans and inadequate capital reserve funds. About $8 billion in dollar-redeemable certificates of deposit are about to fall due. If investors cash these in and take their money out of the country, banks will not have enough money to loan to businesses to keep the economy moving. New banking laws passed in January allow foreign banks to buy up to 100 percent of existing Mexican banks and authorize banks to increase their capital by selling bonds that can be converted into shares. Political factors continue to contribute to general lack of confidence in the government, as investigations of two political assassinations have produced new arrests and allegations of cover-ups by the previous Salinas government and parts of the governing PRI party. The brother of former president Carlos Salinas de Gortari was arrested on February 28 on charges of masterminding and paying for the assassination of PRI deputy leader Francisco Ruz Massieu last September. Charges against Ral Salinas de Gortari came just days after special prosecutor Pablo Chapa Bezanilla, in charge of both cases, ordered the arrest of an alleged second gunman in the March 1994 assassination of PRI presidential candidate Luis Colosio. Responding to the continuing crisis, President Zedillo's advisers are working on a soon-to-be-announced new economic plan. The new plan acknowledges that 1995 economic growth is likely to be zero or even negative, and that inflation will be double the originally- predicted 19 percent for the year. Taxes will increase sharply, as will gasoline and electricity prices, and the government's budget will be slashed. Mexican government officials say that the social pact between the government, business, and labor will soon be abandoned in favor of government controls. Raul Llanos Samaniego, "500,000 Puestos Cancelados," LA JORNADA, 2/23/95; Anthony DePalma, "Economy Reeling, Mexicans Prepare Tough New Steps," NEW YORK TIMES, 2/26/95; Ted Bardacke, "Zedillo to Push Ahead With State Sell-Off," FINANCIAL TIMES, 2/13/95; Stephen Fidler and Leslie Crawford, "Mexican Package Gets Short Shrift," FINANCIAL TIMES, 2/23/95; Anthony DePalma, "Mexico Market Has Nearly 7% Drop," NEW YORK TIMES, 2/28/95; Andrea Becerril, "250 Mil Desempleados," LA JORNADA, 2/24/95; Andrea Becerril, "CCE: La Economia Paralizada," LA JORNADA, 2/17/95; Craig Torres, "Mexican Markets Are Hit by Fresh Blows," WALL STREET JOURNAL, 2/16/95; "Mexican Firm in Default Puts a Check in the Mail," WALL STREET JOURNAL, 2/21/95; Anthony DePalma, "Mexico's Banks: A Weak Link in the Rescue Plan," NEW YORK TIMES, 2/9/95; Tim Golden, "Mexico Party Aide Arrested in Killing of Candidate in '94," NEW YORK TIMES, 2/26/95; Tim Golden, "Ex-Leader's Brother Held in Mexican Assassination," NEW YORK TIMES, 3/1/95. NEGOTIATIONS UNLIKELY IN CHIAPAS While saying it is ready to negotiate in Chiapas, the Mexican government has made negotiations extremely unlikely by its current military and political posture. Prior to the current offensive, the Zapatistas and their followers and sympathizers occupied the "free zones" of Guadalupe Tepeyac, Las Margaritas, Morelia, Altamirano, San Miguel, and Ocosingo. Now the government maintains that these free zones no longer exist and the military can move anywhere in the country in pursuit of the EZLN (Zapatista Army of National Liberation.) The government also excludes the possibility of any international involvement or mediation to end the armed conflict. An EZLN commander asked for the immediate return of the International Red Cross to the Lacandon jungle, saying that dozens of children are suffering gastrointestinal illnesses and that there are serious problems of nutrition and sanitation for the thousands of refugees who have fled into the jungle to escape advancing government forces. Some international observers estimate that there are 20,000 internal refugees from the Chiapas conflict. The refugees are indigenous people who have fled the advancing Mexican army in fear of persecution. Foreign press corroborated the continued advance of the military and the reinforcement of their positions in previously- Zapatista towns. In a February 20 communiqu, the EZLN said it remains willing to resume negotiations, noting that it was the government which broke off the dialogue and began military operations. The EZLN maintains that withdrawal of the military now pursuing them is a necessary condition of dialogue, together with annulment of arrest warrants against them. Nistor Martinez y Mireya Cuillar, "Propuesta Com. Legis. a CONAI," LA JORNADA, 2/24/95; Blanche Petrich, LA JORNADA, 2/25/95 (translated by Cindy Arnold); "Lacandon Jungle," LA JORNADA, 2/25/95; EZLN Communique, 2/20/95; Jose Gil Olmos, "20 Mil Refugiados," LA JORNADA, 2/24/95. OIL AND REBELLION Petrleos Mexicanos (Pemex) has an extensive communications network in southern Mexico, which the military has used to monitor and move against the Zapatista (EZLN) armies. The National Security Commission last year proposed a project to use all private telecommunications networks as a super-network for voice, information, and video transmissions for national security purposes. Pemex also has a vested interest in defeat of the Zapatistas, since recent exploration points to large, highly productive new oil fields in the middle of Chiapas, in EZLN-controlled territory. Alva Senzek, "Drilling for Dollars," EL FINANCIERO, 2/13-19/95; Daro Celis, "Privatization vs. National Security," EL FINANCIERO, 2/13- 19/95. REGIONAL FREE TRADE NOTES United States Trade Representative Mickey Kantor announced that the U.S. will host the first hemispheric meeting of trade ministers on June 30 in Denver, as a step toward fulfillment of the Summit of the Americas Plan of Action. The meeting will be followed by a forum for business leaders and government officials to discuss commercial integration. In South America, movement toward integration continues with talks between the Mercosur and Andean Pact nations on proposals for SAFTA, the South American Free Trade Area, and Mercosur member are moving forward with plans to incorporate Chile into the Pact. Andean Pact nations have invited Panama to become a permanent observer in the group, moving toward membership. Colombia opposes the move because of illegal imports from Panama, allegedly totaling $9 billion yearly. "Kantor Announces Date of Hemispheric Trade Ministers Meeting," NEWS RELEASE, 2/8/95; "Colombian Exporters Oppose Membership for Panama," INTERPRESS SERVICE, 2/6/95; Estrella Gutierrez, "Mercosur Offers the Lure of Brazil," INTERPRESS SERVICE, 2/21/95; "Negotiations Progress Toward Incorporation of Chile," INTERPRESS SERVICE, 2/23/95. RESOURCES/EVENTS Public Citizen information packets. Compilations of news clippings, fact sheets, and other information from Ralph Nader's Public Citizen organization, 215 Pennsylvania Avenue SE, Washington, D.C., 20003. Telephone 202/546-4996, fax 202/547-7392. The February 16 edition of approximately 70 pages includes news and background papers on the Mexican peso crisis, bailout, and Zapatista uprising; NAFTA information; and a copy of Rep. Peter DeFazio's (D-OR) bill to withdraw the U.S. from NAFTA. The Polarization of Mexican Society: A Grassroots View of World Bank Economic Adjustment Policies by Carlos Heredia and Mary E. Purcell, Equipo PUEBLO, 1995, approx. 35 pp. The Development Group for Alternative Policies (The Development GAP), 927 Fifteenth Street NW - 4th Floor, Washington, DC 20005. Telephone 202/898- 1566, fax 202/898-1612. email: dgap@igc.apc.org. Also in Spanish. summary of a study on the impact of World Bank-imposed structural adjustment policies on the poor and working class in Mexico "demonstrates the underlying weakness of the Mexican economy and other economies around the world that have been "restructured" at the insistence of the World Bank, the IMF and USAID." IFCO/Pastors for Peace Spring 1995 Caravan to Central America and Chiapas, March 9-April 9. Seeking drivers, vehicles, material aid, host families for 20th material aid caravan to community development projects in Mexico, Guatemala, El Salvador, and Nicaragua. Pastors for Peace, 331-17th Avenue SE, Minneapolis, MN 55414. Telephone 612/378-0062. Fax 612/378-0134. Chiapas Human Rights/Action Delegations, monthly, organized by Global Exchange. Seven-day trips include education and possibly accompaniment of individuals and documentation of human rights abuses in Chiapas. Meetings with indigenous campesino organizations, journalists, NGO's, human rights activists, government officials, women's organizations, teachers, church leaders, as possible. Global Exchange, 2017 Mission Street, Suite 303, San Francisco, CA 94110. Telephone 800/497-1994; 415/255-7296. Fax 415/255- 7498. Email globalexch@igc.org. Produced by the Institute for Agriculture and Trade Policy, Mark Ritchie, President. Edited by Mary C. Turck. 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