WEEKLY NEWS UPDATE ON THE AMERICAS ISSUE #259, JANUARY 15, 1995 NICARAGUA SOLIDARITY NETWORK OF GREATER NEW YORK 339 LAFAYETTE ST., NEW YORK, NY 10012 (212) 674-9499 1. Mexican Crisis Sets Off Latin American Market Crash 2. Argentina, Brazil, Chile: Operation Differentiation 3. Mexico and US: Costs of the Bailout 4. Angry Mexicans Look to the Left 5. Violence Hits Chiapas Town During Peaceful Takeovers ISSN#: 1068-5332. These updates are published weekly. A one-year subscription is $25 by first class mail. Please send check or money order payable to Nicaragua Solidarity Network at 339 Lafayette St., New York, NY 10012). Back issues and source materials are available on request. (Many of our source materials are accessed through NY Transfer; back issues are also available on NY Transfer's OnLine Library.) Subscriptions to the Electronic Edition of this Update are delivered directly to your e-mail box. To subscribe to the electronic edition, send your e-mail address with a check or money order for US $25 payable to Blythe Systems. Mail to: NY Transfer News Collective, Attn: Kathleen Kelly, 235 East 87th St., #12J, New York, NY 10128. Feel free to reproduce these updates or reprint any information from them, but please credit us, and send us a copy. We welcome your comments and ideas: send them via e-mail to nicanet@blythe.org. * 1. MEXICAN CRISIS SETS OFF LATIN AMERICAN MARKET CRASH As financial markets opened for the week on Jan. 9, the Mexican government drew for the first time on a $9 billion credit line the US extended last month in response to the Dec. 20 peso devaluation. Mexico took $500 million from the US and $83 million from a similar $1.5 billion Canadian account. The peso rose somewhat, closing at 5.35 to the dollar, but the Mexican stock market (BMV) plunged by 6.65% as investors moved money out of stocks into currency exchanges. This was the BMV's worst single- day loss since 1989. [Financial Times (UK) 1/10/95; New York Times 1/10/95; Wall Street Journal 1/10/95] The next day the Mexican government offered $400 million in short-term bonds. Only $63 million were sold. The peso slid further, to end the day at 5.85 to the dollar; the BMV plunged by 11.3%. Stocks recovered partially in the afternoon and closed down 6.26% from the day before, for a total loss of 12% in two days. The crash spread to the rest of the region during the day. Argentina's stock market fell 9.59%, Brazil's 9.86%, Chile's 4.86% and Peru's 8.42%. The Mexican crisis--in conjunction with problems in Europe--added to nervousness on international currency exchanges, helping boost the Deutschmark against the dollar and most other currencies. [FT 1/11/95; NYT 1/11/95, some from Reuter; WSJ 1/11/95; Washington Post 1/11/95] Latin American stock markets came back up on Jan. 11 as US president Bill Clinton announced that the US would enlarge Mexico's credit line. Although the US refused to put an exact figure on the new bailout fund, most indications were that $25 billion to $40 billion in subsidized loans would be made available to Mexico, in addition to the $9 billion credit line extended in December. The new loans will require approval from the US Congress, in contrast to the initial credit line, which came from the Treasury Department's discretionary fund. The new Republican Congressional leadership, Sen. Bob Dole (R-KS) and Rep. Newt Gingrich (R-GA), promptly backed the Democratic administration's plan. The new bailout succeeded in stabilizing the Latin American stock markets, which recovered most of their losses by the end of the week. The US dollar, however, took a beating from its support of the peso, falling to 98.605 yen and 1.528 marks on Jan. 12. [NYT 1/12/95, 1/13/95; FT 1/12/95, 1/13/95; WP 1/13/95; WSJ 1/13/95] 2. ARGENTINA, BRAZIL, CHILE: OPERATION DIFFERENTIATION "Our economy is quite different from the Mexican [economy]," Chilean finance minister Eduardo Aninat said on Jan. 9, the day before Chile's market plunged. [CHIP News 1/11/95 from La Nacion and El Diario] The theme was repeated throughout South America as foreign investors reacted to the Mexican crisis by pulling their money out of the region. The Argentine business daily Ambito Financiero called for Argentina to mount "Operation Differentiation," an effort to show investors the structural differences between Argentina and Mexico. But the leftist Argentine daily Pagina 12 noted that Argentina's economy had followed the same patterns as Mexico's ever since the 1982 debt crisis. Rio de Janeiro's Jornal do Brasil warned that the new real introduced last July was in fact quite similar to the Mexico peso, which like the real had been informally linked to the dollar and had been kept at an artificially high value. [FT 1/9/95] In November Brazil recorded its first trade deficit-- $262 million--in nearly eight years. Trade deficits and an overvalued peso were largely responsible for the Mexican crisis. [FT 1/12/95] [The real was a major factor in the election of its creator, former finance minister Fernando Henrique Cardoso, who took office as president Jan. 1.] Argentine president Carlos Saul Menem, who is running for an unprecedented second term in general elections on May 14, vows to maintain parity between the Argentine peso and the dollar. "There is no possibility that the government will devalue--it would lose them the elections," says Nicholas Grose-Hodge, manager of Lloyds Bank in Argentina. "The whole credibility of the administration is based on the stability of the currency." To reassure foreign investors, on Dec. 22 Menem announced a policy of "total austerity," cutting $1 billion out of next year's proposed $42 billion budget. Some analysts wonder whether more austerity might not set off riots like the ones that rocked Santiago del Estero, northern Argentina, in December 1993. Economy minister said any efforts to compare Santiago del Estero to the rebellious Mexican state of Chiapas were "simplistic." [FT 12/24-5/95] [When the campesino insurgency began a year ago in Mexico, Cavallo himself warned that the "Chiapas syndrome" might lead to more social explosions in Argentina. See Updates #203 and 207.] 3. MEXICO AND US: COSTS OF THE BAILOUT The US Congressional leadership, which is committed to making sharp cuts in federal spending, is backing Mexican government claims that the $34 billion to $49 billion US bailout plan "is not going to cost the US taxpayers one cent," as an unnamed Mexican official put it. Bob Dole even hinted that the taxpayer might make money on the deal, due to a $4 billion nonrefundable fee the Mexican government may be required to pay. Other Congress members are looking for concessions on the privatization of Pemex, Mexico's valuable national oil company. In exchange for the bailout, Rep. Barbara Boxer (D-CA) wants Mexico to crack down on illegal border crossings into the US and to take back undocumented immigrants convicted of crimes in the US. [NYT 1/14/95] But there is some criticism from legislators who opposed the North American Free Trade Agreement (NAFTA) in 1993. "It's cost tens of thousands of US jobs already," Rep. Peter DeFazio (D-OR) said of the trade pact on Jan. 12, "and is now well on its way to becoming the biggest taxpayer bailout for [US] banks and foreign interests since the savings-and-loan scandal." [WSJ 1/13/95] The week before, Julius Katz, who led NAFTA negotiations for the Bush administration, had deflated claims by both the Bush and the Clinton administrations that NAFTA would create new jobs in the US. "The job numbers are totally phony numbers," he admitted. "My great regret is we got trapped into that argument." [WSJ 1/4/95] It is not yet clear how much Mexico will have to pay for the new loan guarantees, but the initial $9 billion credit line comes with an exceptionally high interest rate of about 13%. [La Jornada (Mexico) 1/8/95] Mexico is now the most heavily indebted nation in Latin America. With $23 billion in loans since the crisis started three weeks earlier, as of Jan. 6 the Mexican national debt had reached $164 billion, $108 billion of it in the public sector. The total debt is roughly equal to half the year's expected Gross Domestic Product (GDP) of $329.8 billion; each Mexican now owes $1,842. Government figures project that interest payments on public debt will rise by 0.6% of GDP--that is, $1.98 billion--this year. [Inter Press Service 1/5/95, 1/6/95] 4. ANGRY MEXICANS LOOK TO THE LEFT The New York Times reports that the US is "concerned" about "political turmoil" in Mexico, "perhaps leading to uprisings among workers angry that prices for necessities are beginning to soar." [NYT 1/13/95] The new crisis comes after a decline of almost 60% in real wages since 1982, with almost half the population of 90 million living below the poverty line. [Associated Press from New York Transfer 1/11/95] The peso crisis is already causing layoffs. Volkswagen de Mexico will suspend production for the last week of January, while Mercedes-Benz's Mexican plants are shutting down Jan. 13-23. [NYT 1/12/94, 1/14/95, some from Reuter] As the crisis continues, the center-left Party of the Democratic Revolution (PRD) is picking up support from disaffected supporters of the ruling Institutional Revolutionary Party (PRI). Former assistant attorney general Mario Ruiz Massieu has joined the opposition party, serving as a legal adviser to PRD president Porfirio Munoz Ledo; Mario Ruiz Massieu quit the PRI and his government post on Nov. 23, claiming that the PRI leadership had blocked his probe into the Sept. 28 murder of his brother, PRI secretary general Jose Francisco Ruiz Massieu [see Update #252]. [El Diario-La Prensa (NY) 1/12/95 from AFP] PRD legislators are pushing ahead with criminal charges against former president Carlos Salinas de Gortari and two former finance secretaries for creating the peso crisis during their time in office. On Jan. 8 the conservative opposition daily Reforma published a poll of 400 Mexico City residents; 77% supported the PRD's legal action and only 15% opposed it. [ED-LP 1/1/95 from AFP] Former PRD presidential candidate Cuauhtemoc Cardenas Solorzano has called for a "campaign in defense of the national heritage" to fight plans to sell off Pemex to pay the foreign debt. [LJ 1/6/95 synopsis from NY Transfer] He has also proposed an all-party "government of national salvation," possibly with an interim president to replace Ernesto Zedillo Ponce de Leon, whose term began on Dec. 1. [LJ 1/8/95] [Cardenas faced Zedillo in the presidential race last August, coming in third, according to official results; Zedillo, a US-trained economist, campaigned on the slogan: "Zedillo knows how to do it."] Some 30,000 protesters marched against Zedillo's new economic plan in two separate protests in the capital on Jan. 5. A week later, on Jan. 12, actress Ofelia Medina, National Democratic Convention (CND) president Rosario Ibarra de Piedra and masked activist "Superbarrio" led a PRD march to the central plaza; the 30,000 marchers chanted: "No to austerity." [Independent (UK) 1/7/95, 1/14/95 from AP] The party is to release its own economic plan on Jan. 20. Cardenas says that Mexicans must accept inflation as inevitable. The PRD would provide for wage increases to be indexed to the inflation rate, keeping the main focus on stimulating growth in the industrial and agricultural sectors. The PRD will also demand renegotiation of NAFTA and the external debt. [Diario Las Americas (Miami) 1/14/95 from EFE] 5. VIOLENCE HITS CHIAPAS TOWN DURING PEACEFUL TAKEOVERS The southern state of Chiapas had remained comparatively calm, with the rebel Zapatista National Liberation Army (EZLN) regularly renewing a unilateral week-by-week truce. But five towns have peacefully ousted their governments in the last weeks, electing new officials and declaring allegiance to the "transitional government in rebellion" of Amado Avendano Figueroa, a former PRD gubernatorial candidate who claims he lost to the PRI last year because of election fraud. [Associated Press 1/7/94; Diario Las Americas 1/14/95 from EFE] One municipal takeover suddenly turned violent on the early morning of Jan. 10, when about 300 campesinos tried to seize the town hall in the village of Chicomuselo. The action was to be peaceful, according to opposition activist Cesar Espinoza, "[b]ut the police had already been alerted and fired on the demonstrators." Two protesters were shot dead. The rest managed to take the building and hold it for 13 hours until about 150 state police, supported by helicopters, drove them out. The campesinos took refuge in a church and then fled the area. The police say that after taking the town hall, the protesters lynched the police chief and his deputy. Three more people died in the incident, at least one killed by rightists from the town. [Independent (UK) 1/12/95 from AP]