The Mexican Shock: Its Meaning for the U.S.

• Author: Silverstein, Ken

by Jorge G. Castaneda The New Press, $23 By Ken Silverstein It's hard now to remember, but just a few years ago Mexico was deemed by many people to be the economic superstar of the Americas and a nation poised to enter the ranks of the First World. A 1992 dispatch from Reuters called Mexico "a model for economic recovery in the developing world" and cheerfully described its leaders as being "at ease offering advice" to other Latin American countries seeking the path to economic growth.

Mexico's appeal as a "model" has dimmed significantly since the peso collapsed in December 1994. Some 2 million Mexicans have lost their jobs, inflation has climbed to an annual rate of more than 50 percent, and thousands of small businesses have shut their doors. In The Mexican Shock, Mexican political scientist Jorge Castaneda seeks to explain what went wrong and to lay out a modest economic and political blueprint for the country's future.

Of course, as Castaneda points out, the idea of Mexico as a model has always been ludicrous. While U.S. government officials (and reporters) waxed eloquent about Mexico's soaring stock markets and respect for free markets, most Mexicans were getting poorer. Real salaries in Mexico fell by an estimated 40 percent between 1988 and 1994. During the same period, the number of Mexican billionaires jumped to 24, about five times the number of them in Canada.

Also overlooked during the "boom" years was the gross corruption of Mexico's political elite, most notably that of former President Carlos Salinas and his family. Salinas retired in 1994 as one of the world's richest men. Clearly, his enormous wealth was not due to a modest presidential salary; the bribes that greased the privatization of state firms was only one example of the corruption. The ex-president's older brother, Raul, recently was revealed to have European bank accounts brimming with tens of millions of dollars in unexplainable funds. His sister was just arrested for similarly shady dealings.

Besides the inherent instability of a corrupt regime with such extremes of wealth and poverty, Mexico under Salinas also crept along despite the Achilles' heel of a seriously overvalued peso. Imports to Mexico were absurdly cheap and exports ridiculously expensive, leading to an enormous trade deficit of $30 billion in 1994. The country also had a huge foreign debt and some $9 billion in annual interest payments that further depleted its reserves.

As long as foreign...