Read My Lips, Mexican Style Jude Wanniski July 7, 1997

Memo To: Website Browsers, Fans, Clients
From: Jude Wanniski
Re: Mexico Elections

In the summer of 1992, Ernesto Zedillo, the presidential candidate of Mexico’s Institutional Revolutionary Party, or PRI, was trailing in the polls. He seemed to be sleepwalking through his campaign, which should have been no surprise inasmuch as he had never stood for public office in his young life. It was only through a quirk of history that the PRI, which had dominated every national election since 1929, was forced to nominate Zedillo. Just 40 years of age, he was a party functionary who had risen to a minor cabinet rank in the government of Carlos de Gortari Salinas. He had dutifully resigned the office in 1991 in order to organize the presidential candidacy of Luis Donaldo Colosio, who had been the party’s first choice to replace Salinas. When in January of 1992, Colosio was assassinated during a campaign event, the PRI was unable to replace him with any of the major party leaders in the Salinas Cabinet. The party rules required that sitting Cabinet members could not succeed the nominee, only PRI members who had not held office for six months. Given the time constraints, Zedillo was the only possibility, which is the reason why he had to be chosen.

The Cabinet official who most likely would have been chosen, had the rules permitted, was Pedro Aspe, the Finance Minister, the man most closely identified with the success of the Salinas administration. Both Aspe and Zedillo had PhDs, in economics from U.S. universities -- Aspe from MIT and Zedillo from Yale. The backbone of Aspe’s tenure at Hacienda, as the Finance Ministry is known, was his determination and success in keeping the peso fixed to the dollar. For the first time since 1976, Mexico had a unit of account of known and predictable value. Aspe’s achievement came as a result of his team’s courage in fighting off the demands of the United States Treasury Secretary, Nick Brady, that in order to get assistance from Washington, Mexico’s government had to devalue the peso. When Brady instead backed down, on the Aspe argument that he could best improve Mexico’s economy with a stable peso, the Mexican stock market began a long advance that foretold the healthiest economic expansion in more than a generation. Marked by tax cuts and privatization of state industry, Mexico’s progress was capped by its successful entry into the North American Free Trade Association (NAFTA).

If Wall Street could have chosen Salinas’s successor, it surely would have been Aspe, but the party establishment chose Colosio, who found the assassin’s bullet. The political outlook had already been clouded by a rebel uprising of peasants in Chiapas, the southernmost state and the most impoverished. The economic expansion had also slowed to a walk as the recession in the United States followed the 1990 tax increases of President Bush, who broke his campaign pledge “read my lips, no new taxes,” to satisfy the austerity demands of the Republican party establishment. It was against this background, in July of 1992, that young Ernesto Zedillo, floundered in the polls, with speculation rampant that he would be overtaken by the candidate of the conservative National Action Party (PAN). Whereupon he got a gift from the political gods, as the charismatic PAN candidate suddenly blurted out in an interview that he believed the peso was overvalued, and should be devalued. Upon the urging of Pedro Aspe, Zedillo issued an emphatic statement that if elected, he would maintain the peso’s value. The Bolsa, Mexico’s stock market, had been flagging, but it now resumed its upward climb. Reserves began climbing again at the Bank of Mexico, and Zedillo shot past the PAN candidate in the polls, foretelling his easy win in September.

It was then that the Forces of Darkness descended on Mexico, in the form of agents of the International Monetary Fund, the U.S. Treasury Department, and big-time Wall Street currency speculators with friends at the IMF and Treasury. They began to lay the groundwork for a currency devaluation as soon as Zedillo’s election was confirmed. Their agent inside the Zedillo inner circle was Guillermo Ortiz, a Stanford PhD, who had served for three years as Mexico’s IMF director in Washington. No sooner had Zedillo been inaugurated on December 1, 1992 with Pedro Aspe and Carlos Salinas returning to private life, than the devaluation wheels were set in motion. The IMF/Treasury forces achieved critical mass in that month, with Lloyd Bentsen having resigned as Secretary, with his successor Bob Rubin not to arrive for several weeks. The man in charge during this December hiatus was Lawrence Summers, Undersecretary for International Affairs. With his help, the IMF and Federal Reserve international chief, Ted Truman, gave a heave ho to the new Salinas government, urging devaluation, while their friends on Wall Street sold the peso short in anticipation of making a killing. That they did. Zedillo never knew what hit him. The plan was to have a nice little 10% devaluation. It turned into a 50% devaluation, which wiped out half the peso savings of the Mexican people, sent foreign investment fleeing, and pitched the Mexican economy into a recession that it is only recently been crawling out of. If you would like to read my testimony before the House Banking Committee on this subject, you can get to it easily in our archives.

The people of the United States waited until 1992 to punish George Bush for breaking his read-my-lips campaign pledge. The people of Mexico had to wait for their congressional elections yesterday to punish the PRI. Until and unless Zedillo shakes up his cabinet, getting rid of Ortiz in favor of Aspe or Aspe’s deputy, Francisco Gil Diaz, who is now at the Bank of Mexico, it will surely lose the presidency in next year’s elections. You can bet on it. Isn’t democracy wonderful? As long as politicians keep 51% of their campaign promises and 100% of their read-my-lips promises, democracy works better than anything else yet devised by mortal man.