A group of Mexico's most powerful business and labor leaders Saturday renewed a pact with the government that will control prices and wages during the coming year. But the accord does not offer the kind of economic jump-start many people expected from the winner of last month's presidential election.
The agreement also does not change the existing exchange rate policy for the Mexican peso, even though there was speculation that the peso would be allowed to depreciate more quickly in order to make Mexican exports more competitive. Uncertainty over the terms of the agreement had caused volatility in the Mexican stock exchange and Mexican stocks traded in New York.The new pact gives the first evidence that Ernesto Zedillo Ponce de Leon, who won the election, will side with stability over economic stimulus and follow the current president, Carlos Salinas de Gortari, in fighting inflation even at the cost of workers' salaries.
When the first pact was signed in 1987, inflation was 159.2 percent. Now it is under 7 percent.
The agreement is also expected to enhance Salinas' bid for the presidency of the new World Trade Organization by showing Mexico's economic maturity.
The immediate reaction of the more independent parts of unionized labor in Mexico was that workers had again been asked to bear the brunt of the country's economic stabilization program.
"It's an arrangement put together for the purpose of guaranteeing tranquillity during the process of political transformation," said Francisco Hernandez Juarez, president of the powerful telephone workers' union. "But from the point of view of salaries, we've insisted that the workers need much, much more."
But it has been the cooperation of Mexico's largest labor organization, the pro-government Confederation of Mexican Workers, that has made the government-business-labor pact succeed as the centerpiece of Mexico's anti-inflation policy for the last seven years.
Although Zedillo does not take office until Dec. 1, he and his advisers greatly influenced negotiation of the new pact, the ninth to be signed. Although a senior Finance Ministry official called the terms "plain vanilla," he said all had to be approved by Zedillo's advisers.
The influence of Zedillo even extended to a change in the name of the agreement, which used to be called the Pact for Stability, Competitiveness and Employment. The new agreement is called the Pact for Well-Being, Stability and Growth.
The terms of the new pact tie several important indexes to a projected rate of inflation for 1995 of 4 percent. Thus prices for government-controlled goods like gasoline, fuel and electricity will be allowed to increase by no more than 4 percent.
Increases for Mexico's low manufacturing salaries are also set at 4 percent. But since last year, when wages in Mexico became an issue in the debate over passage of the North American Free Trade Agreement, Mexican officials have been pressed by the United States to raise salaries.
For those workers earning the minimum wage, which is less than $5 a day, increases will equal 4 percent plus a productivity increase of about 2 percent.
In addition, about 5.2 million low-income workers will benefit from an income subsidy the government calls a negative income tax and is considered an incentive to work. Under this program, workers not only do not pay income taxes, but they also receive a payment from the government based on the money they make.
The exchange rate policy will remain as it has been since 1992. The number of pesos that can be exchanged for $1 is allowed to increase by .0004 peso a day without any official action. The current rate is about 3.4 pesos per dollar.