If a movie were to be made of President Ernesto Zedillo Ponce de Leon's first year in office, it would likely be a cross between "Rocky" and "Honey, I Shrank the Economy."
Clearly, it's been a tough year.Disgraced former President Carlos Salinas de Gortari faxes statements from an unknown hiding place, while his brother, who is in jail on murder charges, this week was accused of laundering drug money in Switzerland.
On the economic front, gross domestic product in Mexico has contracted 10.5 percent and 9.6 percent, respectively, in the last two quarters from a year earlier. Annual inflation may well soar over 50 percent, the painful result of a botched currency devaluation and subsequent collapse that soured a promising economy.
Banks, while avoiding collapse, remain on shaky ground with mounting bad loans and brutally high lending rates that discourage borrowing. The sinking peso has boosted exports but wreaked havoc on the long-term plans of foreign and domestic businesses.
The economic crisis, in turn, has exacerbated a long-standing social crisis. Mexico City newspapers report a 33.8 percent rise in crime over last year. Reportedly, 42.6 percent of all crimes are violent. Foreigners and locals - even high-level government officials - all have suffered the effects of mounting crime and what many perceive to be declining security.
To be sure, President Zedillo inherited a dangerously leveraged economy that eventually tumbled like a house of cards. His predecessor refused to devalue the currency amid a swelling current account deficit, mounting dollar-denominated short-term debt and dwindling foreign reserves. Most Mexicans feel the now-elusive Salinas manipulated the economy to boost his party's election chances in 1994 and his own chances of heading the World Trade Organization.
Zedillo also inherited an unresolved uprising in the southernmost state of Chiapas and a country demanding wholesale political and electoral reform - both of which contributed to the skittishness of investors.
"I think he inherited a horrible situation, and within the realm of the possible he has done the best he could," said Jorge Mariscal, director of Latin American equity research for Goldman, Sachs & Co. in New York. He credited Zedillo with "getting Mexico out of the spectrum of default" on short-term dollar-denominated debt and for sticking to austerity measures despite enormous social pain.
"I think he has done well on the stabilization front, I think what the country lacks is a clear vision on how the economy is going to grow," said Mariscal.
A Wall Street economist with a major investment bank agreed, saying that while Mexican exports have soared more than 30 percent as a result of the weaker peso, export growth cannot be sustained in 1996 solely through exchange-rate mechanisms.
As inflation erodes the exchange rate competitiveness, pressure grows for further depreciation, the economist said, and that keeps interest rates high in peso terms.
"You (need to) create a genuine export industry where you capture the value added from scratch to final product," said the economist, who requested anonymity. "Mexico needs to invest more into its export sector and its high internal borrowing costs may hinder that process."
Others point to a crisis in confidence and suggest Zedillo's economic team refuses to recognize there is a crisis. The country has current account equilibrium and soaring exports, yet the peso and stock markets remain volatile.
"Maybe Draconian measures must be taken that go beyond the changing of members of the Cabinet - measures that include being bound by strict rules," said Roberto Salinas Leon, an economist who heads a private free-market think tank in Mexico City. He is a frequent advocate of taking exchange-rate policies away from the government, giving them to the central bank and establishing independent audits of public finances.
Ironically, when the politically inexperienced Zedillo won the August 1994 election it was not expected that the Yale-educated economist would be wrestling with economic issues.
Unlike his predecessors, Zedillo set out to respect election results instead of brokering deals with disaffected opposition parties. His Institutional Revolutionary Party (PRI), which has been in total control for six decades, lost an unprecedented three key state gubernatorial elections in Zedillo's first year in office while winning two.