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Show The Post-Nafta Mexican Peso Crisis: Bailout or Aid? Isolationism or Globalization? Brett M. Humphrey different, they are mutually dependent upon one another. Any change in Mexico's economy was bound to have a direct effect on the American economy. Thus, as triumphant as Clinton appeared to have been and despite the recent "success" in the NAFTA, the new interdependency relationship created under NAFTA would later prove to have profound implications for the United States. On December 20, 1994 when the Mexican Government unexpectedly announced the devaluation of the peso, a crisis in Mexico emerged. Clinton and "moderate" members of Congress were left bewildered, wondering what went wrong with the perceived successful NAFTA, while long-time critics of NAFTA were quick to point out its apparent "failure": "NAFTA was supposed to be about two-way trade not U.S. taxpayer welfare to prop up the Mexican peso and the Mexican oligarchs" (Roett 1996, 35). The Clinton Administration's Initial Response After endorsing the Republican-backed NAFTA and claiming it as his biggest success, President Clinton now faced his worst fears. Were Ross Perot's anti-NAFTA predictions coming true? Perot said in his anti-NAFTA stance, '"These guys are just playing poker with us, and they are going to have to devalue the peso, by 1994 the devaluation will exceed 20 to 30 percent, unleashing a flood of low-priced goods on the U.S. market once trade barriers had been removed"1 (quoted in Roett 1996, 35). Amid all of this name calling and bewilderment Clinton put together a U.S. aid package for Mexico. The initial package was small and received very little publicity. However, after a few days it became obvious that much more support would be needed. The political ramifications for Clinton had a devastating potential. If the devaluation of the peso resulted in any noticeable job loss to the American economy, as Ross Perot had predicted, how would this affect Clinton's potential for re-election? With Clinton already lacking a good reputation in foreign policy, a collapse of the Mexican peso could have haunted him throughout his reelection campaign and turned the passage of NAFTA into a political embarrassment (Lustig 1998, 187). Internationally, Clinton also felt the Mexican crisis could cause a ripple effect and spread elsewhere, particularly to the United States which shares a two-thousand-mile border with Mexico. In a letter to Congress President Clinton argued, "The spill-over effects of inaction in response to this crisis would be significant for emerging market economies, particularly those in Latin America, as well as for the United States" (Clinton 1995). The State Department, the Treasury Department, and the Federal Reserve all backed Clinton and lobbied Congress for support, arguing that in order to keep the recent success of U.S./Mexican relations on track the U.S. must maintain the current relationship. Any disruption to this relationship would result in problems dealing with trade, financial stability, the control of drugs, and immigration (Lustig 1998, 187). Finally, Clinton knew that under NAFTA there was an actual obligation to help Mexico. Clearly, if Clinton backed down on this obligation, NAFTA and its credibility would be lost. President Clinton had a vested interest in Mexico's success. However, many Congressional Democrats had voted against NAFTA, and many of the newly elected Republicans of the 104th Congress were not about to send United States dollars to another country, when the platform they ran on was one of reduced government spending. As the peso crisis continued to develop, the truth behind the basic economic principle of interdependence became manifest, and thus left the American government to make a tough decision. Would the U.S. offer Mexico substantial financial aid in order to increase the value of the peso, or would it let market forces take effect and thus forcibly bring about sharp changes in the Mexican economy? Respectively, these were the two opposing economic strategies, which would eventually turn into an isolationism versus quasi-liber-alism ideological debate. The Congressional Response President Clinton received a mixed message from Congress. Initially, congressional leadership backed the President's plan and guaranteed quick passage through Congress. The Senate even set up a special task force to deal with the specific crisis, including such Senators as Majority Leader Robert Dole (R-KS), Robert Bennett (R-UT), and Bill Bradley (D-NJ). Congressional leadership along with the task force echoed the same concerns as President Clinton. Newly-elected Speaker of the House, Newton Gingrich (R-GA) told fellow legislators, '"We have zero choice on this. The Republican leadership is committed to doing everything we can to make it work"1 (Congressional Record 1995a). But congressional support soon turned sour with the new Republican-controlled Congress and no one seemed to anticipate what would follow. First-term Republican Congressmen felt committed to the "Contract with America," and thus felt required to cut government spending. The idea of sending U.S. tax dollars to Mexico was unthinkable. Furthermore, members of the newly-elected Congress felt more loyalty to their constituencies than they did to congressional leadership. According to Nora Lustig, Members of Congress from both parties felt uncomfortable- to say the least-approving a sizable rescue package for Mexico at the same time that they advocated austerity measures in the United States. Moreover, many of the new Republican members were isolationists and unsympathetic to NAFTA and Mexico. The conditions to be requested from Mexico began to mount, and they eventually covered the entire range of bilateral issues: migration, relations with Cuba, extradition practices, narcotics trafficking, and so on (1998, 179). By late January 1995 and under the auspices of the newly elected Congress, "all hell broke loose and the GOP leadership had to back pedal quickly" (Roett 1999). In the fol- 36 |
