The Reconquest of Mexico

by Eqbal Ahmad


The `conquest of Mexico' happened in 1520. With his well-built ships and newly discovered navigational techniques, the Spanish General Cortes penetrated the `New World' and -- by an unrelenting process of deception, betrayal, warfare, and wanton violence -- subdued and destroyed the mighty Aztec empire, then under Montezuma, its last unsuspecting, hospitable chief. Thence, the willed ruination of great civilizations followed. `Massacres' were committed by the hundreds -- the word genocide had not come into usage then --, grand cities were destroyed, palaces and temples burned, and survivors forcibly converted to Christianity. The rehearsal had been carried out decades earlier upon the Moors of Spain. The holocausts suffered by the Aztecs, Mayas, and Incas went largely unrecorded in the self-righteous annals of the west.

It was a momentous event in history, the augury of a most violent and transforming world system of domination that humanity has ever experienced. We know it as the age of western, capitalist imperialism. Yet, not one of the future victims of this behemoth -- not the Indians and Chinese, nor Arabs or Africans -- took notice of it until, that is, it was too late. Their failure was comprehensible. In Asia and Africa, it was the age of the `gun powder' empires -- Ottoman, Safavid, Mughal, and Ming. Their elites contentedly used\misused power, luxuriated in wealth and patronage of the arts. So they missed the marriage of science to technology, and missed also to notice the rise of the new world system which put new knowledge to the service of old greed. The price of this failure was conquest and colonization.

It is strange that contemporary Asian and African elites travel now on `information highways' but they appear even more unknowing than their ancestors were centuries ago. Despite the warnings of such sages as Rabindranath Tagore, they became hooked into the ideology of nationalism and the quest of nation states. That done, they embraced the shibboleths of the cold war, bit into derived notions of bipolarity and national security. Since the cold war's end, we have witnessed a well-orchestrated, brightly packaged, and global sale of the `free market'. Every country from Kenya to Indonesia and Morocco to Bangladesh is buying it feverishly, without looking closely for the poison in the package. Even now that Mexico's economy has collapsed from excessive dose of `freedom' and a re-conquest of sorts has begun, few in the corridors of third world power are drawing the necessary conclusion.

Among Emperor Market's "emerging" favorites none matched the lures of Mexico. As the U.S. Treasury Secretary Robert Rubin emphasizes repeatedly: Mexico "has been the proto-type economy, an exemplar of the way to privatize big industries, open markets, and create a growing middle class eager to buy imports". For five years it offered American and European investors in bonds and certificates of deposits a bonanza of quick and high profits.

It all started in the late 1980s after Nicholas Brady, George Bush's Treasury Secretary crafted the `Brady Plan'. Its goal was insure repayments on the huge commercial debts many third world countries had incurred. Built into the complex formula were the appearance of America's generosity toward the third world and the assurance of full profit for American capital. Banks agreed to reduce the total amount of debts (which were likely to be being defaulted) in return for the debtor country's commitment to resume regular repayments. Therein lay the catch: to repay, they needed to borrow and sell. Borrowing spawned trade in bonds -- "Brady bonds" they were called -- sold by banks and big investments houses like Goldman Sachs & Co. of which Robert Rubin, now the Secretary of Treasury, was then co-chairman. Selling involved the underseveloped country's "family jewels" -- industries, lands and forests -- national assets sold cheaply to foreign and domestic investors. With this clever formula, foreign investments of $10 to $15 billion flowed into Mexico annually. Its politicians and business compradors had never been happier until, that is, the bubble burst at the dawn of 1995.

In just two months Mexico suffered a catastrophe from which it may not recover for many years, certainly not without sacrificing its sovereignty. Since the outbreak of the crisis in early January, the Mexican peso has plummeted 67%. The Bolsa, bellwether of Mexico's stock market has fallen 62%. Bank rates have risen 67%. Unemployment has begun to soar. Most economists believe these to herald severe recession.

Rich countries, especially the United States, have huge investments in Mexico. So they have devised a "rescue plan" of which the largest component is the $20 billions in U.S. loans and guarantees. Others have also chipped in: (i) Loan of $17.8 billion from the International Monetary Fund. (ii) Short term loan of $10 billion from the Bank for International Settlements, with the Swiss-based BIS serving as clearing house for contributions from European and other countries. (iii) $1 billion in Latin American swaps of dollars for pesos. (iv) $1 billion from Canada in short-term swaps. (v) $3 billion in new loans from Commercial Banks.

The total of new debts comes to $52.8 billion which Mexico must repay with interest. But the price tag is higher than that; it includes Mexico's sovereignty. The U.S. loan agreement imposes on Mexico what the New York Times editorial described as "harsh, though necessary restrictions on Mexico's monetary and fiscal policies." The agreement requires Mexico to deposit all its revenues from oil and petro-chemical products into the Federal Reserve Bank of New York. This money shall be effectively under U.S. control, and shall be automatically seized if Mexico defaults on any part of its repayment on various loans. In addition, Mexico has undertaken to submit every week a wide ranging report on its economic condition, and post it on the computer Internet for the benefit of its creditors.

Mexico's strict "diet of austerity" is to be administered under watchful American supervision. This "diet" includes a regime of tight money and raised interest rates. The tight money requirement prevents the government of Mexico from spending state funds even to stimulate employment and the economy. The idea is to control inflation, and restore the confidence of foreign investors even though it squeezes Mexican people dry. With such severe cuts in spending, the onset of a deep recession is predictable. Similarly, interest rate has been driven up. By end February interest for Mexico's benchmark treasury certificate (consumer and commercial rates are fixed above it) was raised to 59%. The idea is to stabilize the peso. But high interest rate are choking off what little native strengths the economy has been spared. The economy reflects reality, nevertheless, and public perception. The peso has continued to drop.

Robert Rubin, the American Secretary for Treasury spoke of the loan package as aimed at "preventing the underpinnings of the Mexican economy from crumbling". It makes sense that the U.S. should want to halt Mexico's economic break-down. After all, Mexico ran neck-to-neck with Japan as the U.S.'s second largest trading partner. Through the third quarter of 1994 it bought more than $51 billion in imports from the U.S while Japan bought $51.7 billion. Moreover, recession in Mexico will undoubtedly put pressures of illegal immigration on U.S.A. A healthy Mexican economy is important to a healthier American one.

Yet, a reading of the "bail-out-Mexico" package suggests that its immediate aim is to rescue the American and European financial institutions and individuals who had invested there in hopes of making a fast-buck. Thus, half of the $20 billion U.S. loan is to enable Mexico to pay off those American investors who had invested mostly in the bonds (tesobonos) and certificates. The remaining $10 billion will be held for "contingencies". When a failing Mexican bank is `saved' and required to pay off its foreign depositors, a contingency will have been met. "The depositors", said Robert Rubin, until recently a bond Czar himself, "must be protected."

Two questions arise: what factors have caused Mexico to get so deep in economic trouble that it must sacrifice, for a time at least, both its people's well-being and its national sovereignty? What lessons do the case of Mexico hold for the other countries which are seeking, so eagerly and so unquestioningly, to fall into the grasping embrace of `emperor market'? Next week I hope to answer these questions.

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