Why did the Mexican government accept the harsh terms laid down by Washington in exchange for the $60 billion "aid" to treat the immediate financial crisis of the country?
Not a cent of the $20 billion from the US government, nor of the billions from the international Monetary Fund, European governments and U.S. banks will serve any constructive purpose in Mexico.
Mexico had to agree to further slash all of its social, educational and infrastructure spending -- cuts that are deeper than even Newt Gingrich would dare propose for the US. It had to agree to accelerate the privatization program handing the country's industry and finance over to US-based transnationals at devalued-peso prices. And, finally, it had to agree to turning over funds received from the sale of its oil to the Federal Reserve Bank of New York-- a major step towards complete surrender of its most important natural resource, the nationalization of which was the outstanding achievement of the Mexican revolution, won over strong imperialist opposition.
One reason is fear of US economic and political warfare, and the ever-present threat of intervention if unruly vassal states refuse Washington's dictates.
But I do not think that was the principal motive. It was for the extraordinary profits of US and Mexican billionaires, for Mexico's ruling dynasty and for the salvation of Mexican bankers and the super profits of US bankers.
Who are the losers?
The immediate cause of the crisis was the coming due of tens of billions of "tesobonos," high-interest Mexican bonds payable in U.S. dollars. These bonds are held by wealthy Mexican and U.S. individuals and companies. With a stable peso-dollar exchange rate, most holders would use this interest to buy the next round of high-interest debt, instead of demanding cash. But with the peso down 40 percent and collapsing, all would insist on getting payment in dollars. Hence, one function of the $60 billion is to pay off speculators in tesobonos.
Even more important is salvaging the Mexican banking system where 10 percent of the loans of major banks were in default. With the collapse of the peso, Mexican companies are failing in large numbers, which would bring down many banks already on the edge of disaster.
The $60 billion is to bail out the banks, while opening them up for takeover by U.S. banks. Other big winners are General Electric, Ford and other U.S. companies that are accelerating the shift of production to the further lowered wage environment. For the immediate present, the US banks are in position to multiply their already profitable position in Mexico. It is no accident that Citicorp and J.P. Morgan & Co., are advancing $3 billion as their private contribution to the package.
For the long haul, the giant oil companies are hoping the Federal Reserve Bank of New York, by holding Mexico's money hostage, will pressure successfully for the privatization of PEMEX, the Mexican government company which owns the entire oil business.
Citicorp, the largest US bank, gets half or more of its profit from "emerging countries," with Brazil and Mexico "contributing" the most. Between 1991-1994, Citicorp recorded $1.76 billion in after-tax profits from the Caribbean, Central and South America. Preliminary figures indicate that its 1994 profits from south of the border were at least $858 million, a return of more than 3 percent on assets.
To put these figures in perspective: a return of 1 percent on assets is about average for the United States, 1.5 percent is exceptional and 2 percent or more, virtually unheard of. Citicorp gets superprofits in the extreme out of these countries. This bleeding, in concert with other U.S. financial sharks, has much to do with the Mexican financial crisis.
But that's not the way John Reed, Citicorp CEO, put it in mid-January: "Citicorp's franchise and business in Mexico are strong," he said. "we have not experienced any important, negative impact on our operations and we do not anticipate any serious problems going forward. We are actively trying to be of help during this period." The help of the hangman!
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