09.02.1995

Mexican house of cards teeters

Zapatistas took up arms against the results of Nafta, but workers unity across North America is needed

THE ACUTE financial crisis which has struck Mexico like a whirlwind from nowhere over the last couple of weeks has starkly exposed the contradictions of capitalism in this global epoch of interdependent national economies.

At the eleventh hour, as the Mexican peso faced near annihilation, Clinton and the international financial community mobilised an astonishing $50 billion of support, an unprecedented bail-out. This total far exceeds the aid package for Russia assembled in 1992 (most of which never materialised, of course) or for Britain during the 1976 sterling crisis. Why this sudden display of ‘altruism’ by the US and global capital?

The answer is not too difficult to find. Mexico is seen as the pre-eminent emerging market model on which ‘reforms’ across Latin America, the developing world and eastern and central Europe have been based. If Mexico was allowed to fall into a financial black hole the new-found capitalist triumphalism would be severely punctured, so therefore it was “all hands to the pumps to keep the system going and not discourage others....Western capitalism looks after itself” (The Observer, February 5).

The Mexican ‘reforms’ were a sordid experiment. Mexico was compelled to organise its capital inflows through a series of short-term ‘spot market’ transactions in the capital markets. The investment attraction was that Mexican stocks, shares and dollar-denominated bonds (Tesobonos) could be bought and sold at will. However, sentiments quickly changed as it became obvious that the vast build up of short-term liabilities could not be serviced by a country in chronic trade deficit (approaching £96.6 billion, equivalent to the rest of Latin America and Asia combined).

Absolute panic broke out among the American investors. Hardly surprising. They had poured billions of dollars into the country in the pursuit of higher interest rates than were available in the United States, hence higher profits to be made - after all, greed and hunger for profits is what makes capitalism tick. So, in many ways the $50 billion was designed to bail out the petrified American investors as well as the Mexican economy.

It could be too late. Already some $200 billion has been wiped off the value of Latin American stock markets and it seems inevitable that the sky-high Mexican interest rates will trigger a wave of corporate collapses. Naturally, the masses will end up paying the price, as the regime unleashes swingeing spending cuts and tax increases. The future looks fairly bleak for Mexican capitalism, it has to be said.

The Mexican crisis highlights the increasingly redundant nature of the nation state, which is becoming more and more of a fetter to capitalism and its innate need to expand globally in search of those elusive profits. Bad news for the Teresa Gormans and Michael Portillos of this world - and the left reformists who still dream of a British road to socialism.

Frank Vincent