The Case for Mexico's Rescue: The Peso Package Looks Even Better Now

One often hears claims that U.S. policy toward Mexico has failed. In Harper's, the argument is that the North American Free Trade Agreement (NAFTA) shows the Clinton administration has little concern with 'the continuing hemorrhage of American jobs abroad.' The New York Times deplores 'the rapid unraveling of the Mexican economic achievements of 1988-1993.' Publications across the United States assert that freer trade has increased narcotics trafficking through Mexico. Pundits of the far left and the far right appear regularly on television talk shows asserting that the peso crisis is proof the U.S. policy of economic engagement did not work. They say that Presidents Bush and Clinton were wrong to back NAFTA and to support the privatization of Mexico's state-owned industries, its neoliberal market and investment-friendly development strategies, and the rescue package to contain the winter 1994-95 devaluation and collapse of the peso.

These critics are mistaken about the impact and implications of U.S. policy. NAFTA has not generated and will never generate immediate, large-scale, tangible economic effects--positive or negative. Nor was it ever capable of doing so, as most economists understood. The trade agreement, however, did reaffirm America's commitment to Mexico's economic development, which was to be sorely tested when the peso crashed a year after Congress ratified NAFTA. The U.S.-led rescue, which was hastily put together to counter the peso crisis and which is now creating immediate economic benefits on both sides of the border, is a sound policy with far-reaching effects for Mexico.

Although Mexico's economic development is not assured of success over the next generation, the country has probably turned the corner on its recent crisis. Some forecasters expect its GDP to grow by three percent this year. The unemployment rate peaked in July 1995 and has since declined by more than two percentage points. Exports and imports have adjusted to offset the shutdown of foreign investment the peso crisis triggered; the current account rose to a surplus of $7.4 billion in 1995, from a deficit of $18.5 billion in 1994. Over the same period, exports rose 30 percent and imports fell 10 percent.

WHAT NAFTA MEANT