WHAT COULD GO WRONG

Americans tend not to think much about Mexico, home to their 100 million neighbors. When they do, most U.S. policymakers take the stability of their NAFTA partner for granted. Worst-case scenarios are rarely entertained; the danger signs are minimized or ignored.

There are many reasons to be optimistic as Mexico steps into the 21st century. The country has put the worst days of election fraud behind it and opposition parties have made steady inroads against the long-dominant Institutional Revolutionary Party (PRI). Fiscal responsibility has become the norm, large chunks of the economy have been privatized, the central bank operates with great transparency, and NAFTA annually generates $174 billion in two-way trade. These transformations are all signs that a democratic free-market revolution is in process. So why worry?

The answer is that backlash too often follows revolution. It is no easy task liberalizing the oldest single-party regime in the world. The year 2000 will bring Mexico a presidential election that, amid rising civic sophistication and popular discontent, could oust the PRI for the first time in 70 years. This bespeaks progress in Mexico's ongoing democratization, but it will strain the country's fragile new institutions. Nor is it easy for the country that launched the first social revolution of the twentieth century to completely jettison statist ideology. Economic reforms have been only partially consolidated and so remain susceptible to swings in the political pendulum. Meanwhile, drug lords increase their power while revolutionaries, nostalgic for a Marxist past, struggle to establish their own. And the ghost of Luis Donaldo Colosio, a PRI presidential candidate assassinated in 1994, still haunts the landscape with the specter of political violence.

Mexico totters, pulled in one direction by the inertia of its authoritarian past and in another by the wobbly momentum of a democratic future that that is barely 11 years in the making. The sobering worst-case scenarios that follow are by no means inevitable. They are Mexico's nightmares: possible futures that could become real should the country fail to act or do so in the wrong way. But they must be taken very seriously. Together they show just how perilous are Mexico's opening, its transition to a free market, and its ongoing democratic revolution.

A CULTURE OF INTOLERANCE

As Mexico heads toward presidential elections in 2000, it remains unclear whether its political players will abide by democratic rules of the game. Mexico has spent billions of dollars creating technologically sophisticated and credible electoral institutions, revamping voter id cards and registration lists, and establishing the nonpartisan, autonomous Federal Electoral Institute. But the cultural values needed to underpin democratic governance -- tolerance, compromise, and civic participation -- remain weak. Thus although Mexico has gained democratic pluralism it may lose governability in the process.

Mexico suffered through most of the nineteenth century at the mercy of men on horseback. Today, as PRI dominance atrophies, the popular allure of the caudillo (strongman) has returned. In Chiapas, for example, Zapatista guerrillas are held in sway by their charismatic poet-leader, Subcomandante Marcos (the nom de guerre of Rafael Sebastian Guillen Vicente). Even within mainstream politics, personality seems more important than ideology. Thus the center-left Democratic Revolutionary Party (PRD) remains captive to the popular mayor of Mexico City, the leftist icon Cuauhtemoc Cardenas Solarzano. Meanwhile, the center-right National Action Party's (PAN) collegial traditions have been overwhelmed by the ideological heterodoxy, campaign vigor, and sheer force of personality of presidential aspirant Vicente Fox Quesada. The discipline and order of the PRI have also been fractured by candidates wrestling for power. Personal politics have filled the vacuum left by weak institutions and the erosion of PRI dominance.

In 1929, Mexico achieved stability when it traded a history of succession by assassination for institutionalized party rule and the pri. Pax priista was achieved via a power-sharing arrangement among regional strongmen, who agreed to submit to a powerful presidency in exchange for political inclusion and a piece of the economic pie. Mexican presidents in turn acted as arbiters between the bosses, and were limited themselves by the need to satisfy all their elite constituents and by the constitutional prohibition on reelection. Inside the PRI family, everyone benefited. Outside the family, dissidents were mercilessly suppressed.

Only when this system of power sharing broke down was Mexican democracy born. This happened recently: when President Miguel de la Madrid Hurtado named Carlos Salinas de Gortari as his successor in 1987. Suddenly, a generation of old-school politicians steeped in PRI revolutionary lore found themselves confronted by young, free-market tecnicos, who banished them from the banquet table of high political office and government graft. Cardenas formed the dissident PRD as a refuge for exiled populists.

Mexican democracy, then, emerged in an atmosphere of frustrated ambition, personal rancor, and family feuds -- not auspicious circumstances for compromise. And these sentiments prevail today; personal and ideological invective remain the rule. The PRI persecuted PRD traitors, and in return, the PRD demonizes the PRI and calls for its destruction. Mexican politicians view winning and losing not as part of the to and fro of electoral fortunes but as an apocalyptic confrontation between good and evil.

The polarization of elite politics goes beyond the struggle between the PRI and the breakaway PRD. Conflict remains intense within the PRI itself. When Salinas' young technocrats took power in 1988, many members of the old guard chose to stay within the party and fight to recover their place at the table. Today, this old guard denounces its own party's liberal economics with as much gusto as does the PRD. The old truce engineered by PRI founder Plutarco Elias Calles in 1929 has frayed, and President Ernesto Zedillo Ponce de Leon cannot discipline or conciliate the PRI clan heads. Nor are the battles purely rhetorical. Clandestine infighting long flourished behind the facade of PRI unity; to this day, some politicians are believed to mount destabilizing operations against their opponents. The opposition, for its part, is as well versed in dirty tricks as are PRI traditionalists.

Mysterious kidnappings, semi-orchestrated demonstrations, and insurrections designed to influence politics abound. The habit of demonizing adversaries impedes democratic compromise and cults of personality undermine political parties. Few signs suggest that reconciliation will be possible any time soon. Thus the Wilsonian proposition -- that more democracy leads directly to more stability -- has yet to be proven in Mexico, where more democracy has brought renewed political infighting, assassinations, and guerrilla violence.

FEAR AND LOATHING ON THE CAMPAIGN TRAIL

Mexicans view the presidential race in 2000 as a de facto referendum on the economic reforms of the past 11 years. Traditionalist politicians may use the election to stage a Thermidorian reaction, to reestablish themselves, defeat the technocrats, and return to the anti-American nationalism and the economic populism of Mexico's history.

Competition for the PRI nomination traditionally occurred among cabinet members who vied for the president's favor. The clamor for internal party democracy, however, led President Zedillo to renounce the dedazo (big finger) in the early years of his term. This abdication of the president's customary right to name his successor created a vacuum that has now been filled by a raft of rebellious candidates. Zedillo may repent having cut off his finger and hope to position reform-friendly candidates for the nomination. But should he blatantly stifle competition or impose a personal favorite without the support of party cadres, he will court a party rebellion similar to that led by Cardenas in 1988. Old apparatchiks reincarnated as new democrats will attack the selection process as unfair.

The price of nominating a candidate acceptable to Zedillo while maintaining party unity may be a debilitating accommodation with hostile elements in the party. Rebellious politicians who do not win the nomination may ensconce themselves in the National Congress, the party structure, or local governments. Others could foment underhanded resistance to the government, in alliance with rogue peasants, labor unions, criminals, or guerrillas.

The specter of political violence has become very real. The 1994 assassination of Colosio during the campaign ended 70 years of peaceful presidential successions. The post-Colosio landscape is populated with angry apparatchiks, ruthless drug traffickers, scheming palace politicians, and messianic guerrillas who have sprung up like poisonous mushrooms.

Conflict within the PRI is one source of risk to a PRI candidate or president-elect. Old-school candidates may plot against the president's heir apparent. Others inside the cabinet may secretly maneuver to frustrate the president's choice, positioning alternative candidates who could step into the breach in the event of

an assassination. Should such kingmakers secretly ally themselves with drug interests, the president's candidate may face even greater danger.

A PRI candidate or president-elect determined to fight drug traffickers would also face an obvious assassination risk, and ill will among competing PRI factions could create a shield behind which a murderous third party could hide. The drug lords, for example, could take advantage of a nasty contest between PRI aspirants to kill a candidate known to be tough on drugs, confident that popular opinion would blame it on the intra-PRI struggle.

Politicians from the PRI are not the only ones in danger. An assassinated Cardenas might serve radical purposes better than a merely defeated one would, creating a martyr around whom to rally the waning left. Similarly, killing Fox (the presidential candidate from the right-wing PAN) could also usefully redirect electoral sympathies.

Since the initial inhibition against violence was weakened by the Colosio assassination and the Zapatista uprising, the possibilities of further killings have multiplied. The assassination of a Mexican president-elect has not occurred since the murder of Alvaro Obregon in 1928. But should it happen again, the result would be disastrous. Mexico has no vice president, and the constitution leaves the interim selection process to the Congress. A divided Congress might be unable to muster a consensus, leaving the headless nation ripe for extraconstitutional solutions.

Every major Mexican political party has already had at least one low-level brush with the insidious influence of drug money. The corruption of candidates and their campaigns would permit drug traffickers to carry out their competition for market share via the electoral process. Overlay cartel competition on electoral politics, and the potential for bloody conflict grows exponentially.

Should any presidential candidate be suspected of having ties to drug traffickers, the impact on relations with the United States would be devastating. The discovery of presidential corruption would set American protectionists clamoring to use NAFTA's pull-out clause. The U.S. Senate would rush to decertify Mexico. Calls for military intervention and sealing the border could follow.

The United States has precious few levers to pull should Mexico fall into the hands of traffickers. Economic sanctions would do as much harm as good, undoing NAFTA commitments, threatening U.S. foreign investment, and wrecking economic reforms. Nor is Mexico, a huge country of almost 100 million people, a good candidate for a Haitian- or PANamanian-style invasion to restore order.

ILLIBERAL DEMOCRACY

The recent presidential victory in Venezuela of Hugo Chavez Frias, a former army officer and coup leader, shows how Latin American democracy does not always produce democratic results. Poll data suggests that Mexicans may value order and strong government more than open democracy. The Mexican military has a long tradition of submission to civilian rule, but should political parties exhaust the patience of the nation with their petty disputes and should the moral authority and power of the Mexican presidency erode even further, Chavez-like figures might eventually emerge.

In the old days, mass protests were the standard reaction to Mexico's blatantly fraudulent elections. The creation of impartial electoral institutions, the Mexico City mayoral victory of Cardenas, and the congressional success of opposition parties in 1997 have reduced the likelihood of such popular demonstrations. Still, losers often cry foul (whether or not there has actually been any fraud), try to destroy the legitimacy of the victor, and attempt to force his resignation.

Mexico is now essentially a three-party system, and having three candidates of equal strength in 2000 may lead to a victory by one with less than 40 percent of the vote and a victory margin of less than 5 percent. Mexico could become ungovernable if the popular vote were split into thirds -- a result foreshadowed by several polls. Should the PRI win a close race with such a weak mandate, protesters and provocateurs might take to the streets, sparking a hard-line PRI restoration. A revanchist Cardenas elected with a third of the vote who insists on hewing to radical policies would court a fate similar to Chile's Salvador Allende, who was also elected with a weak mandate and was unable to form stable coalitions with mainstream parties. Cardenas might then fall into the embrace of the Zapatistas, the debtors' organization El Barzon, or other marginal groups. Were this to occur, major businesses would quietly divest and leave the country. Such a scenario, accompanied by disintegrating public security, could provoke an alteration of the constitutional order, although probably not a coup.

A right-of-center PAN victor, meanwhile, could end up like Russia's Aleksandr Kerensky -- a liberal democrat who lost control of his own revolution and was swamped by social chaos. Should PAN win the presidency, PRI and PRD loyalists in labor unions might decide to test the new president's will by blocking privatization. The unions would likely be joined by unhappy farmers in the vulnerable grain and sugar sectors.

Finally, it is impossible to rule out a scenario in which the PRI recaptures its former glory via a charismatic candidate capable of attracting PRD votes. Single-party, populist restoration could also occur under the PRD mantle should a victorious Cardenas welcome large numbers of PRI defectors.

Although the PRI has already lost control of the lower house of the National Congress, complete legislative gridlock has been avoided thus far. But although the Congress is outfitted with modern voting devices, the culture of compromise has yet to fully develop in Mexico. The ideological chasm between left and right makes an opposition alliance in Congress improbable. Meanwhile, although the PRI and the PAN have managed to work together, the PRD views compromise with the government as abhorrent. Impasse is therefore likely if no one party wins a congressional majority in either the upper or the lower house. A strategy like that of Peru's President Alberto Fujimori -- a post-election consolidation of executive power at the expense of Congress -- could eventually tempt any Mexican president-elect.

THE ROBESPIERRE SYNDROME

Although eliminating government impunity and implanting the rule of law is one of Mexico's greatest challenges, a reformer could go too far. Virtually the entire national establishment of media moguls, industrialists, clergy, and politicians enjoyed cozy arrangements with the regime, not unlike Japan's massive conglomerates (keiretsu) or South Korea's chaebol. Mexico's dilemma is how to end impunity and improve transparency without destroying its entire business class, politicizing its court system, and provoking a backlash.

The prospect of a witch-hunt already has the national elite on edge. Should congressional hearings under a future opposition government cast doubt on the property rights of privatization beneficiaries, Mexican firms could lose access to international capital markets. Should Zedillo, his family members, or close collaborators be subject to criminal accusations similar to those made against Salinas and his family, incalculable damage would be done to Mexico's international reputation. Increasingly, the Mexican judicial system is viewed as one more arm with which to persecute political opponents. Additional prosecutions might further harm the courts' reputation, decreasing respect for the rule of law.

If wide-scale prosecutions occur, the establishment's instinct for self-preservation may eventually lead it to desperate acts. Chile and Argentina recognized such a danger in their transitions from authoritarian to democratic rule. Fearing a right-wing backlash, they handled the human rights sins of their past with broad amnesty programs. A similar strategy for handling past corruption could ease Mexico's transition toward more open democracy.

ANTISOCIAL BEHAVIOR

For centuries, Mexico has oscillated between long periods of authoritarian rule and deadly bouts of social strife. The scars remain, and the social and geographic fault lines run deep. Government statistics claim that families in extreme poverty diminished from 31.1 percent of the population in 1989 to 21.9 percent in 1997, but the absolute number of poor remains high, at an estimated 26 million -- over a quarter of the population. In states such as Chiapas and Guerrero, the rates of severe poverty are even higher, and as a consequence these regions suffer from more extreme varieties of social protest.

Despite the initial shock of the January 1994 uprising by the Zapatista National Liberation Army (EZLN), Mexico's guerrilla and terrorist groups have largely failed to disrupt daily life. Conditions have worsened in parts of Chiapas, but apart from occasional outbursts of violence, life goes on as normal in the rest of the country. Moreover, Mexico remains a nation of small property owners and penny capitalists who have a stake in stability -- making a full-blown revolution unlikely.

This does not mean, however, that the danger has evaporated. Conservative military intelligence estimates suggest that while the Zapatistas comprise a core of approximately 500 armed troops with another 2,500 active militants, the movement has more than 10,000 sympathizers. Thus Chiapas, at least, remains at risk from guerrilla violence and paramilitary activity. The ezln has divided small communities along religious (Catholic Zapatistas versus Protestant non-Zapatistas) and political lines (PRD Zapatistas versus PRI non-Zapatistas). In contested areas, both ezln and pro-government forces have been guilty of forced expulsions and sacking the homes of adversaries. Zapatista takeovers of small villages, turning them into "autonomous municipalities," have led to pro-government atrocities such as the December 23, 1997, massacre in Acteal, in which 45 people were killed.

Despite having issued a cease-fire, the government has so far resisted calls to withdraw the army from Chiapas and Guerrero. It is aware of the Colombian example, where demilitarized zones turned into havens for drug traffickers. Already, two of the five narcotics task forces operated by the Mexican attorney general's office in 1998 were located in Chiapas. Small marijuana and opium plantings have been discovered there, and the Chiapas border with Guatemala has become a sieve through which flow drug shipments and illegal weapons. One Mexican government source estimates that the ratio of aid money to criminal money (from drug trafficking, kidnapping, and robbery) flowing into EZLN coffers has shifted from 4:1 in 1994 to 3:2 in 1998, and could reverse to 2:3 by 2001. There is no evidence yet that the EZLN has been completely seduced by drug money (as have Colombia's guerrillas), but the insurgents are being tempted by criminalization.

Other radical groups such as the EPR (Popular Revolutionary Army), although smaller, pose an even greater risk of criminal involvement. Especially worrisome is the kind of kidnapping campaign the EPR waged against prominent Mexicans in 1994. Since then, Mexico has been hit with a kidnapping epidemic that has struck the families of governors, soccer heroes, and music stars. Whether this plague is the work of common criminals or part of a destabilization campaign mounted by political terrorists remains unclear. For now, groups such as the EPR appear to operate primarily in small cells with limited rural support in the states of Guerrero and Oaxaca -- but if social unrest grows, they may ally themselves with the radical urban poor.

A troubled presidential succession in 2000 would present the rebels with many opportunities for mischief. The epr has already threatened to use violence to support PRD election protests, and the Zapatistas have shown a thinly veiled preference for C‡rdenas. Worse, underhanded support for such tactics could come from factions of either the PRI or the PRD. For example, the adversaries of the technocrats might endorse a little social revolution as an object lesson in the failures of neoliberalism. Drug traffickers, meanwhile, might use the guerrillas to divert military resources and attention away from themselves.

Finally, in addition to political and drug-related violence, Mexico's major cities are being overwhelmed by crime. With 1,450 abductions in 1995, Mexico ranks second in total kidnappings in Latin America, after Colombia (with 3,600). Worse, in a diagnosis by Interior Minister Francisco Labastida Ochoa, of the 1.5 million crimes reported in 1997, only 150,000 arrest warrants were issued and only 85,000 executed. Furthermore, Labastida estimates that another 1.5 million crimes were never even reported due to citizens' lack of trust in the police. The poorly paid police are believed to be thoroughly corrupt and the perpetrators of many serious crimes. But efforts to purge contaminated police forces have backfired, turning unemployed cops into trained street criminals.

Adding fuel to the fire, Mexico is inundated with illegal arms. Guerrillas and drug lords are thought to possess plastique explosives, rocket-propelled grenade launchers, m-16 and ar-15 assault rifles, Uzi submachine guns, ak-47s, Claymore antipersonnel mines, and armor-piercing ammunition. As the once all-controlling tentacles of the PRI recede from the provinces, they may leave behind a vacuum to be filled by criminals or other antisocial forces.

So far, Mexico has failed to respond to the Chiapas uprising, the Colosio assassination, or the recent crime wave by tightening security. For example, the cabinet often assembles in open-air forums and travels together in the same airplane. It remains absurdly easy to enter political and defense installations. Intelligence services are manipulated to serve political interests rather than the state. All levels of political figures are therefore in personal danger, and little has been done to protect them.

THE ECONOMIC CONTEXT

In their 11 years in power, Mexico's young technocrats have led a restructuring that has produced the privatization of state-owned industries, fiscal discipline, and NAFTA. But a backlash is in the air. The mass protests that erupted this year against President Zedillo's proposed electricity privatization warn that the popularity of market economics may have waned.

For some time already, the left-wing opposition has campaigned by opposing the government's economic measures. While many hope that Cardenas has accepted market reform, opposition to such reform remains enshrined in his party's platform and in his own daily rhetoric. Within the PRI, opponents of the government's liberalism are multiplying. So far, the Mexican economy has demonstrated great resilience in the face of an adverse external climate, but this has not translated into more political support for the economic model.

The backlash, if it comes, will be propelled by several factors. The pillorying of former President Salinas, who led many of the reforms while in office, has made privatization synonymous with corruption to the public. The 1998 emerging market meltdown sideswiped Mexico and undermined enthusiasm for economic openness. Foreign holdings of Mexican government bonds dropped to a 12-year low of $2 billion in the third trimester of 1998. Around the world, capital flows to emerging markets dropped from more than $300 billion in 1996 to around $160 billion in 1998. Mexico's central bank staved off catastrophic devaluation by temporarily spiking interest rates to more than 40 percent by September 1998, but the experience did not increase the popularity of economic openness. Mexicans were also reminded of how close their already shaky banking system stood to the precipice and how quickly it could tumble in the event of further financial turbulence -- domestic or foreign.

So far, the robust U.S. economy and NAFTA have served as shock absorbers for Mexico, but a cool-off in the American economy could weaken Mexico's. Soft export performance would raise the same concerns about trade deficits that precipitated the 1994 peso devaluation. Meanwhile, the 1998 collapse in oil prices forced painful budget cuts on the Mexican government and revealed the vulnerabilities of the Mexican tax system, which relies on oil receipts to provide 35 percent of federal revenues.

Finally, every presidential succession since 1970 has been accompanied by an abrupt devaluation of the peso. This time around, the creation of an independent central bank and a floating exchange rate system should minimize that risk. Divided government and a vigilant opposition also make costly election-year pump-priming less likely. Still, Mexicans instinctively convert their money to dollars as elections draw near. And if a rocky election produces a president with a weak mandate, foreign short-term investment could vanish, causing the peso to drop.

WITH FRIENDS LIKE THESE . . .

Of all the risks Mexico now faces, one of the greatest lies just to the north: in the United States, the unwitting giant that could tip Mexico's balance toward instability. An uptick in U.S. interest rates could precipitate capital outflows; a surge in American protectionism could isolate Mexico; reputations that have taken a lifetime to build could be casually destroyed with one lead story in a major American newspaper (as when The New York Times implicated Mexico's secretary of defense, General Enrique Cervantes Aguirre, for having ties to drug traffickers).

Drug trafficking has come to monopolize the bilateral agenda. The United States is obsessed with Mexican drug corruption, and understandably so. But Washington is utterly unable to tell the good guys from the bad in this struggle.

Also destabilizing is the U.S. drug certification process. A decertification vote in the midst of Mexico's 2000 presidential campaign would fill the air with anti-American rhetoric. Cardenas, who called for suspending oil sales to the United States during the Persian Gulf War, would likely insist on expelling American Drug Enforcement Agency agents working in Mexico, and most mainstream Mexican politicians, eager to preserve their nationalistic credentials, would follow suit.

Another flash point is Chiapas. Washington must not treat the Mexican government as if it were a Salvadoran-style patron of organized violence. After all, the Mexican government has shown restraint, and fewer people have been killed in Chiapas than Washington, D.C., loses in one year to street crime. Yet members of the U.S. Congress have contemplated cutting off military aid and cooperation over false reports that U.S. helicopters have been used for counterinsurgency against the Zapatistas.

Mexico and the United States have recently chosen to link their destinies via NAFTA, but neither country has come to grips with this intimate embrace. NAFTA is the most profound structural guarantee of Mexico's free-market reforms, yet it remains a source of recriminations on both sides of the border. Mexican populists and U.S. protectionists continue to bridle at the supposed loss of sovereignty, jobs, and investment. Meanwhile, growing anti-Mexican sentiment in Congress makes it harder for the United States to play essential, if distasteful, roles in bilateral affairs. For example, the United States has been Mexico's lender of last resort for 30 years, but the 1995 peso crisis exhausted the U.S. appetite for such responsibilities. Congress refused to appropriate funds for an emergency rescue package, forcing President Clinton to use his executive authority over the Exchange Stabilization Fund instead.

FIDDLING WHILE MEXICO BURNS

The 2000 election will bring Mexico to trial by fire. As the capital sinks beneath a wave of crime, the provinces smolder, and drug lords send corruption creeping through the establishment, Mexico's rulers seem more interested in fighting one another than their common enemies. For the country to survive as a democracy, this will have to change -- and soon. Mexico's institutions are simply too fragile and its commitment to openness too new to withstand such national traumas for long.

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  • M. Delal Baer is Director and Senior Fellow of the Mexico Project at the Center for Strategic and International Studies and editor of The NAFTA Debate.
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