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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