Devalued peso risks alienating Mexican unions


MEXICO CITY -- When Ernesto Zedillo Ponce de Leon first stood before the nation as president less than a month ago, the plans he unveiled were a measure of Mexico's recovery from its foreign-debt crisis of the 1980s.

With the economy apparently restored to health, Mr. Zedillo proposed finally to risk the power of his long-governing party with "definitive" steps toward democracy.

With investment rising, he could afford to promise more public spending to help the millions of poor Mexicans left behind by the country's progress.

But as Finance Ministry technocrats scrambled this weekend to HTC redraw their entire economic strategy in light of an uncontrolled devaluation of the peso, government leaders also found themselves facing political challenges more daunting than any Mr. Zedillo had foreseen.

As spending is cut back, inflation surges and real wages fall, he must now sell new sacrifices to a labor movement that has grown steadily more independent of the government in recent years.

When Mexico's economy collapsed in 1982 and 1987, however, much of what set the country apart from others in the Latin American debt morass was the government's overwhelming political control, particularly of organized labor.

A principal mechanism of that control was a national wage-price accord that has been periodically renewed since 1987.

Under the accords, big labor confederations belonging to the governing Institutional Revolutionary Party (PRI) joined with business chambers largely beholden to the government in agreeing to fight inflation by holding down salaries and consumer prices to certain levels.

Serious labor strife became routine elsewhere in the region; in Mexico, it remained the exception.

The government's power over labor has been eroding slowly over the last decade as the informal economy has grown, independent unions have proliferated and those that were once pillars of the PRI, as the governing party is called, have established some distance.

The face that labor showed Mr. Zedillo's aides last week looked angrier than it has been before.

"We were confident that all of the sacrifices we have made were bringing us in to safe port," the leader of the telephone workers' union, Francisco Hernandez Juarez, said in an interview Friday. "And now we find ourselves once again in the middle of a turbulent sea with no way back."

To win labor's agreement to preserve the 10 percent ceiling on salary increases that was negotiated in September, officials quickly accepted the insistence that prices be frozen for 60 days, officials on both sides of the talks said.

But when the finance secretary, Jaime Serra Puche, proposed Thursday that labor and business leaders sign a statement saying they "shared" the government's decision to float the peso, Mr. Hernandez Juarez and other more independent unionists rejected the language out of hand.

Perhaps the most telling indication of the president's straits is that his promise to reform an authoritarian political system -- a central problem of his administration until last week -- may now be one of the more straightforward tasks ahead.

"We are really, as you say, back to the drawing board," an official said.

In the southern state of Chiapas, where an Indian insurgency has helped unsettle the financial markets with threats of renewed fighting, the need for peace is becoming more urgent.

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