Washington. -- There are not many important issues on which Bill Clinton, Bob Dole and Newt Gingrich are in hearty agreement. But when the president warned of "severe consequences for the United States" unless Congress supports his proposal of a $40 billion guarantee of Mexican loans, Mr. Gingrich replied, "We have no choice on this," and Majority Leader Dole agreed.
What accounts for this unusual consensus? Is it concern about the North American Free Trade Agreement? Is it concern about Wall Street?
Both Republicans and Democrats exaggerated the strength and stability of Mexico's economic and political institutions in the effort to secure ratification of NAFTA. Both, therefore, have some responsibility for having encouraged U.S. corporations to hurry to invest in Mexico. But not much. It is, after all, the business of investors and managers of large funds to assess the level of risk their investments entail.
The eager acquiescence of the U.S. government in a big Mexican bailout suggests that those companies and fund managers who followed NAFTA into Mexico were right in believing it would be a safe investment. There is another curious aspect of the U.S. response. The American government has exaggerated the potential impact of Mexico's financial crisis almost from the outset, with administration officials predicting that the instability would sweep through Latin America, the United States, Canada.
A White House fact sheet circulated to the Congress asserted: "If we don't act now, Mexico faces a protracted economic crisis that would have severe consequences for the United States. . . . A Mexican crisis could spread to other emerging market economies which are the fastest-growing customers for United States products."
In fact the Mexican economy is not powerful enough to threaten the U.S. economy. Mexico also does not have such influence on other South American countries. Those economies are not so highly integrated that a devaluation in Mexico can throw Argentina, Chile or Brazil into a financial crisis. They may become so integrated if NAFTA produces the expected results and membership in a hemispheric free-trade zone spreads to the Southern Cone. But that will take time.
So what is going on? Why the exaggeration, why the rush to a government bailout of the Mexico's statist economy by Washington's rattled free marketeers?
In the 1980s Latin governments, having borrowed heavily from private banks when interest rates were low, found themselves unable to pay the increased interest on their loans. Governments of lender countries (the United States, United Kingdom, Japan, Germany and France) helped debtor countries (including Mexico) reschedule -- that is, stretch out -- payments on their debt.
The private banks that had lent the money in the first place recouped their funds with interest. The debtor governments, having avoided default, survived to borrow another day.
The International Monetary Fund and the World Bank helped fund and coordinate it all. The collapse of the international fiscal system was avoided. A major step was taken toward a managed global economy ready to start lending and planning and paying again after the collapse of the Soviet empire created new borrowers and new demand for capital in formerly socialist states. Only the taxpayers paid.
Now, objections are growing to the proposed bailout. Jack Kemp urges his former colleagues in the Congress not to use American taxpayer dollars to strengthen the Mexican peso -- on grounds that it makes no sense to try to shore up the value of the peso when Mexico's central bank is busily printing more pesos and wiping out the life savings and purchasing power of ordinary Mexicans.
Foreign aid has been described by a Washington wag as money the poor people of rich countries (such as the United States) send to the rich people of poor countries (such as Mexico). I am sure we all hope this isn't true of U.S. loan guarantees for Mexico. American taxpayers would not like the idea of using their money to guarantee the profitability of banks and corporations that are already very profitable.
Doubtless the rapid response of the Clinton team and the Republican leadership reflects the same bipartisan consensus on Mexico's currency crisis that assured passage of NAFTA and General Agreement of Tariffs and Trade. All of them rest on an idealized vision of an international trading system in which there are no losers, a good many far-seeing managers, and continued growth of the "world economy."
Jeane Kirkpatrick is a fellow of the American Enterprise Institute.