Mexico's financial crisis will serve one good purpose if it impels the large industrialized countries to upgrade their defenses against huge, destabilizing capital flows across national borders.
By mustering an unprecedented $50 billion international package to support Mexico's plummeting peso, President Clinton may have achieved a temporary respite. But the allocation of such vast funds has exposed how fragile are governments and their central banks when confronting the private-sector power of globalized financial markets.
Just as the U.S. military would be stretched to the limit if it had to fight two regional wars simultaneously, so another crisis right now of Mexican magnitude would leave the International Monetary Fund, the World Bank and other institutions with dangerously depleted coffers. As a result, increased pressures can be anticipated to enlarge their resources -- decisions that do not come easily as governments deal with domestic problems.
Michel Camdessus, the IMF director, said his organization and the U.S. government had to act precipitously last Tuesday to avert what he described as a potential "catastrophe." Had Mexico been forced to impose exchange controls, and had other wobbly developing nations followed suit, he suggested, the international financial system would have been overwhelmed.
Treasury Secretary Robert Rubin, setting the stage for a crucial summit meeting this summer of industrial powers, sees a need to modernize interconnections among developed and developing countries, international institutions and private financial markets. His aim is to avoid the kind of panicky IMF snap decisions that caused Britain, Germany, Denmark, Belgium, Switzerland and the Netherlands to abstain in protest against a lack of consultation. Such public disarray has rarely been seen; it reflected a deeper European concern that the Mexican drawdown could limit resources for Russia and other former Soviet bloc countries ensnarled in continuous financial distress.
In providing extraordinary assistance to Mexico, both the IMF and the U.S. are hostage to good performance from President Ernesto Zedillo's new government. If things go sour, if Mexico fails to achieve specific goals already laid down, if the social stresses overwhelm financial counter-measures, the reaction will be predictable. There will be global rumblings about IMF modernization plans. Mr. Clinton will encounter furious criticism from members of Congress who have been happy to have him take the heat while they scurried for cover. Even House Speaker Newt Gingrich has taken flak from militant freshmen for backing what he called the president's "courageous" decision.
With the world economy at risk, the stakes in this matter can hardly be exaggerated.