MEXICO CITY -- Clear signs that Mexico's economic crisis is worsening have forced the government to concede that its original economic plan has failed, and that a tougher new plan of budget cuts and tax increases will have to be enacted soon.
President Ernesto Zedillo announced his original damage-control plan Jan. 3, but Mexican officials say it failed to arrest inflation and an impending recession -- largely because the United States took too long to deliver the vital financial assistance that President Clinton offered to help Mexico.
Ever since the $20 billion U.S. rescue package was finally signed on Tuesday, Mr. Zedillo has been busy telling Mexicans the crisis is under control.
But his top financial advisers are drafting a new forecast that shows Mexico is slipping further into the inflationary whirlpool of rapidly rising wages and prices that it had vowed to avoid. Inflation, which was projected at 19 percent in the original plan, is now expected to soar to almost double that figure.
Government officials who have worked on the new forecast say it slashes predictions of economic growth for 1995 from 1.5 percent to zero or even negative growth, which would mean that the government is acknowledging the inevitability of a recession. Many economists believe the recession has already begun.
The new forecast expects that taxes will be increased sharply, prices for gasoline and electricity produced by the state will rise, and the federal budget will be cut severely to produce the surplus of five-tenths of 1 percent that U.S. officials demanded as one condition for signing a $20 billion rescue package.
The U.S. assistance will go a long way toward resolving Mexico's most immediate problem -- paying off billions in short-term debt -- but it will do little to solve the economy's fundamental problems.
"Since Jan. 3, we've been fighting not to adjust the economy but simply to control a situation of economic panic," Mr. Zedillo said during an informal talk after several optimistic speeches on Thursday in the central state of Zacatecas intended to raise the spirits of Mexicans.
He said the original plan might have been successful in controlling Mexico's out-of-balance current account deficit. "But now we know the problems go far deeper than that," he said.
Mexican officials working on the new economic stabilization plan say it will differ from the original in that the social pact between government, labor and business, which has long characterized Mexico's preferred method of controlling the economy, will be abandoned.
Instead of sitting down with labor and business leaders to negotiate the kind of wage and price controls that so far this year have failed to hold the line, officials say the government will act on its own.
That will entail sharply cutting the federal budget and maintaining interest rates at historically high levels to restrain inflation and stabilize the exchange rate.
The government is also preparing an emergency employment program to relieve the pressure of the budget cuts from areas where social and political tensions have been high, like the southern states of Chiapas and Tabasco.