The Peso Crisis

A Monetary Crisis?

The Peso

• The Peso: Advertises its own contradictions

The Peso

• Money with Emiliano Zapata!

The Peso

• Zapata fought for campesinos’s land and corn, against money and its power

• Even on reverse side

• Zapata listening to a fellow campesino

• On left & background: gears, factories & smokestacks -- threaten peasant life

Crisis = Devaluation?

• What is generally meant by “the Peso Crisis” is the sudden drop in the value of the peso in late 1994.

• But… is that all there was to it?• No, the drop was the result of a year of

crisis and drama in Mexico• That began with the Zapatista rebellion on

January 1, 1994

Chronicle

• Dec 13: EZLN Letter/Warning• Dec 18: EZLN Breakout• Dec 19: Zedillo Calls Meeting, Jaime Serra

says 15% devaluation• Dec 20: Serra announces devaluation,

government blames EZLN• Dec 21: fight from peso, drops 40%, peso

floated

Dirty Float

• prior to Dec 21– peso was “floating”, no official price– but state “supported” its value through intervention

• Intervention:– spending foreign exchange reserves to buy pesos

• impossible to sustain– provoking increased demand for pesos by foreign

speculators• selling off Mexican government assets• open financial markets

Free Float

• Devaluation on Dec 20 – meant no more government intervention– revealed government couldn’t avoid letting

price drop– it was running out of reserves

• Devaluation– revealed govt’s failures

• financial• jawboning• political

Consequences - I• Inflation

– prices of imported goods rose, not just luxury goods but basic food stuffs, e.g., corn for tortillas

• High Interest Rates– state policy to stem outflow of hot money– interest rates on state bonds rose to 50%– response to Fed increase of US rates

Consequences - II

• Real Wages Fell– immediate result of inflation caused by

devaluation– fall in standard of living for those with no

savings, eventual fall for almost everyone– higher interest rates reduced consumer

expenditures on durables

Consequences - III

• Increased Unemployment– much Mexican industry was dependent on

imported intermediate materials – the devaluation drove up prices of imports and

raised business costs dramatically– high interest rates drove smaller businesses

bankrupt as loan rates floated up w/offical rate

• Increased Migration North– worsening situation in Mexico increased

differential between Mexico & U.S.

Consequences -IV• Exports would increase

– exports now cheaper for foreigners to buy because pesos cheaper to buy

– except for those dependent on large imports of intermediate goods whose prices rose

– export boom + reduced wages would draw some MNC direct investment

• Imports would decrease– imports now more expensive– US exports would decrease (undercut NAFTA)

Reactions from Wall Street &

Mexican Govt Actions

Wall Street Bloodthirst--the Chase Report

• Jan 11: Riordan Roett at CSIS Seminar says Mex govt must “resolve” Chiapas conflict to regain investor confidence

• Jan 13: Roett’s Report to “Emerging Market Investors”– Mex govt must “eliminate” the Zapatistas– Mex govt should perhaps commit election fraud– questions how much pain Mex “working class” will take

Chase Report Revealed

• Feb 1: Counterpunch publishes story on Roett/Chase report & Roett’s talks

• Feb 10: Counterpunch faxes Cleaver who puts story on the Net

• Feb 14: Cleaver posts entire Report on Net• Feb 14: Perot et al pick up story & spread it

• Feb 14: Chase denies responsibility, blames Roett (and subsequently fires him)

• Feb - March: Anti-Chase demos E & W

Reaction in White House: BAILOUT

• mid-Jan ‘75: faced with peso crisis & threat of more general financial crisis, Clinton asks Congress for bailout legislation, wants $40b

• Old NAFTA lobby mobilized on Hill• Jan 31: as Congress stalls, Clinton acts:

– $20b from US Exch.Stabilization Fund– $17.8b from IMF, biggest IMF loan ever– $10b from Bank for Int’l Settlements

• Bailout not of Mexico, but of speculators

Terms of Bailout

• Pledge of oil reserves as collateral• Tight money policies raising interest rates• privatization, sell off Mex firms, 100%

foreign ownership• G, decreased govt spending, esp. that

supporting consumption, wages• Stiff fees for borrowing• In short: dramatic austerity plan for Mex

Results in Depression

• All these measures produced a deep depression in Mexico, – a fall in GNP (total output)– dramatic layoffs– rising unemployment (100s of thousands)– bankrupcy for many firms

• Most dramatic economic crisis since 1982 debt default

Political Dimension

• Economic austerity accompanied by just that police and military repression called for in Chase report

• Mexican govt:– unilaterally broke of peace talks– sent 50,000 troops against Zapatista

communities in Chiapas– arrested people accused of being Zapatistas,

some released, some sentenced, e.g., Elorriaga

Arrests

• Those arrested were tortured:– tied, blindfolded & beaten– stripped naked, pawed, threatened with rape– electro shocked– kicked– pistol whipped

• All this documented by human rights groups & defense lawyers with doctors

In the Countryside

• People in “Zapatista Zones” fled into the mountains to avoid torture, rape & murder they had experienced a year before

• Flight into mountains & jungle brought sickness & death– dehydration, malnutrition, salmonella,

diarrhea, sunstroke, bloody swollen feet, cholera, etc

• Military wreaked havoc in villages

Economics & Politics

• “Economic austerity” & “political repression” revealed as two forms of same thing

• Economic austerity originated in political crisis of which peso devaluation was byproduct

• Both austerity & guns aimed at attacking those responsible for instability (workers & peasants)

Grassroots Response

to

Repression & Austerity

Initial Reactions

• News of govt rupture of talks & military offensive – is reported in news media– circulates rapidly through solidarity networks

• News Reports Critiqued– media largely parrot govt line on arms cache &

conspiracy– govt line critiqued on Net

• lack of evidence, illogic of charges• later “evidence” proves silly and minimal

Mobilization

• Organization of protests to pressure Mexican govt to back off, – repeat of Jan-Feb 1994– giant marches in Mexico City (200,000+)– much larger scale, measured Zapatista

political success in interim and govt political failures

– Demonstrations against Mexican Embassies & Consulates in some 40 countries

Public Debate• Debate in Press

– letters to the editor– op-eds critique Mexican govt, engage pro-govt

apologists

• Debate on Internet– Internet lists, newsgroups not just solidarity

but involve people on all sides, including those who defend Mexican govt

– e.g., Cleaver debate with Price

Mex Govt Bankruptcy

• Fall back into old Cold War rhetoric– red-baiting pro-democracy supporters

• Inability and unwillingness to engage ideas & arguments of Zapatistas

• Political bankruptcy measured by recourse to military means

• Chase Report revelations undercut Govt’s credibility

Observers• International observers flooded into

Chiapas– repeat of early 1994– put Mexican military under public scrutiny– drew in more mass media than might have

been the case otherwise

• More difficult to obtain access to conflict zones– Mex govt had learned from previous

experience

Widening of Protest

• Chase Report linked Mexican govt actions to Wall Street

• Clinton bailout linked those actions to Washington

• So....– protests widened from purely political to

confrontation with economic interests– e.g., anti-Chase demonstrations– e.g., anti-bank protests in Canada, etc.

Mobilization Against Austerity

• May 1, 1995 giant march in Mexico City by rank & file workers against – govt austerity and – against unions who tried to avoid demos

• El Barzon formed– response to high interest rates & credit restrictions– small businesses threatened with bankruptcy– farmers faced with foreclosure– middle class faced with losing homes, etc.– Demos spread all over Mexico, esp at banks & govt

Expansion of Informal Sector

• Soaring unemployment and falling real wages

• Flight from formal to informal sectors• Informal sector already largest in Mexico

– terrain of entrepreneurship? (de Soto)– terrain of community recomposition outside of

capitalism?– e.g. Tepito: extensive commerce, extensive

leisure & political self activity

Immigration

• Reduction of opportunities in Mexico increased differentials South & North

increased pressure/attraction to migrate

• Birds of Passage– immigrants not just “driven”, nor “flotsam”– immigrants make decisions– decisions change when parameters change– immigration a form of struggle, shift to more

favorable terrain

Campesino Self-activity

• Intensified conflict in Chiapas– increased desperation of campesinos – reduced hopes for peaceful solutions– reduced options in cities, wages

• Acclerated self-organization– partly pro-EZLN in South– partly autonomous mobilization throughout Mexico

• e.g., Tarahumara in Chihuahua, emergence of EPR in Guerrero?

• e.g., formation of a National Indigenous Congress

Spreading Guerrilla Groups

EPR FALPMG

Results• Mexican Govt forced to stop military offensive• Failed to “arrest” EZLN leadership• Mobilization of new campaigns in defense of

arrested• Accelerated development of international

observer camps in Chiapas• Return to negotiations• Intensified “low intensity warfare”

– against campesino villages– against priests, foreigners, observers,

supporters

--END?--

--END--