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In their own words. (Carlos Salinas)

Jul 1, 1998

       
Carlos Salinas de Gortari
In any resume of Latin American achievement during the last 10 years, it is impossible to leave out Mexican President Carlos Salinas de Gortari. Though vilified in his home country, he is credited with significantly advancing the opening of trade and investment reforms in the hemisphere through his economic reforms such as the conclusion of the region's first Brady deal, and the successful negotiation of Nafta.

Why was it so important for Mexico to resolve the 1980s debt crisis?
The biggest problem with the huge indebtedness in the 1980s was that there only existed conditions for restructuring the debt but not for reducing the debt. The Baker Plan was very innovative in the sense of approaching the problem and looking for ways so that developing countries could get financial resources to grow again. But what we found was that refinancing was not enough. There had to be reduction, and the Brady Plan allowed us to find that kind of solution. That's what we decided to tackle at the beginning of my administration, not only renegotiating but also reducing the burden of the debt.

How important was the Brady-Bush team to the success of the Brady Plan?
I would say that without the political vision of President Bush and the capacity of Mr. Brady to bring along the institutions and banks it would have been practically impossible to promote something like the Brady Plan. In our case, it was a crucial team that for us played a very important role. But there was also the participation of the Europeans and the Japanese, with then-minister of Finance Mr. Hashimoto; and the Spaniards-they were the first to reduce debt, to give a set reduction.

Was there a critical moment in Mexico's debt negotiations?
The whole process of the debt negotiations was a tremendous problem. In mid-1989 (in New York), Mr. (Jose Angel) Gurria faced an impasse. He told the bankers, "We are leaving." And they said, "Oh. What do you mean, you're leaving?" Mr. Gurria had called Pedro Aspe and told him they were not being flexible. Pedro called me and said, "We need to take a firm decision." So I told him, "Bring them back."Pedro told Gurria and Gurria told the bankers, "We're leaving." And they thought they weren't going, just leaving the building. But somehow they found out that there was a plane waiting for Gurria. The moment the Mexican negotiating team left the room, there was sadness in the faces of all the others at that table. I told Pedro, "Let's prepare for the fallout, for repudiation (of the debt) in the coming 48 hours, because we have no option or alternative." But in the following 46 hours the debt renegotiation was agreed upon. It was this clash that finally brought about the first debt reduction in the last 50 years.

So Angel Gurria's walkout was decisive?
We never threatened them. We never presented a threat because we were serious in our negotiations. But when we decided that it was the end, we meant it. We didn't give speeches threatening that we would pull out of the negotiations or that we would default on the debt. We merely talked seriously and when we thought they were really not cooperating, we said, "This is it," and we meant it.I still have the yellow pads where I designed the whole strategy of how we would announce the default of the debt and how we would take the decisions to bring our reserves out of the banks so they couldn't be frozen. All the steps were considered. We were ready.

Was there ever any real possibility of a Latin debtors' cartel?
Well, by 1986, much water had already passed under the bridge. There were already agreements being negotiated under the Baker initiative and there had already been lots of talk about the possibility of integrating debtor cartels. But I would say that by that time every government had recognized that each government had to engage in negotiations with creditors, because the characteristics and elements of the debt were very different from nation to nation. So the advocating of a debtor cartel was more talk than substance.

In 1988, you took office under difficult circumstances, following hotly disputed elections. Did you formulate your economic reform program before or after taking office?
In relation to the problem of the debt, it was always a fundamental point in my campaign that we required debt reduction, not just debt renegotiation. When I met with President Bush in Houston in November 1988, that was a crucial point in the discussion and that is why as soon as we both took office we began the process of negotiations. So I would say that the very big reform of debt reduction began the first day of my administration and we concentrated the whole of 1989 on these very difficult negotiations.President Bush had proposed in that Houston meeting a free-trade agreement. But my response was that we couldn't tackle two huge negotiations at the same time because...there could have been tradeoffs and we wouldn't like to have to swap debt reductions for trade facilities. So we decided to concentrate on debt reduction in 1989. But at the same time we began taking important steps to deregulate the economy.

Was there an ideological commitment to free-market reforms or were you just showing the US you were preparing for a trade accord?
The decisions we took were because they were good for the Mexican economy. That was our main concern and we continued taking them, even when the US administration changed. It shows that we were thinking not of the next election but of the next generation.

Privatization for us was not an ideological, but a pragmatic decision. We decided to privatize not because the government couldn't run the thousands of enterprises that it had, but because we had come to the point where government and the state had so many assets and the people so many needs. It was a time to use those assets to resolve the people's needs.
This is the key link in our privatization process: that we used the resources coming from privatization not for current expenditures, not to increase the salaries or produce very impressive investment, but to reduce the domestic debt. Once we got about $23 billion from privatization, we were able to reduce the private debt. When I took office the servicing of the debt required half the total budget; when I left office only 10% of the budget went to servicing the debt. It shows you why we were able to have very impressive social programs with a fiscal surplus. It proved that it was possible to have social policy with fiscal discipline.

What are some of the changes you have seen over the years in dealing with the international investment community?
I think there have been changes in size and also changes in structure. Changes in size, because you must remember that between 1986 and 1994 the amount of funds from foreign investment in the (Mexican) economy multiplied by four. Financial resources, placement of fund issues in the world economy in the middle of the 1980s were 10% of GDP and in ten years it was equivalent to 100% of GDP.But there was a change in structure as well. In the 1980s, it was mostly the banks; by the 1990s, direct foreign investment and pension funds. So the participants changed and, one could say, even he rules of the game changed. Because in the 1980s, it was the government who dealt with the bankers in the board rooms. In the 1990s, it was the private sector which dealt with the private sector and the pension funds, you could say, in the computer room.

What has been the key moment in the economic and financial transformation of Mexico and the region during the last decade?
Oh, I would say 1989. That's the moment in which the international circumstances changed dramatically with the fall of the Berlin Wall. If there is a moment that has introduced a new stage in the world order, I would say it's 1989.


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