Loan Payoff: Vindication for Zedillo and Clinton

Mexico’s early repayment of its $13.5-billion emergency loan from the United States was sweet vindication of the Clinton administration’s controversial decision two years ago to help that nation avert an economic free fall. But while President Clinton and Mexican President Ernesto Zedillo bask in their achievement, the Mexican people have yet to recover from the sacrifices they made under the severe and necessary economic stabilization measures of 1994.

No one recognizes this more than Zedillo. In his surprise announcement Wednesday of the final $3.5-billion repayment, he noted, “Now our challenge is to consolidate the recovery and ensure that it is felt by families and companies.”

The economic stabilization plan resulted in higher interest rates and taxes. Many businesses were forced to close, more than 1 million Mexicans lost their jobs, thousands defaulted on loans with triple-digit interest rates, and paychecks were devastated by soaring prices. But in the last year, inflation has halved to 27%, the peso has stabilized and interest rates have fallen. Nevertheless, the purchasing power of consumers is still below what it was when the peso collapsed in 1994 and Mexico faced the threat of a national bankruptcy.

Mexico remains in debt. It was able to refinance the U.S. loan (a loan that earned Washington $1.4 billion in interest) at lower interest rates, which promises to save the country about $100 million a year. The early payoff of the U.S. loan should, of course, provide a political boost for Zedillo. Few in Mexico liked owing the debt to the northern neighbor.

Now, Mexico’s standing in the international financial community is enhanced and, more important, the country reassumes full control of its oil revenues--the national patrimony--which served as collateral for the U.S. loan. This diminishing of potential U.S. leverage over Mexico’s economic and political decisions will help to reduce the resentment toward the United States that the collateral agreement generated among some Mexicans. Overall, these developments should help restore investor confidence within and outside of Mexico.

Lessons have been learned from the suddenness of the Mexican crisis. Countries around the world now disclose critical financial information to the International Monetary Fund--the sort of data that would have signaled that Mexico was headed for trouble. And the monetary fund is putting together an emergency account should another country suffer a problem like Mexico’s.

Mexico City has done right by honoring the trust that Washington demonstrated. Now it must do right by its own citizens.