Forwarded message:
Date: Tue, 14 Feb 1995 11:38:17 -0600 (CST)
From: "Harry M. Cleaver" <[EMAIL PROTECTED]>
Subject: THE INFAMOUS CHASE INTERNAL REPORT!!
To: Comite de Solidaridad <[EMAIL PROTECTED]>, [EMAIL PROTECTED],
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Here it is folks, you get it first. I'm about to put it out on the nets.
This is the Chase Bank internal report written by Riordan Roett calling
for the elminiation of the Zapatistas. I now have the AP Story reporting
Chase's dissassociation from this report and will put it out as soon as I
can.
======================================
MEXICO-POLITICAL UPDATE January 13, 1995
CHASE MANHATTAN S EMERGING MARKETS GROUP MEMO
Riordan Roett
SUMMARY
The greatest threat to political stability in Mexico today,
we believe, is the current monetary crisis. Until the administration of
President Ernesto Zedillo identifies the appropriate policies to stabilize
the peso and avoid uncontrolled inflation, it will be almost impossible to
address issues such as Chiapas and judicial and electoral reform. Moreover,
a prolongation of the crisis, with its negative impact on living standards,
raises the issue of labor unrest, specifically, and societal discontent,
in general.
THE ZEDILLO GOVERNMENT
The inauguration of Ernesto Zedillo on December 1, 1994 as president of
Mexico appeared to open a new chapter in the effort to modernize national
politics. In his inaugural address, Zedillo stressed the Importance of
resolving outstanding political scandals such as the assassinations of 1994;
as a guarantee of transparency and he appointed as Attorney General a member
of the opposition National Action Party (PAN). The new president called for
judicial and electoral reform and for a peaceful resolution of the year-old
insurgency in the southern state of Chiapas. He stressed the need for
transparency in government and the need to educate and train the Mexican
people. Zedillo's cabinet, drawn from the same pool as that of his,
predecessor, Carlos Salinas de Gortari, gave the impression of competence
and commitment.
On December 20, Finance Minister Jaime Serra Puehe, the successful
negotiator of the NAFTA during the Salinas years, suddenly announced the
devaluation of the peso. In the fall out from that decision, not shared with
the international financial community or foreign investors, Serra Puche
resigned and was replaced by Guillermo Ortiz. Ortiz had been number two in
the Finance Ministry in the Salinas government and had been appointed as the
Secretary of Communications and Transport by Zedillo.
Ortiz is now in charge of the government's recovery strategy. In our opinion,
until the government is successful in stabilizing the peso, avoiding a
sharp increase in inflation, and regaining investor confidence, it will be
difficult for Zedillo to address the agenda of reforms identified on
December 1. There are three areas in which the current monetary crisis can
undermine political stability in Mexico. The first is Chiapas; the second
in the upcoming state elections; and the third is the role of the labor
unions, their relationship to the government and the governing PRI.
CHIAPAS
The uprising in the southern state of Chiapas is now one-year old and,
apparently, no nearer to resolution. The leader, or spokesman, of the
movement, sub-commandante Marcos, remains adamant in his demand that the
incumbent PRI governor resign and be replaced by the PRD candidate who, Marcos
argues, was deprived of victory by government fraud in the recent election.
Marcos continues to lobby for widespread social and economic reform in the
state. Incidents continue between the local police and military authorities
and those sympathetic to the Zapatista movement, as the insurgency is called,
and local peasant groups who are sympathetic to Marcos and his cronies.
While Zedillo is committed to a diplomatic and political solution th the
stand-off in Chiapas, it is difficult to imagine that the current environment
will yield a peaceful solution. Moreover, to the degree that the monetary
crisis limits the resources available to the government for social and
economic reforms, it may prove difficult to win popular support for the
Zedillo administration's plans for Chiapas. More relevant,
Marcos and his supporters may decide to embarrass the government with an
increase in local violence and force the administration to cede to Zapatista
demands and accept an embarrassing political defeat.
The alternative is a military offensive to defeat the insurgency which
would create an international outcry over the use of violence and the
suppression of indigenous rights.
While Chiapas, in our opinion, does not pose a fundamental threat to Mexican
political stability, it is perceived to be so by many in the investment
community. The government will need to eliminate the Zapatistas to
demonstrate their effective control of the national territory and of
security policy.
STATE ELECTIONS
President Zedillo, in his inaugural address, restated his commitment to
opening the electoral system to opposition parties. This has been a
principal issue between the PRI-dominated government and the PAN and the PRD
in recent years. The more conservative wing of the PRI has opposed political
liberalization while the Zedillo group has argued that an opening is both
inevitable and justified. The current monetary crisis opens the question of
whether or not Zedillo and the reformers will have the capacity to honor the
outcome of local elections in 1995. The conservatives will argue that the
crisis justifies the continued one-party rule even if it must be maintained
by fraud. The opposition, which generally contests PRI electoral victories
regardless of the validity of PRD claims, will be emboldened to continue to
do so. Zedillo will be faced with a difficult situation in which he will
need to neutralize the conservative members of his own party while
maintaining his commitment to allow the opposition to win when they do so
legitimately.
Elections will be held this year in the states of Jalisco, Guanajuato,
Yucatan, Michoacan, and Baja California. three will hold both state
congressional and gubernatorial elections. Michoacan will vote only for a
state congress and Guanajuato only for a governor. In all of the states,
the opposition is historically strong and has a history of reacting strongly
to electoral fraud, real or perceived.
The government's electoral strategy in 1994 was based on holding together
core PRI supporters with the prospects of employment, an increase in real
wages, and more spending on public works. The monetary crisis makes it
highly unlikely that the PRI can adapt that strategy to the 1995 electoral
cycle. Moreover, while the PRI probably won over some opposition votes with
its perceived economic success story in 1994, it is unlikely that they will
gain any opposition ballots in 1995. The Zedillo administration will need
to consider carefully whether or not to allow opposition victories if fairly
won at the ballot box. To deny legitimate electoral victories by the
opposition will be a serious setback in the President's electoral strategy.
But a failure to retain PRI control runs the risk of splitting the governing
party. We believe that the ability of the Zedillo administration to resolve
the inherent conflicts in the 1995 electoral agenda will be instrumental in
determining whether or not the government will be able to fulfill its pledge
to liberalize Mexican politics.
THE LABOR MOVEMENT
The labor movement has been the backbone of the PRI for decades. The
willingness of labor leadership to take its cues from the PRI has been a
fundamental part of the stability in Mexico since the 1930s. The current
monetary crisis threatens to undermine that support because of the negative
impact on living standards and wages. The fall in value of the peso severely
under cuts the capacity of the average Mexican worker to purchase the bare
necessities of life each day.
In preparing the emergency economic program announced by President Zedillo
on January 3, 1995, the most difficult negotiations were apparently with the
labor unions who feared the impact on their membership of the hardships
required if the program is to be successful. In September 1994, the unions
had signed an agreement with the government and business that allowed a seven
percent wage increase for 1995. That agreement also included income-tax
credits for the lowest-paid workers and some productivity bonuses in
contracts.
The seven percent wage package was considered a fair deal then because the
government estimated that inflation would be only four percent in 1995. With
the loss of purchasing power and rises in prices resulting from the peso's
devaluation, government economists now think inflation might reach fifteen
percent in 1995, and some economists say it will exceed twenty percent.
Mexican workers still have not recovered the standard of living they had in
1980, now three devaluations ago. The new agreement signed January 3, 1995
retains the seven percent wage increase. In exchange, the government
pledged to minimize price increases and keep inflation from spiraling. Under
the agreement, the lowest-paid workers will get a tax credit equal to as
much as three percent of income. The government has promised to expand to
700,000 people government-funded scholarships for worker training.
In our opinion prolonged continuation of the current crisis will result in
pressures to reopen the agreement and compensate Mexican workers for their
loss of purchasing power prolonged continuation of the current crisis will result in
pressures to reopen the agreement and compensate Mexican workers for their
loss of purchasing power. The first indication of this occured on
January 11, when the Mexican Confederation of Labor called on its affiliates
to demand an immediate 15.3 percent salary increase for January and a 56
percent increase for the rest of 1995. The strong corporatist links between
government and unions have weakened in recent years. While the
administration still retains influence, it does not have total control. If
the crisis continues, the Zedillo administration may be faced with the
options of either rejecting worker demands for higher wages and facing the
possibility of demonstrations or yielding to worker demands which will
further aggravate the economic situation.
CONCLUSIONS
The Mexican monetary crisis has overshadowed the commitment of the Zedillo
administration to a new wave of political reforms that include political
negotiations to resolve the Chiapas crisis and to guarantee fair elections
at the state and municipal levels. It also raises the issue of whether or
not the Mexican working class will accept a prolonged period of wage losses
and diminished living standards. These social and political questions,
which are of high priority to the President, will inevitably be postponed
until the economic situation is clarified. To the degree that the Zedillo
government is unable to stabilize the peso and avoid inflation, in our
opinion, it runs the risk of social and political uncertainty.
