Many Firms May Die to Raise Up Mexico

Article excerpt

TO MANY MEXICANS, the U.S. aid package to rescue Mexico looks a lot like a life jacket made out of lead. They fear that the austerity the package imposes will drown their businesses.

"If things don't improve in three months, I won't survive," said Angel Lopez, who owns a John Deere tractor agency in Mexico City. "Look, we're even turning out the lights to save money," he said Wednesday, waving to corners of the office.

The $20 billion aid package announced Tuesday by the United States imposes tough austerity measures on Mexico in the hope of averting even worse economic hardship later. The International Monetary Fund and other sources are pledging another $32 billion.

President Ernesto Zedillo said Wednesday that the package was part of "a strategy to avoid a major bankruptcy that would provoke massive unemployment and seriously harm the chance of development for a whole generation of Mexicans."

Growing fear about the extent of the austerity sent Mexico's main stock market index tumbling by 5.65 percent on Thursday. A day earlier, the market rose 1.73 percent on initial optimism about the package.

But the Mexican peso rose to 5.685 against the dollar on Thursday after collapsing on Wednesday to 5.84. It had been at 5.605 on Tuesday.

Economic planners hope the peso's strength will attract investment and squeeze inflation out of a tight economy. But the social costs Zedillo spoke of will be paid by millions of Mexicans.

New loans for businesses or consumers will be hard to come by or very costly. And those already in debt are screaming because most Mexican loans have variable interest rates, which have rocketed unexpectedly upward since December.

Bankers fear that already-high default rates on loans could rise and imperil some banks.

Patricia Aranzabal, administrator of her family's furnace-supply company, said, "I have cousins who are about to shoot themselves," because they bought a house on credit late last year.

The crisis that started with the sudden devaluation of the peso on Dec. 20 may spell the end for the business that has been in her family for four generations, she said. …