Mexicans angered by US loan conditions

Offers of a financial bail-out have again raised the sovereignty issue, writes Phil Davison in Mexico City

In the United States, President Bill Clinton's State of the Union address this week was widely billed as a political success. From the point of view of his southern neighbour, Mexico, his words could hardly have been more ill-chosen.

Mr Clinton was pressing for congressional approval of a $40bn (£25bn) loan guarantee to Mexico. Ironically, his words merely fuelled Mexico's ancient suspicion of US intentions. "We have to act. Not for the Mexican people . . . this legislation is the right thing for America," Mr Clinton said. Not the sort of language Mexicans like to hear.

In a country that lost almost half its territory to the US a century and a half ago, Mr Clinton's words sparked a debate over the motives of its big northern neighbour. "National sovereignty and dignity" have become catchwords in speeches by the Mexican President, Ernesto Zedillo and the Foreign Minister, Jose Angel Gurria, as they deflect criticism of the conditions that are reported to have been attached to US assistance.

The populist opposition leader, Cuauhtemoc Cardenas, flanked by dissidents from Mr Zedillo's ruling Institutional Revolutionary Party (PRI), called for a plebiscite on whether to accept the US bail-out. PRI dissidents were present at the rally in Mexico City, emphasising splits in the party that has ruled for 65 years.

Mr Cardenas's protest carried particular significance, as his father, General Lazaro Cardenas, nationalised Mexico's oil industry in 1938. Under the reported terms of the US loan package, Mexico would offer its oil revenue to the US Federal Reserve as a guarantee against the $40bn loan.

Mr Gurria admitted on Wednesday that under the terms of the US loan package being debated by the US Congress, Mexico's oil revenues would stand as guarantees until 2005 but would only be used if Mexico could not meet its repayment obligations. "This in no way violates our sovereignty over our natural resources," he said.

The sovereignty theme, recurrent since the US captured a large swathe of former Mexican territory in southern California and Texas, came at a bad time for Mr Zedillo. Less than two months after taking over from Carlos Salinas de Gortari, the new President faces an economic crisis, attacks from both left and right, an Indian peasant guerrilla movement in the south-eastern state of Chiapas and splits within the PRI over the pace of democratic reform.

Perhaps with one eye on his US congressional audience, Mr Zedillo has taken to speaking of "the new Mexican democracy." The trouble is, presidents from the PRI have been using similar phrases - "perfecting our democracy" was a favourite - for more than six decades.

A much-flaunted accord with left and right-wing opposition parties, reached last week, is already on the rocks.

Mr Zedillo apparently promised new elections in the state of Tabasco after reports of fraud. But, the governor, Roberto Madrazo, of the PRI, refuses to resign. A truce agreed with the so-called Zapatista guerrillas in the state of Chiapas, bordering Tabasco, is also dependent on new state elections.

After sacrificing the Finance Minister, Jaime Serra Puche, over the peso crisis in December, Mr Zedillo's second cabinet reshuffle earlier this week was a pathetic affair. Fausto Alzati resigned as Minister of Education after the media revealed that his would-be degree and doctorate from Harvard existed only on his "CV" and in his imagination.

While he awaited the US congressional vote on Mr Clinton's proposed loan package, Mr Zedillo's problems were increasingly evident on the country's streets this week. So-called peseros - minibuses which, with the underground, form the backbone of the public transport system - were set on fire by angry commuters after drivers doubled prices to keep up with rising petrol costs.

Since pesero prices are set by the government, police arrested 350 drivers and confiscated their vehicles. Hundreds of drivers then blocked streets in the suburbs to demand their colleagues' release, creating chaos. n To emphasise Mr Zedillo's isolation,several hundred well-dressed middle-class women protested against inflation and the peso crisis outside the presidential palace on Thursday. Met by a wall of riot police, the women handed the policemen pink and red roses, laid bouquets outside the palace gates and left peacefully.

Middle-class housewives were once a pillar of support for the PRI, although many have turned recently to the conservative National Action Party (PAN).

Another consequence of the economic crisis was that some currency-exchange houses in the capital suspended dollar trading on Wednesday after the peso nudged the six-to-a-dollar mark. That was good news for tourists. But for Mexican importers and middle-class families who send their children to US schools or universities it meant their expenses doubled compared to those of two months ago, when the peso was just over three to a dollar.

The crisis began after the government devalued the currency, only to see it fall further after it then floated the peso. Inflation figures released this week confirmed the government's fears. For the first two weeks of January prices rose by 2.3 per cent, suggesting that the pre-crisis forecast of a 4-per-cent inflation rate for this year would have to be revised upwards to 20 per cent or more.

There were also signs that the economic crisis was leading to an increased flow of illegal Mexican immigrants into the US. On the Mexican side of the Rio Bravo, just south of El Paso, in Texas, "guides" said that up to 300 people had crossed daily this week, the highest figure for many months. The "guides" said that they were charging $300 to help people across - 10 times the amount they were charging last year.