Clinton `saves' Mexico, but at a cost

It is a refrain as old as his Presidency: the entreaties from Bill Clinton's well-wishers that he stand up for his beliefs and stick by a decision, even when it is unpopular. Now, with his amended financial rescue plan for Mexico, Mr Clinton has done precisely that. But, it is anyone's guess whether it will yield the political dividend his supporters are praying for. In the very shortest of terms, Mr Clinton has succeeded. He has demonstrated he can circumvent a hostile legislature to have his way. Indeed, the same congressional leaders - Republicans and Democrats alike - who first backed him and then failed to deliver their troops for the original $40bn of loan guarantees are now publicly hailing his sagacity and statesmanship (and privately thanking him for sparing them a vote in which they, as well as he, would almost certainly have been the losers).

Thereafter, however, the benefits to the President are harder to discern. At best, the new package will succeed in shoring up the peso and Mexico's international creditworthiness and in stabilising its volatile politics. If so, the entire affair may wellbe quickly forgotten here - and with it much of the kudos Mr Clinton has gained for his handling of the crisis.

If the rescue fails, however, the administration will be in dire straits indeed, accused of having squandered on a feckless foreign country up to $20bn of taxpayers' money for nothing. The hand of neo-isolationists in Congress would be strengthened and the President's ability to conduct foreign policy would be damaged, probably beyond repair.

Either way, the outcome could be a further erosion of Mr Clinton's standing in his party. If opinion polls are correct, 70 per cent of the population opposes the plan, partly from resentment that US money is going to Mexico when they are being told to accept budget cutbacks and austerity, and partly from the conviction - stoked by populist politicians and the radio talk-shows - that the only Americans to benefit are Wall Street speculators.

Such are the views of the unions and other constituencies on the Democratic left who had fought the original expansion of the North American Free Trade Agreement to Mexico in 1993. Now, as then, they say, Mr Clinton is showing his true colours, aligning himself with the markets and the Republicans. At a more sophisticated level, questions are already being asked over why action was not taken far earlier to avert the Mexican debacle.

US officials, it has been established, knew last August that the peso was overvalued and that drastic measures were needed to tackle Mexico's current-account deficit. But, critics say, Washington joined in a conspiracy of silence with the then Mexican President, Carlos Salinas, so as not to jeopardise the re-election of the candidate of the ruling Institutional Revolutionary Party.

In domestic politics, the affair has been vivid confirmation of how marginal the White House has become to the business of Congress: never greatly enamoured of Mr Clinton in the first place, even less so now after the November election disaster for whichthey still largely blame the President. For their part, Republicans mostly ignore him.

For the rest of the world, two lessons are to be drawn: first, that earlier predictions this Congress would be more inward-looking and protectionist are correct; and second, that the administration will have trouble delivering on any foreign undertaking which requires the approval of Congress.

Markets back deal, page 33