Special Report on Mexico: Salinas presides over an era of modernisation: Colin Harding charts Mexico's re-emergence in the world after decades of revolutionary nationalism

PRESIDENT Carlos Salinas de Gortari of Mexico, who ends a four-day official visit to Britain today, is head of state of a country of 85 million people with the world's 13th-largest economy. Mexico has undergone rapid change since Mr Salinas took office four years ago, a process closely followed in the United States but comparatively unwatched in Britain.

Mexico has a long tradition of independence. In the wake of the Mexican Revolution of 1910-17, the 20th century's first great social revolution, it developed a radical foreign policy, backing the Republicans in the Spanish Civil War and taking in thousands of refugees when they were defeated. It also offered refuge to Leon Trotsky after his break with Stalin. It kept lines open to Fidel Castro's isolated Cuba, and consistently defied US foreign policy.

Relations with Mexico's powerful northern neighbour have always been touchy, not least because Mexico lost swathes of territory in a war during the last century when US troops briefly occupied Mexico City. Relations can still be delicate, as shown by Mexican outrage at the US Supreme Court's recent endorsement of the kidnapping by US police of a Mexican citizen wanted in the US.

Yet, Mexico-US relations have improved beyond recognition. President Salinas established a warm relationship with President Bush, whom he met in San Diego last week, and many of his senior ministers have degrees from US universities. Both leaders hope the North American Free Trade Agreement (Nafta) under negotiation will set the seal on this new relationship.

The revolutionary tradition that began with the overthrow of the dictator, Porfirio Diaz, in 1910 has created a powerful state, embodied in the ruling Institutional Revolutionary Party (PRI). This emerged in the 1920s out of the chaos of civil war, and assumed its present form in 1946. It has been in power without interruption for 63 years. While ruling the country with an iron rod, it introduced advanced social and labour legislation and pursued strongly nationalistic policies designed to build up local industry behind a wall of tariff and non-tariff barriers. This tradition is suspicious of foreign - particularly US - involvement, and favours self-reliant development.

The party's legitimacy was built on the twin pillars of state-sponsored labour and peasant unions. Since the 1940s, representatives of the private sector have taken a leading role, though only recently has this been officially acknowledged.

The apotheosis of the revolution came during the presidency of General Lazaro Cardenas (1934-40), who nationalised the US-owned oil industry and distributed land to the peasants. Behind this nationalist and protectionist curtain Mexico flourished, enjoying long periods of growth thanks to the burgeoning alliance of government and business. The military, which had held the whip hand for three decades, dropped out of the picture after 1946, and a 'popular' sector grew as society diversified and was urbanised. The oil boom of the mid-1970s brought prosperity, as the state- owned monopoly, Pemex, shadowed the pricing policies of Opec.

The president holds a pivotal role. Chosen by his predecessor as the candidate of the PRI, he is duly elected by an overwhelming majority for a six-year term. Presidents cannot be re-elected. While opposition parties are permitted, even encouraged, the PRI runs the show, with the president dividing the spoils.

Beneath the president are the state governors and the network of political bosses, or caciques, dependent on them for patronage and protection. A constellation of urban and rural union bosses keeps the peace and delivers votes at election time. The system works in the prosperous centre and north while keeping the lid on the largely Indian south. There is also the escape valve of migration to the US, much of it seasonal.

Yet, the end of the oil boom in the early 1980s brought catastrophe. In common with other oil producers, Mexico had been borrowing heavily from banks only too anxious to recycle petrodollars, and in 1982, Mexico announced it could no longer service debts accumulated to finance consumption and heavy state investments.

The announcement triggered the Latin American debt crisis, threatening to bring down the world financial system. It came as a rude shock to Mexico. A closed economy founded on protectionism and state control, underpinned by a corrupt and ossified political structure, was no longer viable. Mexico was forced into international isolation, from which it began to emerge in the late 1980s on a different footing.

President Salinas has charged himself with transforming Mexico into a modern, open economy with a stable political system. Even before he was elected, he put out feelers to President Bush on a free-trade pact. Once in office, he sent troops to arrest one of the high priests of the Mexican political system, the oil workers' union boss, known as La Quina.

Since then, change has been rapid. Backed by a team of economists, Mr Salinas moved to restore order to public finances, with remarkable results. Mexico ran a budget surplus in 1991 for the first time in its history. The free-market structure President Salinas has built has shifted responsibility for economic growth from the public to the private sector.

In 1990, Mexico became the first country to complete a debt reduction programme under the Brady Plan, effectively ending the eight-year-long debt crisis. Growth has been steady since 1988, and foreign confidence in the country is at a peak. But President Salinas is aware of the long road ahead. He has almost completed the privatisation of state- sector companies, has announced the end of agrarian reform and begun a shake-up of the education system - all vital if the 'modernisation' pursued by the present government is to be more than skin deep.

(Photograph omitted)