WE CAN SIDESTEP CRISIS, ZEDILLO TELLS MEXICO

MEXICO CITY -- As new economic woes grip Mexico, President Ernesto Zedillo
Ponce de Leon tried Tuesday night to reassure anxious Mexicans that their
country has the tools to avoid disaster -- the same tools his government
used three years ago to emerge from financial catastrophe.

``Results demonstrate that Mexico has dealt satisfactorily with the very
difficult situation we have faced in 1998,'' Zedillo said in his annual
State of the Union speech, his fourth since taking office. ``Thanks to our
monetary and fiscal discipline . . . the economy's growth has been
maintained to the greatest extent possible.''

Yet Zedillo's nationally televised speech was marked not only by what he
said about the country's economic strength and how he'll solve a banking
scandal, but by what he left out. There were no specifics on how Mexico
will deflect a worldwide economic storm that in the past year has stripped
the peso of nearly 30 percent of its value.

``The strategy that Mexico used to overcome the 1995 economic emergency
fully achieved its objectives,'' Zedillo said during his 93-minute speech,
which received a lukewarm response from a Congress dominated by opposition
parties.

Zedillo credited government austerity programs and tight fiscal policies
with cutting the $30 billion deficit by half and by slashing inflation from
52 percent in 1995 to 15 percent this year.

But unlike his previous two reports, which he delivered during a robust
recovery, Zedillo spoke amid widespread fear over Mexico's future. In
recent days Mexicans have told pollsters they fear another crisis like the
1995 peso meltdown that halved the currency's value and wiped out millions
of jobs.

After weeks of debate over how to handle a proposed $65 billion banking
system bailout, Zedillo offered reassurance that his administration was
doing all it could to keep the banking system afloat, to beef up anti-fraud
laws, and to target bank managers and business people who have defaulted on
huge loans -- money taxpayers will probably have to pay.

Bad loans, fraud and diversions of bank funds to ruling-party candidates
crippled a banking system already hurt by loan defaults spawned by the peso
crisis, which was precipitated when Zedillo devalued the currency just days
after taking office in December 1993. In 1995, Zedillo was the author of a
plan to rescue banks. The government bought up bad loans with long-term
bonds that Zedillo now wants to convert to public debt -- allowing banks to
cash in the bonds and clean their books more quickly.

Yet Zedillo's bailout plan has fallen flat with most Mexicans, who have
told pollsters that Zedillo and his ruling Institutional Revolutionary
Party have mismanaged the economy.

``The president must realize that the pattern of the last 15 years can't
continue,'' said Democratic Revolutionary Party Sen. Rosa Albina Garavito,
in a counterpoint speech to the legislature in Mexico City's cavernous
Chamber of Deputies.

The conservative National Action Party -- the PAN -- was just as harsh:
With all of the nation's economic problems, ``there is a serious deficit of
credibility . . . and the longer the administration waits to recognize and
attack the problems, the more damage the country will suffer,'' said Sen.
Gabriel Jimenez Remus, delivering his party's reply.

The only point on which all parties agreed was that democracy in Mexico is
now firmly established with clean, closely fought local and state elections
after last year's landmark vote that ushered in an independent legislature
and an opposition-party mayor in Mexico City.

Although he highlighted what he said was progress in infrastructure,
schooling and poverty, Zedillo admitted that government inaction against
rampant crime is compounding national uncertainty. The country remains
bedeviled by spiraling crime.

``Where public safety is concerned, those of us in . . . government . . .
have failed our citizens,'' Zedillo said. ``We are living the consequences
of permissive laws and inadequate reforms; of years of negligence, lack of
foresight and corruption in the institutions charged with law enforcement.''

Zedillo proposed a $400 million effort to beef up federal and state police
with new equipment and training, and promised to overhaul a court system
that Mexicans feel protects criminals through corruption and light penalties.

Like last year, Zedillo did not address the simmering conflict in the
southern states of Chiapas, Oaxaca, and Guerrero, where Zapatista and
People's Revolutionary Army rebels have recently clashed with police and
the Mexican army.

1997 - 1998 Mercury Center.

Checked-by: Mike Gogulski