After last year’s financial crisis brought on by excessive government
spending and the attendant high rates of inflation, Mexico has reached
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agreement with the IMF on a stabilization program. Mexico has
succeeded in holding wage increases to below 10 percent and inflation to
roughly 15 percent. The major problem is that the program has caused
increases in unemployment, on top of the high levels which existed
before the program was instituted. Moreover, investment has been slow to
pick up because of a continued lack of economic confidence and borrowing
ceilings required by the stabilization program. Low investment and tight
fiscal and monetary policies mean a decline in jobs. Growing population
pressure on the rural and urban areas makes this decline a potentially
volatile political situation. The U.S. immigration policy—which the
Mexicans expect will result in the return of some workers and denial of
access to new ones—is seen as seriously worsening the problem. Without
the investment to create jobs in Mexico, or the ability of workers to
seek jobs in the U.S., Mexico is worried that the problem of
unemployment will reach crisis proportions.
Treasury is developing a proposal for a U.S.-Mexican Development Fund,
designed to create employment in the rural areas of Mexico.2 It sounds like it might be
a good approach to a very difficult problem. We will report to you when
the outline of the plan is completed, which should be next week.
Attachment3
US–MEXICAN RELATIONS
ISSUE FOR DISCUSSION
—To determine in the light of our priority objectives in our
relations with Mexico the US economic assistance that might be made
available in connection with the undocumented aliens program.
[Page 299]
ESSENTIAL FACTORS
Status of the Consultative Mechanism—The
US-Mexico Consultative Mechanism, established in May under the
direction of Secretary Vance
and Mexican Foreign Secretary Roel provides for high level Social
and Economic Working Groups, with the Economic Groups further
divided into sub-groups on Trade, Tourism, Finance and Energy,
Industry, Investment and Minerals. All of these groups completed a
full round of meetings in July and August.
The principal theme of the meetings of the Social Working Group in
July and August was the US proposals on undocumented aliens. We
explained the program, stressed its humanitarian aspects and sought
Mexico’s cooperation in its implementation. The Mexicans voiced a
wide range of objections to the proposals. They hoped that
implementation might be indefinitely delayed or, failing this, that
it be implemented in a gradual and humane manner. The Social Working
Group agreed on a joint work program providing for further
cooperation in curbing forgers and smugglers of aliens in studying
the social and economic aspects of immigration, and in expanding
cooperation in law enforcement, health and environment and border
development.
Improvement of access to each others’ markets was the principal
agenda item of the Trade Sub-group. Agreement was reached in
principle on a tropical products agreement. The Mexicans reported
progress in reducing their quantitative import restrictions, though
these remain a problem. We reaffirmed our readiness to consider
carefully specific Mexican proposals for liberalization, working
within the context of the Multilateral Trade Negotiations. The two
sides exchanged views in the Energy Sub-Group on the Mexican
proposal to export natural gas to the US (which is now before the
Federal Power Commission). In light of Mexico’s need for investment,
we examined aspects of Mexican legislation considered restrictive by
private investors. We also agreed to examine ways of assisting
Mexico to stimulate small and medium-size business.
In the other sub-groups, Tourism and Finance, principal concerns were
means of expanding the two-way flow of visitors and Mexico’s
performance in implementing its stabilization program and financing
Mexico’s energy development.
Follow-up action has been taken on some issues and consultations with
the Mexicans on other issues surfaced in the working groups are
continuing through regular channels.
Basic Objectives and Issues—Our basic
objective in Mexico, which underlies and impinges on our specific
interest, continues to be the preservation of a stable country on
our border well disposed to cooperate with the US. Mexican stability
and cooperativeness is the essential
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foundation on which we seek to advance our
more specific current interests of: a) stopping the flow of illegal
migrants; b) curbing the influx of narcotics; c) preserving US
access to Mexico’s oil and gas reserves; d) assuring decent
treatment of American visitors and residents in Mexico; e)
maintaining Mexican cooperation on human rights and on other
international issues; f) keeping Mexico a major market for US goods,
and g) stabilizing the economy.
In the Consultative Mechanism, the undocumented worker proposals have
emerged as the principal current issue in our relationship, an issue
which has the potential for significantly affecting other US
interests. The Mexicans have claimed that our proposals may harm
their social stability and economic health. They have also warned
that adverse domestic political reaction to our measures could make
it difficult for the Lopez
Portillo Administration to maintain its policy of
close cooperation with the US. There have also been suggestions that
Mexico’s cooperation in narcotics control or its support on
international human rights issues could be affected, or that the
condition of Mexican undocumented workers in the US could itself
become an international human rights issue. (Our interests in access
to hydrocarbons, the good treatment of US citizens, and a close
bilateral trade relationship involve important economic advantages
to Mexico as well and there has been no suggestion so far that the
Mexicans might limit their cooperation in those fields.)
The Mexicans have reacted more positively to our offer of economic
assistance and improved trade for immigration-source countries. They
have stressed the linkage between access to US markets and
employment levels in Mexico in the Consultative Mechanism and have
indicated in general terms through diplomatic channels their
interest in economic assistance. Some GOM officials remain skeptical that our assistance will
be nothing more than a scheme to placate them. In treating this
issue in the Consultative Mechanism we have agreed to consult
further with the Mexicans on the interrelation of the undocumented
aliens problem with other economic issues and to work jointly in
research on the economic and social aspects of migration. In
response to their trade interest we have also urged the Mexicans to
submit proposals for products of special interest to be considered
during the current round of the Multilateral Trade Negotiations.
US Objectives in the Consultative
Process—Recognizing the undocumented aliens problem as the most
pressing current issue in our bilateral relationship, we intend to
give it, and its related economic issues, priority attention in the
consultative process. We intend to use the Consultative Mechanism to
consult closely and frequently with the Mexicans as the immigration
program goes through the legislative process, stressing the
humanitarian aspects. We intend to reaffirm our
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willingness to cooperate in
alleviating the root causes of illegal migration and engage the
Mexicans in more specific discussions of possible forms of
assistance. We will continue to encourage the Mexicans to seek
improved market access in the US and in other countries within the
context of the Multilateral Trade Negotiations, but in close
consultations with us to identify specific products of special
interest to them in the US market. Finally, we intend to use the
Mechanism, availing ourselves of any added leverage we may derive
from economic assistance, to impress on the Mexicans that greater
ability to export must ultimately depend on improvement in the
competitive position of Mexico’s heavily protected industries.
ASSISTANCE TO MEXICO
The Mexicans would find the US measures for undocumented aliens more
palatable and would be more disposed to cooperate in their
implementation if accompanied by some positive indication of US
economic assistance directly targeted at the root causes of
migration. However, because of the size of the Mexican economy, its
fundamental structural problems, and the great disparity between the
standards of living of our two countries, it is unlikely that any
amount of external aid would in the short run eliminate the
incentive for Mexicans to emigrate to the United States.
Among the internal structural elements requiring attention in Mexico
are: a maldistribution of income, a concentration of wealth and
economic power in the urban centers, leading to a dismal and
potentially explosive agrarian condition, and continuing corruption
in all levels of Mexican society.
A major source of Mexico’s economic woes can be laid at the door of
its government’s policy of adherence to a “State Capitalism” model.
A model which current evidence would indicate is not meeting the
pressing development needs of that nation. The private sector has
become overly cautious reflecting its deep and fundamental distrust
of GOM economic policy
prescriptions. Statist economic development policies have led to a
burden of some 900 state enterprises. Most of these operate in an
economically inefficient manner. Massive Federal intervention in the
economy has been financed, in large part, by external borrowings
when internal capital formation capacity was outrun. The results
have been economic stagnation coupled with inflation, capital
flight, a loss of international confidence and eventually a major
devaluation. President Lopez
Portillo appears to be vacillating in terms of
continuing this pattern. It is important that we encourage him not
to replicate the mistakes of the past.
Economic assistance at this time could provide a considerable
stimulus to Mexican recovery and economic development. Therefore,
assist
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ance should not
be viewed solely as a means of alleviating the flow of aliens or of
assuring Mexico’s acquiescence to our undocumented alien program.
Rather, it serves the US interest of having a politically and
economically stable neighbor to the south, whose domestic problems
impinge heavily on the US. For this reason an assistance program
should continue to be made contingent on
Mexico undertaking reforms agreed to by the US and the International
Financial Institutions (IFI’s) as
necessary for its stabilization and recovery.
Currently Treasury is coordinating for interagency consideration a
proposal for the formulation of a US-Mexican Development Fund, which
could be financed jointly by both countries, and disbursed through
the IFI’s under conditions designed
to obtain maximum effectiveness in developing the Mexican economy.
This effort is not far enough along to be discussed with any
specificity with the Mexicans.
Recommendation:
That we reiterate to the Mexicans our desire to exchange views with
them on what the US might do to assist Mexico in connection with our
undocumented aliens program. You may wish to indicate that this
question is currently under study within the USG. However, we should express our
interest to them in the possibility of achieving a more
market-oriented allocation of resources, in the interest of economic
efficiency.4
