The risks were considerable, but I had confidence in Mexico’s new president, Ernesto Zedillo, an economist with a doctorate from Yale who had stepped into the breach when his party’s original candidate for president, Luis Colosio, was assassinated. If anybody could bring Mexico back, Zedillo could.
Besides, we simply couldn’t stand aside and let Mexico fail without trying to help. In addition to the economic problems it would cause both for us and for the Mexicans, we would be sending a terrible signal of selfishness and shortsightedness throughout Latin America. There was a long history of Latin American resentment of America as arrogant and insensitive to their interests and problems. Whenever America reached out in genuine friendship—with FDR’s Good Neighbor Policy, JFK’s Alliance for Progress, and President Carter’s return of the Panama Canal—we did better. During the Cold War, when we supported the overthrow of democratically elected leaders, backed dictators, and tolerated their human rights abuses, we got the reaction we deserved.
I called the congressional leaders to the White House, explained the situation, and asked for their support. All of them pledged it, including Bob Dole and Newt Gingrich, who aptly described the Mexico problem as “the first crisis of the twenty-first century.” As Rubin and Summers made the rounds on Capitol Hill, we picked up support from Senator Paul Sarbanes of Maryland, Senator Chris Dodd, and Republican senator Bob Bennett of Utah, a highly intelligent, old-fashioned conservative who quickly grasped the consequences of inaction and would stick with us throughout the crisis. Several governors were also supportive, including Bill Weld of Massachusetts, who had a great interest in Mexico, and George W. Bush of Texas, whose state, along with California, would be hardest hit if the Mexican economy collapsed.
Despite the merits of the case and the support of Alan Greenspan, it became obvious by the end of the month that we weren’t doing well in Congress. Anti-NAFTA Democrats were sure the aid package was a step too far, and the new Republican members were in open revolt.
By the end of the month, Rubin and Summers had begun to con-sider acting unilaterally, by providing the money to Mexico out of the Exchange Stabilization Fund. The fund was created in 1934, when America took the dollar off the gold standard, and was used to minimize currency fluctuations; it had about $35 billion and could be used by the Treasury secretary with the President’s approval. On the twenty-eighth, the need for American action took on even greater urgency when the Mexican finance minister called Rubin and told him default was imminent, with more than a billion dollars’ worth of tesobonos coming due the following week.
The matter came to a head on Monday night, January 30. Mexico’s reserves were down to $2 billion, and the value of the peso had dropped another 10 percent during the day. That evening, Rubin and Summers came to the White House to see Leon Panetta and Sandy Berger, who was handling the issue for the National Security Council. In blunt terms, Rubin told them, “Mexico has about forty-eight hours to live.” Gingrich called to say he couldn’t pass the aid package for another two weeks, if at all. Dole had already said the same thing. They had tried, as had Tom Daschle and Dick Gephardt, but the opposition was too strong.
I returned to the White House from a fund-raiser at about 11 p.m. and went to Leon’s office to hear the grim message. Rubin and Summers briefly restated the consequences of a Mexican default, then said we needed “only” $20 billion in loan guarantees, not $25 billion, because International Monetary Fund director Michel Camdessus had put together almost $18 billion in aid that the IMF would extend if the United States acted; combined with smaller contributions from other countries and the World Bank, that brought the total aid package to just under $40 billion.
Though they favored going forward, Sandy Berger and Bob Rubin again pointed out the risks. A newly published poll in the Los Angeles Times said the American people opposed helping Mexico by 79 percent to 18 percent. I replied, “So a year from now, when we have another million illegal immigrants, we’re awash in drugs from Mexico, and lots of people on both sides of the Rio Grande are out of work, when they ask me, ‘Why didn’t you do something?’ what will I say? That there was a poll that said 80 percent of Americans were against it? This is something we have to do.” The meeting lasted about ten minutes.
The next day, January 31, we announced the aid package with money from the Exchange Stabilization Fund. The loan agreement was signed a couple of weeks later at the Treasury Building, to howls of protest in Congress and grumbles among our G-7 allies, who were upset that the IMF director had made the $18 billion commitment to Mexico, and to us, without their prior approval. The first money was released in March, after which we continued to make regular disbursements, even though things didn’t really get better in Mexico for several months. By the end of the year, however, investors had entered the Mexican markets again and foreign exchange reserves had begun to build up. Ernesto Zedillo had also instituted the reforms he had promised.
Though it was tough at first, the aid package worked. In 1982, when the Mexican economy collapsed, it had taken almost a decade for growth to return. This time, after a year of severe recession, the Mexican economy started to grow again. After 1982, it had taken seven years for Mexico to regain access to the capital markets. In 1995, it took only seven months. In January 1997, Mexico repaid its loan in full, with interest, more than three years ahead of schedule. Mexico had borrowed $10.5 billion of the $20 billion we made available, and it paid a total of $1.4 billion in interest, almost $600 million more than the money would have earned had it been invested in U.S. Treasury notes, as other Exchange Stabilization Fund monies were. The loan turned out to be not only good policy but also a good investment. New York Times columnist Tom Friedman called the Mexican loan guarantee “the least popular, least understood, but most important foreign policy decision of the Clinton Presidency.” He may have been right. As for popular opposition, 75 percent of the people had also opposed the Russian aid package; my decision to restore Aristide in Haiti was unpopular; and my subsequent actions in Bosnia and Kosovo met with initial popular resistance. Polls can be helpful in telling a President what the American people think, and which arguments may be most persuasive at a particular time, but they cannot dictate a decision that requires looking down the road and around the corner. The American people hire a President to do the right thing for our country over the long run. Helping Mexico was the right thing for America. It was the only sensible economic course, and by taking it, we proved ourselves to be, once again, a good neighbor.
On February 9, Helmut Kohl came to see me. He had just been reelected, and he confidently predicted that I would be as well. He told me we were living in turbulent times, but the end would bring me out all right. At the press conference after our meeting, Kohl paid a moving tribute to Senator Fulbright, who had died shortly after midnight at the age of eighty-nine. Kohl said he came from a generation who, when they were students, “wanted nothing more than to obtain a Fulbright scholarship,” and that, across the world, Fulbright’s name was associated “with openness, with friendship, and with people striving together.” At the time of his passing, more than 90,000 Americans and 120,000 students from other countries had been Fulbright scholars.
I had gone to Senator Fulbright’s home to visit him not long before he died. He had had a stroke and his speech was somewhat impaired, but his eyes were bright, his mind was working, and we had a good last visit. Fulbright would loom large in American history—as I said at his memorial service, “Always the teacher and always the student.”