"Heritage of a Thief"
Counter Punch
Vol 1. No. 21
December 1, 1994

Published by the Institute for Policy Studies
Washington, D.C. 20009 (202) 234-9382

Washington Lauds Mexico's Salinas The man hailed at a sumptuous
Washington banquet at the start of December stole an election in 1988,
a fortune during his presidency and destroyed the sovereignty of his
nation. Carlos Salinas de Gortari deserves the rapturous acclaim of
the political and business elite who will gather at the Washington
Hilton on Dec. 7 for a $400 a plate testimonial dinner (held to honor
his "contribution to improved public policy and social welfare," says
the press release from the American Enterprise Institute, the
evening's sponsor). His presidency was a gold mine for American
industry and finance.

Salinas, "Harvard-educated," as the press here always likes to stress,
now hands over the presidency to Ernesto Zedillo, the exican ruling
party's designated successor after the March 23 assassination of Luis
Donaldo Colosio. Zedillo will almost surely continue along the path
carved by Salinas, who was no mere technocrat, but a formidable thief
who managed with aplomb the business of selling his country to the
United States while making sure that a good share of the revenues
ended up his, and his family's, pockets. "A Mexican patriot would be
revolted by everything Salinas has done, but New York banks owe him
big-time," says Walker Todd, an economist who in September retired
from the Federal Reserve in Cleveland and took a post at the law firm
of Buckingham, Doolittle & Burroughs. "He held the country together,
kept debt service ore or less on schedule, and enacted laws which
allowed them to repatriate dollars like never before."

The last six years have also been highly lucrative for Salinas, who
merrily pilfered the state treasury and will retire to a life of
luxury entirely incommensurate with the salary he received while
president.  Christopher Whalen, editor of The Mexico Report and
chief financial officer of Legal Research International, estimates
that Salinas's plundering has made him one of the world's richest men.

The president's friends and family have profited handsomely from
Salinas's rule as well. Readers may recall hearing a few years ago of
the arrest for murder and corruption of Joaquin Hernandez Galicia,
head of the exican Petroleum Workers Union, a move which was hailed by
American journalists as a great strike for freedom. Though Hernandez
was venal, his arrest (on trumped up charges) was designed to punish
the oil workers for backing Cuauhtemoc Cardenas's 1988 presidential
bid. It also allowed Salinas intimates to seize the labor leader's
assets.  According to Whalen, a huge ranch owned by Hernandez now is
the property of Raul Salinas, the president's brother.

In this issue of CounterPunch we describe exactly how Wall Street's
biggest players have earned astronomic rates of return on their
Mexican operations, especially off debt scheduling agreements
negotiated by former Treasury Secretary Nicholas Brady and overseen by
a long-time friend of Salinas, George Bush. This is NAFTA, as seen
from the executive suites of Salomon Brothers, errill Lynch and the
big banks.

While U.S. industry has reaped huge returns by exploiting cheap
Mexican labor, American financiers also have made big oney south of
the border. The yields have soared in recent years, in part due to
exico's rise as one of the world's hottest "emerging markets," the
name big institutional investors give to Third World and Eastern
European countries which deregulated their economies and allowed
foreigners to buy domestic equities or debt, either directly or
through mutual funds.

Emerging markets trading -- formerly called "Less Developed Country
trading," a name that U.S. brokers sensibly dropped because of its
unpleasing aroma of the Third World debt crisis in a more acute phase
-- arose in the late 1980s in the shadow of the so-called "Brady Plan"
accords, named after their architect, the then-treasury secretary. The
deals, in theory offering debt relief to Third World countries, were
in reality a huge bail out for creditors. While bankers agreed to
reduce total outstanding debt -- which will never be paid off anyway
-- debtors agreed to return to regular payment schedules. The deal
signed earlier this year by Brazil, a latecomer to the Brady Plan,
will mean additional interest payments of $400 million per year to
Citibank alone. Countries that sign Brady deals must also accept
IMF-style austerity programs, which include policies highly favorable
to foreign capital.

Just as important from the point of view of Wall Street, Brady
agreements transformed tens of billions of dollars worth of suspect
loan paper into highly marketable bonds, ost of which are backed by
30-year U.S.  treasury notes. A huge secondary market in Brady bonds
sprang up forthwith, with U.S.  banks and brokerage houses serving as
both traders and underwriters.

The powerful insiders running the show -- ost notably Salomon
Brothers, Merrill Lynch, Citibank, Chase Manhattan and J.P.  organ --
have been cleaning up. Mexico's "Bradies" fell to 40 cents on the
dollar shortly after they came on the market in 1990, but have since
climbed back to around 60 cents, netting their holders a return of
some 50 percent over four years.

More recently, emerging market money has been flowing into Third World
stock arkets, especially in Latin America. Other "hot "emerging
markets" include Morocco, Tunisia, Ivory Coast, Ghana, Turkey,
alaysia, Indonesia, Poland and Russia. In the case of the latter, big
investors have snatched up shares of newly privatized firms, which are
then made "efficient" in order to withstand the rigors of the
international arketplace. "When foreign investors take charge, there's
been brutal downsizing," says Todd, the former Fed man.

Very little emerging market money has gone to direct investment in
plants and equipment.  For example, the huge sums of foreign oney
flowing into Mexican stocks in recent years -- $10 to $15 billion
annually after the country signed its $33 billion Brady deal -- has
resulted in the privatization and internationalization of ownership,
but only about 5 percent has actually been used to enhance the
domestic capital stock.

This is of little interest to bankers, who profit by injecting very
large sums of money into small markets, thereby temporarily bidding up
the value of existing assets. The bubble inevitably bursts. Turkey's
stocks climbed by 200 percent last year, only to plunge 60 percent in
the first quarter of 1994 after an Islamic political party won key
municipal elections. Venezuelan stocks soared in 1990 and 1991, then
plummeted in 1992 and 1993 (by 42 percent and 11 percent,
respectively).  "The whole point is to get in and get out before
disaster strikes," says Whalen.

The high risk inherent to emerging markets investment is a topic which
brokers generally fail to raise to smaller investors, who are lured in
by the prospect of far bigger payoffs than they can hope to make at
home. Nigeria, a current "hot" market, offers bonds paying interest of
more than 20 percent. Stocks in the Philippines climbed 132 percent
last year.  For this reason, one investment consultant, ehran
Nakhjavani, calls emerging markets trading "wild, exciting, almost
lawless capitalism," pleasingly reminiscent of the days of John
D. Rockefeller and Jay Gould.

(Whalen says financial journalists covering emerging markets, almost
always with bugle blasts of wonderment about the big dollars awaiting
bold risk-takers, "are generally either idiots or complicit." In the
case of some of the most cravenly uncritical stories, Whalen believes
that money has changed hands. "They treat it like it's Iowa, and it is
definitely not Iowa," he says. "Many people are not going to get a
dime of their money back.")

Risk is especially great due to two important factors. First, the
whole market has been driven by low U.S. interest rates, which have
pushed investors abroad. However, most emerging market stocks have
been falling badly since February, when the Fed began raising domestic
interest rates. Second, policies pleasing to institutional investors
tend to annoy local populations. This was politely stated by Emerging
Markets Analyst, a trade newsletter, which said in a May 1994 report
that "market-oriented policies can initially foment the kind of
political uncertainty which has recently rocked exico [Chiapas,
political assassinations] and Venezuela [coup attempts, popular
protests]."

In fact, there is normally an inverse relationship between the
direction of Third World stock markets and living standards in the
country in question (though journalists frequently write as if a stock
boom is a sign of a nation's economic health. Poland's stock arket
operates three days a week and is composed of a grand total of 22
firms.).  Venezuela's stocks soared by 602 percent in 1990, the year
after brutal austerity measures provoked violence in which hundreds,
and perhaps thousands, of protestors were killed by security
forces. Argentina's stocks leapt by 307 percent in 1991, this at a
time when dozens of retirees hanged themselves after the government
slashed pensions to help ensure a budget surplus.

[drop cap]Under Salinas, Mexico became one of the world's "hottest"
emerging markets and Latin America's largest importer of capital. It
is also a country where U.S. banks and brokerage houses have a
tremendous stake. Salomon Brothers, one of the biggest of the emerging
markets profiteers, handles $15 billion worth of transactions in
Mexico annually (see box). In one major deal, J.P.  organ marketed
some $2 billion worth of "Aztec" bonds on the secondary market.
Citibank, one of the USA*NAFTA "state captains," is expanding rapidly
in Mexico, where it has the largest presence of any American bank.

At the same time, the Mexican economic "boom" of recent years has been
highly dependent on foreign capital, especially in financing a current
account deficit of more than $2 billion per month. This gives U.S.
institutional investors great leverage, all the are so because major
banks -- frightened by the temporary losses brought on by the 1980s
debt crisis -- have dramatically reduced direct lending to Mexico (and
to the rest of the Third World). "In some ways, [investment houses and
mutual funds] have taken over the financing role of big banks and
quasi-governmental organizations such as the International Monetary
Fund," writes the Wall Street Journal. "[But] fund anagers have
no long-term commitments.  They want nearly instant returns on their
investments, and are willing to use their clout to achieve those
goals."

The capriciousness of these investors requires full-time stroking by
Mexico's elite.  Last April then-candidate Zedillo took time out from
his hectic campaign schedule to reassure 30 major U.S. investors,
fearful of populist upsurge.

The bottom-line demands of the U.S. financial community consist most
notably of an overvalued peso and high real interest rates, which
protect bond yields and guarantee good returns for investors; cuts in
government spending; support for privatizations; and loose rules on
foreign investment. Such requirements are entirely incompatible with
any type of social reform.  As Francisco Drohojowski, managing
director of New York's Capital Management Inc., was quoted as saying
in late 1993, as the Mexican electoral race was heating up: "There are
things that would disturb any investor when you talk about redefining
income distribution."

American banks and brokers are not shy about flexing their
muscle. After presidential candidate Colosio was assassinated in arch,
Fidelity's fund manager, Robert 

 Citrone, quickly entered into
contact with authorities at Mexico's Central Bank. He told them that
he and other major players felt it was imperative that Mexico reassure
investors by propping up the peso.

Days later, with the peso falling, Citrone forwarded a list of
"suggestions" to Mexican officials, who were told that U.S. fund
anagers were prepared to pump an additional $17 billion into Mexico if
their advice was heeded. To emphasize the urgency of the situation,
American investment firms cut back their purchases of short-term
Mexican treasury certificates, ravaging stock prices and pushing up
interest rates.

Mexican authorities soon took steps to bolster the peso.

As Citrone has told the Wall Street Journal, "If a country does
the right things...they will get an additional push [from foreign
capital]. "If a country does something and the market doesn't like it,
they pay immediately."  Under such external pressures, Mexican stocks
have been highly erratic. During the past year the Bolsa de
Valores rose to an index of about 2,700 (after NAFTA was passed),
fell to about 1,800 in May, then climbed sharply again before dropping
to its current level of about 2,400. The SEC has been loth to examine
the activities of big U.S.  investors in Mexico, in part because the
country is seen as a top national security priority. "The biggest
danger is that the current lethargy and inertia will turn into a run,"
one financial consultant told CounterPunch. "It's a very
volatile game."

[drop cap]Mexico's economic integration with the U.S. greatly
intensified after 1988, the year that brought both Salinas and George
Bush to power. The two men, who still talk regularly, have been
friends since the 1960s, when Bush was wildcatting in exico. Bush is
also close to Salinas's father, Raul Salinas Lozano, a power behind
the throne at PEMEX, the Mexican oil onopoly. All the Bush boys have
been hosted in Mexico at the Salinas home.

(Another one of Bush's ex-business partners in Mexico is Jorge Diaz
Serrano, a former PEMEX head and a man so grotesquely corrupt that the
authorities were obliged in the 1980s to throw him in jail for five
years.  The two men were involved in some extremely shady deals, which
Jonathan Kwitny looked into when Bush was running for
president. Kwitny's investigation stalled after the SEC informed him
that its relevant filings had been "inadvertently destroyed."  Some
suspect that Bush, a frequent visitor to exico since he lost the 1992
election, still has a financial stake in Mexico. In October, he was
received warmly at a meeting of exican bankers in Cancun.)

Bush's personal ties to Salinas and other embers of the Mexican elite
gave him special incentive to lend a hand when his friend took office
in the midst of a terrible economic crisis. The Brady Plan
rescheduling that Mexico soon signed was a direct response to
Salinas's narrow escape in the election, which the Harvard man stole
from Cardenas (with the help of a timely computer breakdown). The
deal, which came when Mexico was completely shut out of credit markets
because it had stopped making interest payments on its foreign debt,
was accompanied by a crucial $2 billion "bridge loan."

The Brady agreement with Mexico was organized by Sam Cross, a former
U.S.  executive director to the IMF and, a knowledgeable source tells
us, a CIA asset since at least the early 1960s when as a Treasury
Department official he ran Saigon's finances. In the late 1980s Cross,
now retired, was head of the foreign department at the New York Fed --
a spot always stocked with a few Agency staffers -- and he showed the
Mexicans how a Brady deal would gain them renewed access to
international capital arkets. "The Brady Plan had nothing to do with
debt reduction," says Whalen, who points out that Mexico's foreign
debt has now reached $166 billion, far more than what the country owed
when the debt crisis exploded in the early 1980s. "It was about
creating a flow of new money, which Washington saw as a way to foster
political stability."

First proposed by Bush and pushed through by Bill Clinton, NAFTA
finalized Mexico's effective insertion into the U.S. economy. By
guaranteeing "stability," the trade pact created fantastic
opportunities for the U.S.  investment wizards selling Mexico. Since
last year, pension and insurance fund managers, generally fairly
conservative investors, have shown heightened interest in buying
Mexican equities and bonds.

The Clinton administration has also used the Fed to prop up Mexico,
particularly through the use of currency swaps -- essentially a line
of credit made available to reinforce a given local currency in the
event of an economic or political crisis. The U.S. lent exico $12
billion in the days before the vote on NAFTA, fearful of the potential
impact of a negative vote, and $6 billion immediately following the
assassination of Colosio. Under the terms of NAFTA, exico now has
permanent access to an $8.75 billion swap fund from the U.S. and
Canada.

[drop cap]And now Salinas exits the scene, to a chorus of applause
from the U.S.  government, business leaders and the press, all who
cheer his bold promotion of "free arket reforms" (see box). For
Mexicans, the reality is quite different. The overvalued peso, a flood
of cheap imports, and the end of price controls have devastated small
and edium-sized businesses. Real wages and the standard-of-living for
the poor have fallen. Other than drugs, oil is the only sector of the
economy making money in dollar terms (this is disguised by the
overvaluation of the peso). State sector assets have been sold off to
Salinas's cronies and the concentration of wealth and power is greater
than ever before. Mexico now boasts 24 billionaires, up from two in
1991.

It all means big money for U.S. companies, which is why seats sold
quickly for the AEI's Dec. 7 tribute to Salinas. Given his record,
$400 for dinner is a bargain.  [box]

The economic health of Salomon Brothers, which sells the bonds and
equities of many Third World nations, is intimately linked to the
firm's activities in Latin America. The an responsible for overseeing
Salomon's activities in the area is John Purcell, anaging director for
emerging markets research.

Purcell is known in the industry as one always willing to take
enormous risks. As one broker told Institutional Investor,
Purcell "never met a market he didn't like."

Such enthusiasm has not always served his clients well. In mid-1992,
Purcell was touting investments in Brazil, where President Fernando
Collor de Mello was implementing the standard neo-liberal policies. He
predicted that a corruption scandal threatening Collor's regime would
soon blow over, telling investors at a seminar in New York that he did
"not see the current situation as more than a blip on the screen."
Collor was soon impeached, shaking Brazilian stock arkets.

ore than anyone, Purcell has sought to give investment in Latin
American emerging arkets a respectable mien, thus encouraging new
investors. He has long pushed rating agencies like Moody's Investors
and Standard & Poor's to upgrade Mexican debt from its present
sub-investment grade, despite the hazards involved for buyers. In
early 1993 Purcell was chiding Moody's for its "fundamental error of
pessimism" towards exico, saying the agency was taking "a highly
conservative stance." In a report for Salomon Brother he wrote that
though "Mexico is not a standard democratic system...nor is it an
inflexible, illegitimate authoritarian regime."
  
Less than a year after Purcell's strictures over Moody's needless
pessimisms the Chiapas uprising took place, followed in arch by
Colosio's assassination. Mexican debt is still classed at
sub-investment grade.  Purcell and other brokers have attracted
torrents of money into Mexican markets, a task rendered easier by dint
of the fact that exican treasury bills pay yields of up to 16
percent. Such rates reflect the high risk of default.

Purcell's enormous personal stake in Mexico has not deterred
journalists from turning to him for presumptively objective comment on
political and economic events in the country.  Reporters covering
Mexico also frequently interview Purcell's ex-wife, Susan Kaufman
Purcell, an official at the Americas Society and a director of an
investment fund with big interests in Mexico. Walker Todd recalls
seeing Kaufman Purcell appear on a special edition of The McGlaughlin
Group, which aired the night before Congress voted on NAFTA. "After
hearing her comments, most viewers probably concluded that NAFTA was a
good cause, that they should rush out to buy Mexican bonds and that
Carlos Salinas should be president of the United States," he says.

After long promoting Third World investments as a relatively safe way
to make a fast buck, Purcell has recently become ore prudent. In a new
book, "The Risks of Foreign Investing," he cautions that investors
should be prepared to hold on to their emerging market assets for the
long haul.  Christopher Whalen is unimpressed: "There are a lot of
people who are going to want to sue the ass off of Salomon after their
investments go down the drain. It would be useful to have a book one
could wave around in court and say, 'See, I told you there were
risks.'"

Latin American-based U.S. correspondents have been wildly enthusiastic
promoters of the neo-liberal heads-of-state who have taken power in
recent year. Brazil's Fernando Collor de Mello, described by reporters
during his ripe and brief tenure of the presidency as a bold reformer,
was impeached in 1992 after receiving millions of dollars in kickbacks
from business officials who received state contracts. Another press
favorite, Venezuela's Carlos Andres Perez, was also evicted from
office on corruption charges..

The thief Salinas, too, has regularly received rave reviews from the
U.S. press. Such puffery is especially important to Mexico because its
economy is dependent on inflows of foreign capital and, therefore,
favorable news coverage in the major North American papers perused by
the investing class.  With this in mind, Mexican authorities court
U.S. correspondents with torrid zeal. These reporters are given far
easier access to top officials than their Mexican counterparts, with
an interview with the president or other top officials extraordinarily
easy to arrange.  "The government treats them [U.S. reporters] like
royalty, it virtually makes them part of the ruling class," one
Mexican journalist recently complained, off-the-record, to
CounterPunch. "I suppose that if I lunched with Bill Clinton
every few months I'd probably write more sympathetically about him,
too."

The Mexicans apparently found was The New York Time's Tim Golden
a particularly ductile target. "Tim really went in for the pampering,"
says our source. "He bought the line that Salinas has been selling the
last six years -- that the PRI is rotten and corrupt, but that he's
the one who'll clean it up."  Golden's stories have most certainly
displayed profound sympathy towards Salinas. Last Aug. 15, less than a
week before the presidential election, Golden wrote that Mexico's
president was "embracing the country's demands for political reform,"
and that the election was a chance for him to "protect his legacy as
one of Mexico's most important modernizers."

Golden is also notorious for constantly getting things wrong. One
article, greeted in exico with a mixture of amusement and anger, came
last Jan. 4, days after the Chiapas uprising. In dazed incomprehension
of the realities of Chiapas and the reasons for the rebellion, Golden
portrayed the rebels as retrograde Stalinists. "That the cold war had
ended seemed to mean nothing to [the insurgents]," he sniffed
disapprovingly.

Like most foreign reporters, Golden rarely finds time to pursue
stories about official corruption. A few years ago an American
reporter at The News, an English- language Mexico City daily,
tried without success to interest Golden in a story which linked a
powerful ruling party official to the urder of a Mexican
journalist. The reporter, Zachary Margulis, then appealed directly to
the editorial board of the Times, which in November of 1992
published a piece by Margulis in its op-ed section (the reporter was
promptly fired by The News, which is owned by a pro- government
media conglomerate).  Golden is no slave to the work ethic. For a
period he and the Financial Times's Damian Fraser rented a cozy
house in Tepoztlan, a chic tourist area an hour from exico City,
where, our source says, they regularly holed up from Friday afternoon
until Monday evening.

The sunny days and balmy nights in Tepoztlan were not simply all play,
however.  Fraser, who married into the Mexican aristocracy and dreams
of being a banker, paid tribute to the town's glories in a recent
story, urging tourists to sample the argaritas "at the fashionable
Ciruelo restaurant."

Golden also probed deeply into the local culture, and in 1992 wrote
enthusiastically of his adopted home in the Times's
"Sophisticated Traveller" supplement: "From almost any point, through
the tightest alleys and over the lowest adobe walls, one's eyes are
still drawn to the hills and the sky," wrote Golden glowingly. "Most
days, though, there is not a lot to do...You can peruse the arket. Or
climb to the hotel for a drink. It doesn't matter. Escaping the city
is enough."