Gingrich in the Mexican Crisis

January 17, 1995

Speaker Newt Gingrich has disclosed to this newspaper that House Republicans will insist that Mexico adopt "pro-growth, pro-jobs, pro-investment" economic policies as a condition for the proposed $40 billion United States bailout of Mexico's plunging financial sector. He also has told us that Treasury Secretary Robert Rubin and Federal Reserve chairman Alan Greenspan "absolutely" have endorsed this approach.

If this is the case, it would represent a sharp reversal of traditional U.S. policies in providing financial support to troubled nations beyond our borders. For decades, Washington has not only backed the International Monetary Fund's demand for austerity on the part of aid recipients, but has insisted upon it. But in recent years, supply-side Republicans have scorned this approach.

Describing the IMF as "a very destructive institution," Mr. Gingrich says Republicans would vote for a bailout package only if it is not "something stupid that crushes the Mexican economy on behalf of IMF bureaucrats." He criticized the present Mexican government for trying to impose wage and price controls and adopting "austerity provisions that are anti-investment (and) anti-work."

Mr. Rubin also has vowed that the U.S. would impose "tough conditions" on the Mexicans to protect U.S. interests. Just what these are he has not said. Mexican oil exports may be put up as collateral on the $40 billion line of credit due early approval by Congress. But note that when the peso crisis erupted last month, the administration expressed confidence in Mexico as President Ernesto Zedillo imposed the kind of IMF-style austerity measures that are anathema to Mr. Gingrich.

If the speaker steers U.S. international finance policies in the expansive pro-growth direction favored by supply-siders, this could have worldwide implications. Consistently in the past, the IMF has insisted that aid recipients raise taxes, curtail spending and control prices and wages to put their finances in order. In doing so, it has pleased old-style, but not new-style, conservatives.

For all his qualms, Mr. Gingrich has put on his "Vandenberg hat" in signing on to the $40 billion line of credit that is intended to calm financial markets. The speaker estimates that the maximum U.S. exposure is $10 billion should things fall completely apart in Mexico. But in light of the security and immigration problems involved, he says "the truth is we're prepared to go as far as it takes."

Without doubt, the support of Mr. Gingrich and Senate Republican leader Bob Dole is crucial to administration plans for quick action to end the Mexican financial crisis. Without their backing, the proposal would be quickly squelched on Capitol Hill, where memories linger from the bruising debate over the North American Free Trade Agreement. Even though the speaker is determined to use his undoubted leverage to change U.S. policies in international finance, his bipartisan attitude on his first big foreign issue is commendable.

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