from COUNTERPUNCH, Vol. 2, No. 3
February 1, 1995

Major U.S. Bank Urges Zapatista Wipe-Out: 'A litmus test for Mexico's stability'

In the name of investor confidence, a powerful U.S. bank is calling on the Mexican government to crush the Zapatista insurgency in Chiapas. Heading up the larger Wall Street war party is Chase Bank, specifically its Emerging Markets Group, which has billions at risk in Mexico. Chase's Jan. 13 "Political Update on Mexico," passed to COUNTERPUNCH by a banking insider, states bluntly: "The government will have to eliminate the Zapatistas to demonstrate their effective control of the national territory and security policy."

Chase is under no illusions that the December crash of the peso was prompted by the Zapatistas. It is fully aware that the implosion of the Mexican economy was caused by the overvaluation of the peso that enabled U.S. investors such as itself to convert their killings on Mexican bonds into the safety of the dollar.

U.S. financiers and political strategists now fear that a Mexican government led by the novice Ernesto Zedillo --rather than by Washington's trusted agent, ex-President Carlos Salinas-- will waver, temporize with the Zapatistas and seek to placate domestic discontent.

But any appeasement of popular fury will come at the expense of foreign investors, whose security in Mexico was the fundamental purpose of the NAFTA agreement. Hence the need to finish off Subcommandante Marcos and his comrades. As the Chase Update put it, "While Chiapas, in our opinion, does not pose a fundamental threat to Mexican political stability, it is perceived to be so by many in the investment community."

Chase plays down the possibility of a negotiated settlement to the conflict in Chiapas, saying "it is difficult to imagine that the current environment will yield a peaceful solution." Zedillo may not be able to gain the confidence of the Zapatistas and their supporters because "the monetary crisis limits the resources available to the government for social and economic reforms." In other words, foreign investors should have first rights to the dwindling reserves at the Mexican treasury, which will leave almost nothing left to implement anti-poverty programs Zedillo has promised for Chiapas.

The author of the Emerging Market Group's memo is Riordan Roett, director of Latin American Studies at the Johns Hopkins School of Advanced International Studies and now on a leave-of-absence while serving as a Chase advisor. Known as a conservative but rational sort in academic circles, Roett's views have hardened since he went to work full-time for Wall Street, in the grand tradition of such academic policymakers as Louis Adolph Thiers, Walt Rostow, Henry Kissinger and Herman Cohen.

Roett is said to be particularly bitter over events south of the border because, an informant tells us, he had assured Chase executives that Zedillo --whom Roett has known and worked with for a decade-- could be counted on to do the bidding of foreign investors. Comforted, Chase increased its Mexican investments, only to take a beating when a huge trade deficit forced Zedillo to devalue the peso.

Roett also calls on the Mexican government to take a hard-nosed approach to other difficulties it is facing. The PRI, Mexico's ruling party, has grim prospects for elections scheduled in five states this year. Roett proposes that the PRI solve this problem by stealing the vote. "The Zedillo administration will need to consider carefully whether or not to allow opposition victories if fairly won at the ballot box," he writes. "To deny legitimate electoral victories by the opposition will be a serious setback in the President's electoral strategy. But failure to retain PRI control runs the risk of splitting the government party."

Roett has been lobbying fiercely in Washington to promote his scorched earth policy for Mexico and to demand that Congress quickly approve Clinton's $40 billion bail-out of Chase and other big investors --a problem solved when the president, faced with sure defeat in Congress, used emergency powers to authorize a new rescue package. Roett has briefed Bob Dole, testified before the Senate Steering Committee, which musters conservatives such as Trent Lott and Malcolm Wallop; advised State Department officials; and addressed hundreds of political and financial leaders at a Jan. 11 seminar organized by the Center for Strategic and International Studies.

Roett bordered on hysteria at the latter affair. Saying that clients were always asking him why the Mexican government couldn't control the Zapatistas, Roett argued that it was "essential, from the investor point-of-view, to resolve the Chiapas issue as quickly as possible." He conceded that his call for war, if heeded by Zedillo, might provoke negative repercussions internationally, but there were "always political costs in bold action."

Roett's remarks were warmly received by his audience. Elliott Abrams furiously scribbled notes during his presentation while nodding his head in approval. Syndicated columnist Georgie Anne Geyer wrote an article a few days later saying that no one at the seminar "explained [Mexico's situation] better" than Roett, adding that scholars and financiers in attendance "seemed to agree that while . . . [the Zapatistas] do not threaten a wider rebellion in Mexico, they have become a litmus test for Mexico's stability."

Dalal Baer, a Senior Fellow at the CSIS and moderator of the seminar, thanked Roett for his comments and lamented the dilemma faced by Mexico, pressured to open up its political system even though "financial markets might not respond positively to increased democracy because it leads to increased uncertainty." Like Roett and many other "academics," Baer is a creature of Wall Street, serving as an advisor to Bear Sterns & Company.

David Malpass, a director at Bear Stearns, said that in exchange for a U.S. organized bailout, Zedillo should appease foreign investors with a "giant reestablishment of confidence." Malpass and others suggested new privatizations, allowing 100% foreign ownership of the banking system, and opening up Mexico's oil industry. Though not discussed at the seminar, some House Republicans, acting at the behest of Jorge Mas Canosa, head of Miami's Cuban American National Foundation, are also demanding that Mexico cut off commercial credits to Cuba.

For now, Zedillo and a PRI majority will likely reject Roett's final solution for Chiapas. An official from the Interior Ministry at the seminar said the Chase man's call for war was "inadmissible".

But prominent forces in Mexico will be heartened by Roett's analysis. Last Dec. 18 a group of Mexican businessmen reportedly met with Zedillo to demand that the new government go on the offensive in Chiapas. Some high-ranking military officials have long been lobbying for war and, according to reports from Santiago and Buenos Aires, military advisors from Chile and Argentina --two of the most brutal of Latin America's armies, responsible for tens of thousands of deaths during the seventies 'dirty wars' --have been sent to train Mexican troops.

The parallel here is with the dispatch of Argentine officers to train the Nicaraguan Contras at the start of the Eighties.

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