Global Destabilization
Jude Wanniski
March 24, 1994


MEXICO: It's always terribly sad when a democratic political leader is assassinated, but the murder last night in Tijuana of Luis Donaldo Colosio -- the PRI's candidate to succeed President Salinas -- was especially depressing to me. From all accounts of Mexicans I admire, and of what I knew of him, he was a genuinely good guy, the kind of man who does not make political enemies. What does the assassination mean, following so closely on the heels of the rebellion in Chiapas and the kidnapping of the billionaire president of Mexico's biggest bank? There will be conspiracy theories galore, but in a profoundly fundamental sense, I think the ordinary people of Mexico are afraid of losing a rare opportunity this presidential year to make great political changes that disperse power to the grass roots from the center. They have only been offered incremental, cosmetic changes by the PRI -- and even these were watered down by Salinas this week at the insistence of local pols who have enjoyed the benefits of a PRI monopoly for 60 years. Thus these violent messages emerge from the masses, who find no other venue. I'd spoken to Mexico's business leaders last November of the need for Mexico to shed a political skin that was appropriate to a socialist experiment, but would be a burden to the nation's new aspirations. Two weeks ago, Finance Minister Pedro Aspe and I spoke by telephone about this, and he said he would try to arrange a meeting between me and Colosio to discuss these matters. Mexico needs a new face to push out of this swamp, into its still incredibly bright future -- some combination of Aspe's economic skills and the political insights of Manuel Camacho, the former mayor of Mexico City. The right man may be Ernesto Zedillo, a supply-side economist and former minister of education, who left government service to run the Colosio campaign. He's close enough to Salinas without having the burdens of Aspe or Camacho in this situation. Last night's tragedy should embolden the reformers within the PRI to face up to the local pols. A last word on Colosio, from an editorial in this morning's El Economista of Mexico City: "Luis Donaldo Colosio, a man whose love for Mexico led him to become his party's candidate to the presidency of his country, has now become an innocent victim of the social disintegration that characterizes the end of the century around the world...May he rest in peace: democrat, Mexican, political leader, family man, and patriot who sought to serve his people faithfully."

HAITI: You may have noticed the full-page ads signed by the nation's leading liberals urging President Clinton to permit the Haitian boat people to enter the U.S. instead of sending them back: "The United States has effectively sealed Haitian political refugees into the death chamber of their own island." It is these same liberals who also want the President to seal that death chamber even tighter, by adopting the total embargo advocated by the Congressional Black Caucus. Haitians are already dying by the thousands from food and medicine shortages. Expect a "refugee crisis" in April as the weather improves and the boat people flee by the thousands instead of hundreds, with this ad campaign designed to embarrass the President into changing policy. The President should really be loosening the embargo, purely for humanitarian reasons. It is crushing the poorest of the poor while the military and police forces manage to survive on goods smuggled from the Dominican Republic. This option is closed by the Black Caucus, which insists that Jean Baptiste Aristide be returned to the Haitian presidency at whatever cost in lives. Aristide's support in Haiti has evaporated, though, as his supporters now blame him for the obstinacy that has brought the island to this desperate state. GOP congressional leadership is mum, but will be forced to think of something to say when the boat people begin to swarm.

RUSSIA: The IMF's latest "agreement" with the Russian government to lend $1.5 billion on condition that Moscow throw several million workers out of work -- by raising taxes on everyone and shutting off subsidies to state enterprises -- cannot fly. The stories about Boris Yeltsin getting the help of his old critic, Prime Minister Viktor Chernomyrdin, smells fishy, as do the reports of the IMF deal. Chernomyrdin has been a vocal critic of IMF shock therapy. His solid political foundation is built on an alliance with the state enterprises and the military, both of which would be decimated if we are to believe the sketchy details of the agreement. It is not possible to imagine the Duma, the Russian parliament, agreeing to an IMF austerity budget of this kind. What's going on? For some reason, Yeltsin and Chernomyrdin wish to maintain a fiction in order to string along the IMF. The reality gap will have to be closed by April 15, when Chernomyrdin is supposed to lay out an economic strategy for the rest of the year that will satisfy both the Duma and the IMF.

EAST ASIA: The good news is that the Clinton Administration seems to have decided to cut through the baloney and simply announce an end to the linkage of human rights and MFN with China. According to The New York Times, the Administration now accepts the argument that U.S. relations with China can never really improve so long as we insist on an annual Beijing shape-up. This may have been realistic while China was emerging from abject poverty, but now strikes the rest of the world as senseless, as China emerges into an economic superpower. The policy shift should soon defuse the war scare with North Korea, with Beijing smoothing things out. President Clinton yesterday praised China's efforts on behalf of fixing the Korea problem, and Chinese premier Li Peng spoke constructively about improving relations with Washington. I wouldn't be surprised if Korea wound up getting MFN in the process. The Hong Kong stock market should do handstands tonight.

JAPAN: The Clinton Administration has gotten it into its head that Japan wants to be bashed in order to do something about its trade surplus, and the more vehement the bashing, the more likely Prime Minister Hosokawa will be able to wring concessions out of the Diet and government bureaucracy. This is sheer incompetence, led by U.S. Ambassador to Tokyo Walter Mondale, who knows nothing about international trade and finance. He is being fed by Treasury Undersecretary Lawrence Summers, the Harvard economist who co-authored shock therapy for Russia and Eastern Europe with Jeffrey Sachs. Summers tells his pals in the press corp that, yes, according to economic theory, we shouldn't worry about Japan's trade surplus, as it is merely the flip side of its overseas investments, but this is politics! The Clinton team is building up enormous ill will in Japan, which is struggling to deal with these crazy Americans who are peddling Motorolas out of the Oval Office. Mondale is pressing Hosokawa to do something about North Korea, but the Socialists in his coalition would topple the government if he joined that effort. All of Asia, including Australia and the Philippines, is aghast at Clinton's revival of the dreaded Super 301 provision of the 1988 Trade Act, which threatens trade war with Japan unless it buys more Motorolas and maybe some Tyson chickens.

BONDS: The bond market slid again today in the immediate aftermath of the failure again by the Fed open market desk to enter the market with fed funds trading at 3.5%. Since the FOMC's announced tightening Tuesday afternoon, the desk has been standing pat, neither adding or draining reserves during the customary 11:30am intervention period. It has been content to let the funds market bid up the overnight rate to what is apparently the new target, without putting any added pressure on actual reserve positions. But the gold price this morning was up $3 to $390, well before 11:30. The desk, for whatever reason, prefers to conduct policy right now through sleight of hand. But the nation's creditors are getting very uneasy, the gold market signaling a continued excess of liquidity in the system. After the Fed received so much attention and praise for publicly disclosing its tightening, we're still waiting for the policy change. If Alan Greenspan does not intend to put a ceiling on the gold price by draining excess reserves, it could continue to rise at the 3.5% funds rate, dragging down bonds as the market is left without any benchmark at all. President Clinton yesterday explained to the press what Greenspan is trying to do, but did not mention gold or any commodity target -- which suggests Greenspan is simply wishing the markets would take a hint, but they can't.