Economic Parallels Dr. Michael Conroy is an economist and a Latin Americanist. For 16 years Conroy has monitored the changes in the Mexican economy from the University of Texas Institute of Latin American Studies where is he is now an associate director and professor. Conroy has compared the economic crisis in Texas with the economic crisis in Latin America. In this question and answer interview with Mary Lenz, Conroy elaborates on some of his ideas. Would you say that Texans and Mexicans blew the money from their oil booms in similar ways? Absolutely. It was just wasted. Funds were not used in Mexico to create a more stable future economic base and the same is true in Texas. . . . Part of the problem in Latin America was corruption of officials involved in international banking and the finance ministries. The president of the Mexican state petroleum firm ended up in jail for five years. A significant part of the financial mismanagement found in the Texas banking crisis is similar: loans going to cronies of the founders of the bank or the board of directors. The best example has been the Vernon Savings and Loan. How would you compare the effect of the crises on average people in Texas and Latin America? The way that it affects most Texans most directly is the value of our largest lifetime investment our homes has plummeted. So there is a legitimate anger on our part. And in Brazil, in Argentina, in Mexico, the working class feels the same. They didn’t get any benefits from the run-up of total external debt from $15 billion in the middle of the 1970s to $400 billion in the middle of the 1980s. And yet it’s the working people in Latin America who are being expected to pay the costs. They are being told you’ve got to take cuts in your wages, you’ve got to take a recession in your economy until your country pays those debts. Is Texas directly affected by the crisis in Mexico? Mexico is a tremendous potential market for products of Texas, if its economy can grow again [but] money that Mexico could have been spending on oil drilling equipment manufactured in Texas is instead going to interest payments to New York banks. The recovery of Mexico should help many aspects of the Texas economy [and] the borderlands economy. The more hysterical argument is this. If there isn’t a resolution of Mexico’s economic problems relatively soon, the already very weakened government of Salinas is going to be further weakened. A gradual loss of power . . . to more radical groups than the Salinas government is something which conservative people in Texas, the business community, could legitimately be worried about. What about the issue of debt forgiveness which Vice-President-elect Dan Quayle opposes? In Texas, we are practicing a lot of debt forgiveness. The FDIC is coming in and saying: “Okay, guys, you’ve got a negative net worth of $200 million.” They’re not asking the stockholders to come up with that $200 million; they’re simply saying: “Okay, the books are closed .. .” The FDIC is nationalizing the debt at the same time it’s forgiving it, and that is really important to the economic future of Texas. The alternative would be for the government to say simply: “Sorry, Texas. There is simply too much corruption. We’re going to make all the depositors take the losses, and the FDIC is only going to cover 50 cents on the dollar.” It’s common practice for banks to charge off loans of clients who no longer can pay. But for some reason, we don’t think the practice should be extended to public debtors outside of the United States. Well, Latin America can no longer pay. And we either restructure and charge off portions of the loans or we watch one country after another go belly up in the sense of saying we won’t pay any of it back. M.L. growth in Latin America, especially Mexico, has undoubtedly contributed to the pressure for migrants to come up from Mexico to Texas,” he said. And the flow of narcotics to the United States, according to Weintraub, has undoubtedly been stimulated by the economic situation: “I can’t document it, but I’m convinced deep down inside of me that it’s true.” CONROY tried to stir up a sense of empathy for Latin Americans by pointing out similarities in how the Texas and Latin American economies ran off the road and got stuck in the bar ditches of life. “It may be unfair to compare the Argentine generals in the Malvinas War to the shenanigans at Vernon State Bank,” Conroy said, “but in Latin America and in Texas, the common citizen feels somewhat cheated. The average worker does not feel responsible for the decline in the economy. So too, most Latin Americans do not feel responsible for the debt.” Conroy said Mexicans. and Texans both have experienced “nationalization of the banks to resolve their problems.” He recalled that in 1982 the Mexican government undertook the highly controversial nationalization of banks when the peso collapsed, converting all private bank debt into national sovereign debt. This is, in effect, what happened in Texas in the NCNB deal, Conroy said. He said the FDIC is a 100 percent owner of 40 banks in Texas, a government response intended to protect deposits, just as Mexican deposits were protected in 1982. Conroy said Latin Americans and Texans “share a financial crisis based more than anything on the collapse of raw material or commodity prices” including oil and cotton. The crisis in both instances followed an unprecedented run-up of debt. There has also been significant mismanagement and many incidents of questionable legality in the financial systems of Latin America and Texas, Conroy said. “Latin America and Texas both see the need to diversify from a basic raw material economy,” Conroy said, noting that Agriculture Commissioner Jim Hightower and Governor Bill Clements have both been pushing for diversification. Hightower is agitating for more flowers and more vegetables to be sold in local markets proposals that are often included in plans for the diversification of the economies of Guatemala, Costa Rica, and other Latin nations, Conroy said. In terms of economic recovery, Texas and Latin American economies have recently become more attractive to outside investors due to the dramatic drop in rents and wages and, in Texas, tremendous deflation in land and real estate. “Texas has good reason to be sympathetic,” Conroy said. “Texans should be able to understand more than most the need for debt reduction, forgiveness, and restruc. turing.” The economists were asked to explain the implications for the average Latin American of the debt crisis and the enormous amount of money that must be spent simply to pay the interest on the debt. Weintraub said the purchasing power of about 40 percent of the Mexican population has declined by 50 percent in the last six years. Conroy said the Mexican daily Excelsior reported recently that many Mexican families are able to eat chicken only twice a month, eggs once a month, and beef once a month. He linked the decline in the standard of living and lower levels of nutrition to declining levels in factory productivity, THE TEXAS OBSERVER 13
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