SUNS  4327 Thursday 19 November 1998

Mexico, Nov 18 (IPS/Diego Cevallos) -- More expensive fuel and heavier taxes are the price Mexico's people are having to pay as its government tries to shield it from the global financial crisis.

The increase in fuel prices - by 15% immediately and by an additional one percent each month starting in December - was announced in tandem with a draft 1999 budget presented in parliament on Nov. 13 by Secretary of the Treasury Jose Gurria.

The government of President Ernesto Zedillo has asked legislators to include a 15-percent telephone tax in 1999 and allow the governments of the country's 32 states to raise their respective
sales taxes by up to two percent, if they wish to do so. The draft budget also seeks to raise the tax contributions of the wealthiest Mexicans by 40 percent.

The Mexican government is anxious to keep public finances "healthy" and maintain the type of track record that earned it kudos from visiting French President Jacques Chirac.

"Amid turbulent international waters, Mexico was able to avoid internal economic disruptions because it has the confidence of the international community," and because it adopted appropriate and timely measures, Chirac told government and business leaders at meetings here.

But the French president, who visited Mexico from Nov. 11-14, also warned the Latin American nation that "the success of its crucial economic reforms can only be consolidated with the support of the population through the implementation of important social programmes".

In 1998, the government reduced the national budget on three occasions, making drastic cuts in various sectors and, according to the opposition, slashing important social investments as well.

The fall in international oil prices, on which Mexico depends for 40 percent of its revenues, and the financial instability that has shaken world markets, led the government to restrict its spending
so as to avoid the fiscal deficit from skyrocketing.

In the House of Representatives, where opposition parties hold a majority of seats, the draft 1999 budget, which is more than 100 billion dollars, and the fuel-price hike came in for some flak.
"The government is only interested in macroeconomics," was one of the criticisms thrown at the Zedillo administration.

Observers predict that the negotiations in the House on the 1999 budget will be complicated and probably lead to divisions within the ruling Revolutionary Institutional Party (PRI) just two years
before presidential elections due in the year 2000.

The budget has to be finalised by year-end: the government has asked the parliamentarians to act "responsibly" in the face of the world's financial problems and accept its proposals so that Mexico
will keep growing despite the global instability.

Zedillo's adjustment strategies, which target a three-percent economic growth in 1999 (one percentage point less than 1998) have the backing of international financial organizations and of wealthy nations like France and the United States.

During his visit, Chirac lauded Mexico's economic solidity and praised its government for not joining forces who, in the face of the global crisis, have clamoured for what he termed "a new
financial protectionism in which everyone comes out a loser".

Chirac offered to help Mexico by promoting investment and supporting it in ongoing trade negotiations with the European Union (E.U.) aimed at coming up with a full-fledged free-trade
arrangement by the year 2000.

Trade between Mexico and the E.U. amounted to 13.9 billion dollars in 1997, with a 5.929 imbalance in the E.U.'s favour.

The free-trade process, however, will be complicated because tariffs will have to be negotiated directly with the European Commission, while other issues, such as intellectual property
regulations, will have to be discussed individually with representatives of each E.U. member country.

The E.U. accounts for about six percent of Mexico's total international trade and 18 percent of foreign investment in the Latin American nation.

According to the Zedillo Administration, free trade with Europe could serve as a vaccine against the financial instability affecting the world and which, once again, has forced the government to make economic adjustments and demand sacrifices of its people.