MEXICO UNDER JOSE LOPEZ PORTILLO: PROBLEMS AND PROSPECTS FOR US-MEXICAN RELATIO

Created: 12/15/1977

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Central

Intelligence

Mexico Under Jose Lopez Portillo: Problems and Prospects for US-Mexican Relations

National Intelligence fcstiniate (Memorandum lo Holders)

MEMORANDUM TO HOLDERS:

MEXICO UNDER JOSE LOPEZ PORTILLO. PROBLEMS AND PROSPECTS FOR US-MEXICAN RELATIONS

THIS MEMORANDUM IS ISSUED BY THE DIRECTOR OF CENTRAL INTELLIGENCE.

THE NATIONAL FOREIGN INTELLIGENCE BOARD HAS NOTED THIS MEMORANDUM, AS OF

The following Intelligence organizations participated in the preparation ofmoranofum:

The Centro) Intelligence Agency, the intofigence organization* of the Deportments ol State, Defense, ond Treasury.

Abstaining:

The Assistant Director, Federal Bureau ol Investigation.

II OUTLOOK FOR MEXICO UNDER LOPEZ PORT1LLO

Prospects

MPACT ON THE UNITED STATES

A. Oullouk lorRelations

R Rilatcral Issue*

Illegal

Foreign

Oil

MEXICO; IMPORTANT ADVISERS TO LOPEZ PORTILLO

[il loi

INTRODUCTION AND SUMMARY

When. Mexico Vndcr Jose Lopa PortiUo: ProUems and Prospects for VS-Metican HelalUmi. wtt issued last December, ihe Intelligence Community agreedake another reading of thr Mrah an situation after the policies ol Lopez Port,Ho. who assume: theof Mexicoecame unite fully known This paper aims to do that Thr long-term outlook (or Mexico will be examined in greater depth In an NIE to be written next year upon completion of basic research now under way within the Community

Starting with his masterful inaugural address, Lope/ Portillo. who presides over an authoritarian political structure, hasidactic leadership style amiresidential bearing that have commanded the respect of Ibe Mexican people. He also has proven toapable politician in his dealings with labor, business and oilier interest group* lie lias emphasized organization in restructuring the administrative machinery ol the executive branch, and the same orderly approach apparently permeates his personal grrvcniing style In all. the new President's; approach has been rather low keyed, when compared to the flambuoyaiit style of his predecessor

Lopez Portillo has calmed the crisis of cWideoce brought on by the policics, rhetoric, and erratic action of the Echeverria administration and lias made constderahlr progress toward stabilizing the economy after the tumultuous eventss was anticipated, he has placed financial stabilization and adherence to Mexico's stabilizationwith the International Monetary Fund (IMF) well ahead of economic expansion and employment creation. Lopez Portilloineptember state of the union address lhat be would not be tempted into premature reflation of thetrong stand, since Mexicoall inr capita income lor the second consecutive year and increasing unemployment and underemployment thai could over time lead to social unrest.

The longer term outlook for the Mexican economy ismM of vast oilpez Portillo has approved an ambitious investment program for Pemex. ilic state oil monopoly. The program, as stated, does not aim at maximizing output, however, and may prove actually to be relatively conservative We believe that the program goals will lie exceeded and thatO production and export levels will be on tlie orderillion barrels per dayillion barrels per day. respectively. Such rates of exportation would allow

Mexico loubstanlial current account surplus. By the end oforlillo's termexico could he well on ihc way lo becoming one of the world's major oil exporters.

Although massive exploitation of Mexico's oil reserve* cannot resolve tin- country's serious soxial problems, it can provide revenues totlx*ttack on these peoblorm The challcnge facing the government in implementing social and economic change should not be underestimated Weez Purtillo can prevent Mexico's social problems from liecoming unmanageable during his term ol office. His government should Ih* able lo maintain Its Authority through the traditional methods of coercion and COOptatioD,

l.ope/ Pnrtillo is placing great emphasis on relations wilh the United States and consequently is not renewing the Third World motoric ofilateral consultative mechanism In bring relations lietweenUnited States and Mexico into focus at the higher levels of govern ment was cstablidied in February. The mechanismedium for dialogue among policymakers; and can smooth the conduct of relations between both countries. It allowshalogue tn In- developed over such issues .is Mexico's investment laws before they reach the confrontational level Lope/ Porlillo. however, has expressed disappointment with the mechanism because ot what be Sees as the incapacity of the mechanism to link bilateral issues nnd to facilitate immediate concessions

Although foreign investors are optimistic over the potential for investment in Mexico, they are concerned that the government has in* >et taken any action encouraging them and has, in fact. ado|ited some additional protective measures which may discourage renewed imesliiient in Mexico. The> are especially concernedew law regulating the automobile industrywhich may portend similar laws for other industries.

From the US viewpoint, the most serious problem in US-Mexican bilateral relations is the flow ol undocumented Mexican aliens into the Unitedpe? Fortillo reportedly is highly displeased with President Carter's prospective program on illegal imnegation, hi- feels Mexico wasn't adequately consulted and that the emphasisthe program will lie on interdiction ralhcr tlian dealing with the root causes of the Mexican exodus. When US congressional delate of tlie IS proposals lakesenewal of critical comment from Mexican officials and press will occur nndajor point ol friction in US-Mexican relations.^

Willi its statusotentially important source of oil and gas, the. Mexican Government can he expected to believe and act as if it now has significantly more leverage in its relationship with the United States. If its perception proves false, frustration could add new strains to the relationship.

DISCUSSION

MEXICO UNDER LOPEZ PORTILLO A. Domestic Political and Social Policies

Jose Lope? Potlillo began Ins six-yearterm7ime when tbu management of the Mexican economy presented more serious short-term problems than had been faced by any other incoiuing president in iccent years. Aflei tin- furor and confusion lhat iiivpnipjirijed tbe final days of the Kchcverria administration and the near euphoria iltal greeted his inauguralIon, Lope/ Porlillo has proceeded to solidifyower, improveefficiency, and undertake the protracted and difficult task nf rebuilding Mexico's economy

The President has folkowcil Ihc cliaiaclerisilc Mexican pattern ol striving to wn soli dale his political control byabinetrsonal associates and by establishing independence trom bis predr ccssui We believe Lope* I'oitillo isn command ol Mexico's governmental and political machineiy, anil any ltelief that former President Eohoverria remainsa power behind the throneisperception.

n light of Mexico's ever-present yrt potenlially serious pressures. Lopez Porlillo has worked to mainlain firm internal security, lie ipielled disturb-

M-.rri: i: iI .

the huge national university.by ibe judicious application of persuasion and force. The strike ats llie most seriousallcngi* his leadership has yd faced, and his ability lo resolve it whileacklash from the li'll was imprc* jive. Tin? land dispute in Sonora. which arose when private farmers contested Fchevcrria'j expropriation last year of lOO.OUO hectares of their farmland, has been settled along lines that should maintain Lopez I'nrtillo's rcvolulionaiy credentials without further encouraging laud invasions The most active terrorist2-Jrd of September Communist League and the Peoples Itevoluliouary Aimed Forces -still have the potential for spectacular actions, but their tolal numbr'Ts are small and the government is maintaining constant pressure.

Ihe spectacular wave of tenons! bombings iu September does not indicate- thai the government is losing control Although the bombings do demonstrate an impressive capability to coordinate and carryuge operation, (bis isew- development and docs noterious threat to the government's power. Il sustained incidents deimimitate that (he threat is greater than it presently appears to be, Lope? Portillo is likely to step up counlersubveisioninfringing further on the civil liberties of some individuals--to reassure foreign investors, domestic businessmen, and tourists that order will be maintained.

he Lopez Porlillo administration is giving Stioug supporterious and far-1caching family planning program. Ouly recently have Mexican governments recognized the severity of the problem created by having oik- o| the highest population growih rates in the world Tbe Lope? Porlillo plan npiimittit-ally aims ut reducingpulalinn growth rateercenterceni annually2 In contrast to previous gos-ernment efforts0 million program is to emphasize limiting familytlimugh contraception rather than improvingand child health. The program will he difficult to implement f'ven il it succeeds in reducing the birth rate, the past baby boom guarantees that the labor force will grow at an average HI peiccitt

B. Economic Policies

oitillo has calmed the crisis ot tonfi rlencc brought on by the policies, rhetoric, and tnatic action ol the Keboveiru administration and has made considerable progress toward stabilizing the economy after the tumullunu* events6 As washe bos placed financial stabilization arid adherence to Mexico's stabilization agreement with tin- International Monetary Fund (IMP) well alie.id of economic expansion and employment creation

7 Upon assuming office. Lopez Portilloajor reorganization of the executive branch lo reapportion administrative responsibilities amongibiiiet secretariats along more rational and efficientpecific policy duties, especially in economic affairs, were consolidated in individual militaries to eliminate duplication and bureaucratic eimipetiii.nt. A

Secretariat of Planning and Budgrl (modeled allot the Office of Management andoltrdasnd the roughly SOU government enterprises were placed under llie supri virion of appropriate Cabinet heads lo nuke llirtn morer The large stale of the rcotgaiiliatsun neirssartlv means dial it wdl lake tine lo Iron out. Our preliminary assessment is (hut it is improving iidminnlnilive efficiency and control. 1ml lliul efforts" lo reduce ihe number ol Initial lobs stibirrl I" appointment, which se abo pail of 'I-ot

& Towrt hb economicortillo has created an economic Cabinet under lus pcrwnul chairrnandap. winch raisrs tlie kopB tliat Inseconomic policy will be pimmd and executedore coberenl fashtosL The PresiuVtil listens to ads ice and unatrstiims fiom's- bul in the actual piJh^iiialing process,(Cabinet member prohably has as much influence as Rafaelpm-xl" or Joso Antonio Uguitc. the|irivate econoniic adviiem Lopez PoitUlu has mos'ed del llirr airly through ihe ptuluse and often coOkting advice he hasreceiving, seeking lo avoid the radi impl>-menration id ill oaisrived policies characteristic of Ihe Kchevenw ad mint straiten At times this has Usl lo reports thai (he President has difficulty understanding complex ccooomk' issues and in making decisions

he ureal weight being given by Mexican authorities lo meeting tin-- agree-menu- rrflrstt thr influence of Injuserilo. L'garte. and others calling lor severeasnrn and the realization lhat failure lo implement the agreement would drastically reduce Mexnsi'sto foreign commercial credit. Mexico, so far. has stayed within the limit on foreign public Inmowing and has more lha" mot the monetary goalsnder the standard IMF deflationary package for osctheated (siwrnio The budget deficit pnJublv will exceed the IMF target iin part because of irirreasrd spending oo oil development] bul will be lain* the deficit projected Inajor arcomplish-menl. considering recent deficits have exceeded the projected huilgi't deficit by

ortillo has been most successful in trimming average wage increases front the inflated levels untler Echeverria to aboutercent tills year. This has been indispensable lor the governments economic stabilisation program.*.

I-percent increase In ixiriagrlcullural wages above productivily gains adds almost one-third percentage limit to the inllalioti rate

n imposing wage restraint, laspez Portilloclosely withiaras been crucial In maintainingVtUstiuea.year-old leader ofof Mexican'llabor politicsith respectpolli Fidel isus the mustman in Mexican politics

Austere wage and liuuucial measures initiated by Lope? Portillo have mint nut tally reduced Inflation, but atsl id prolonging last fall's severe economic downlurii. Allltough lln diaip diops inP and industrial produdlnnld-wed the floating iJ ihe peso appalmttiancd out in iheaitri demand remain*he malching of Lastercent increase in real GIJP. far he-tow ihe rate nrrrssaryabsorb all the new entrants to ihe labor force, is probably Ihr licsln be hoped for If tlie government held tlx deficit Io Ihe IMF target, tin: CIA's econometric model of iin- Mexican economy indicates that the inflation rale for ihc year would have been shaved only 'I percent ago points from thecrtsiit wc currently estimate, while the rripurnl reduction in guverntnenl spemling would have cut the leal nononiH- growth rule to rem otpercent.

Etoooniic reciTvaiin eouplest with the deprcei at km of thr poo has resultediarualic imrxuvement in Mexico's current account deficit The deficit should be reduced Inetcenl6 billion which, along wiih restrictions on govemment borrowing, will allow Mrikv- lo stay within the Si billion IMF limil pa net public wctnr (including Pemex) foreign borrowing while building up foreign exchange reserves.

pe/ Portdlo is diseourugod by tlie failure of domestic investment lo jslck up. ax hr was counting on this sector lo provide the stimulus for economic growth While laipe* Portillo has cleared away much of the bad feeling let wren tlie government and the private sector, business investment response is underlow. Companies ue financially strapped by ihe Urge "urease in theerat ol servfctng their ifcJba debt, ami br.-ause "dolUiiMtkeT of the economy has restricted credit even beyond whal tla-gnveirurtcnt had plamird Pieswlcnoal exheatatinn willole in reviving Investment; in response to ihe President's pleas for increased private Investmentuid pro ipio for labor's wage restraint.

i point job creation program Jibi hclnee iKreptember ii. ul ibe unione hrliese thai much of that program will be implemented Fearful ol now governmentthe Monterrey industrialist group has wo rued lli.i' (he political mks iff not investing outweigh the economic rbks of investing.

C. Oil Policy

1opez Portillo and his chief advisers are convinced tliat increased petmleuin and natural gas espnrts are necessary and have approved an ambitious investment program lor Pcipct j

he CIA currently intimate* that Mexico could Im proilmillion lurrcls per dayand moreillion Imrrels per day2 Thisil export* of LI million bandsillion barrels per dayillion ilevelopment plan. although calling lor lower production levels. i* extremely ambitious but attainable Pemcs seeks to raise cruder oil and gas production21 million barrels per day and 1KJ bilblNi cubic feet pn day Tbe data in the program indicates that I'emex's own estimate for production2 is very conservative; in Febiuary Mexiw exceeded lis daily production taiget lorf current drilling success ratios and average well pn-dm tion flows coolinoe.evelopment weirs to be drilled onsliure in the Helurtna area alone wdl yield more illion barrels per day.

n addition to the development plan. Lopes Porlillo has approved the constructioninch pipeline lo move natural gas from the Keforau area to tbr US biwdrr The line, which will take two to three years lo complete once coiistruclion liegirts. will base an eventual capacity olillion cubic feel per day When lhe line initially comes into operatl.m, possibly as eadyexico willillion cut He feel of gasday to ibe United Sutra,2 thb.id riselhnn cubic feet pei day Six US companies base already signed up for this gas, with only the price yet to be deteunimd The Metlcmis ward lo print ihc gas at Ihe equivalent ofuel oilew York much higher than Ihe price acceptable Iu ike US Covwrn-mitil. The Mcocaiu see tlieti bargaining position improved as negotiations are slrelched out

IS Pemei has Ihe tcchtiological know-how and trained personnel ti. handle almost all phases of od induUrs operation*sIn palenl its inventions, especially in tbe refining area, and is supplying technical assistance to other counting US firm* continue tu provide muchhe equipmentrnplov.sl by' Pcmer. butpersonnel perform 'IIpetr-nl manner. There is an element in Peme* and other sector* of Mexico which opposes rapid nil and gas developincnt However, this isolitical Irritantolitical obstacle

Serrano, since his appornlinenlpe? Portillo. has greatly incicased Pemei's eff Icteric] Although contimilng In be topheavy in engineers. Pemex is placing its more competent personnel in area* rrs|uiring greater responsibibty Lack ol internal

coordination in planning rem itajor weakness, however Furthermore. Pomes must change from a

company designed hi nieel domestic demand to a

comji-ny with international impart, and it may nol base ibe eaprririwed manpower or managerial

capaUllty to carry off this transition effkienll>

he major potontial coiistiaint on Mexico's ability to carry out ihe Pemes development program and construct the gas pipeline is flivaiscuJ it Penm. borrow irn, cotgimm to 'allhe IMF agreement Pemex estimates that it will need In obtain hall u| the fMints lor its investment expenditures from fnieign snunes Mexico, fur the first time, is willing tuinmniitports to foreign companies in exchange fi* drsekipriicnf financurg and rejawtidly rosy bei rigte* pipeline suppliers In etude oil exportsotential ennitialut on Mexico's ability lo cooitrur't live gas pipeline is tbe need for US Uinerniuent approval of the Menvoranrlirm nf Inten-tioiM signed in August with sli t'S gas companies

exico has been jealous of Its independent* in petroleum affairs since it ttatioiuli/ed tile petroleum industryhe courseealings with US petroleum oqutpment and marketing companies and his discissions of the gas pipeline/sales agreement will be constrained by MexicanAgreements rem lied must nut appear tu Impair lull Meiican control over ilu-ir own resourcekecause of tliesr sensibilities, production sharing agreements are out of the question

D. Foreign Policies

pez Portillo is placing primary foreign policy emphasis on relations wiih the United Slates and consequently is not striving for the leadership role in international affalis sought by former President Echcvwria. This appearslx- contributingeduction in confrontational lactic* by Mexican delegate* al internationalut docs not necessarilyeversal of Mexico's stand on key issues Domestically. lAtpn Poitlllo cannot uftoid to appear to be unilei US influence In truth. Mexico's basic nalional interests luivu not changed much under Lopez Portillo

ilateral consultative nicchajiiwji to Wing relations ijetwocn Ihe United Slate* and Mexico into focus at the higher levels of governnienl and lohannel for tlie cooidinalton of thef the various US and Mexican agencies involved was agreed to in principle by the presidents of tlx* two countries inay nioeliiig between Secretaries Vance and Roel established three working groups on political, economic, and .social issues. Ry ihe end of August the economic and social working groups hadull lound of meetings

meetings have surfaced mutualhave attempted to design steps forThe discussions deal principallytopic* dor example trade, louii.sm,of Mexican oil and gas to tho United States),topics (fur example, iheareMoreover, they range from verysuch as ways to liberalize visamajor policy questiuiis, such as Use problemMexican workers. Even withoutmechanism, existing agencies onwould probably have discussed the varioustime to time The mechanism provides,medium for dialogue among senior ixilicymakers,from operational technicians, andthe conduct of relationships llial areimportant In both countries.

II. OUTLOOK FOR MEXICO UNDER IOPE2 PORTILLO

A. Political Prospects

political reform program announcedPortillo in7 state ofaddress Is not likely to diminish tlie power of Revolutionary Parlyheof the program are lilieralired registration of political parties, greateifoi thein (ingress, and giia.ia.iucr* lor minority party imlicipjli'iu in local elect lot is. Lope/rime motive appears lo br lo channel political opposition into (lie present system In order lo decrease the incutitfviTt lor political violence The reform, which may actually increase goseinmrnl control over the oppOMlkin. i* rrnt an attempt in open up Mexico's political system. oVspttePnrtdk'sirst step in that direction

he program lias apjurrrilly run into stifffrom eorisrrvatiir rk-ineuti within the administration and the PRI. however These elements fear that esrn tho limited program eosild evrntnaily undermine the PRCs Yivcai domination of Mexican politics Although their fear* are probably groundless in tillsore thoroughas lias been occasionally demanded by elements of tbe Mexican middle "lass could reduce the President's ability to stifle or deflect pressure through the traditional methods of coercion and cooptalion and might ushereriod of political unrest.

B. Social Prospects

any of the problems lacing Lopez Portillo arc the enormous and Intractable issues lhat faced hispopulation growth, aunemployment rate, and an ever-widening gap between rich and poor Their problems areand Ihe moit deep rooted of litem cannot he solsed within the term of one administration Sot only will the governmentllf ictdl lime tn obtaining the goals of itsanning program, but it would still lake until the middle of Ihe next century for Mexico's population to level off alhe replacenienl tale of fertility were achiesydo However. Mexico's potential lor growth and its natural resource endowment should, with prudent

politic* and climate. keep limits.

% favorable international economic these problems within manageable

C. Economic Prospects

Lopez Portillo realized that rapid dcvck'pmcnt of Mexico's petroleum nisorves provides anfor the countrylle its economic and social problems and toew development model that would provide growth with improved income distribution. Earnings from oil exports canajor contribution toward correcting Mexico'sfinancial problem and helping it back on the path of rapid economic growthear Oi two. Given CIA's androjections for oil exports, it is possible I" estimateurrent account balanceHO under alternative scenarios for real economic growth. Oil exports iiihIci the Peine* plan wouldubstantial narrowing in the current account deficit0 tf economic growth rangesiercent andercent annually,hift into surplus if growth is held toercent, tinder the CIA estimate for potential oiliporl level' the con vol icoount iwiugsurplus in 9 for all economic growth scenarios.

he outlook for Mexico's financial position is even brighter than these projections indicate, since tin-estimated export levels do not reflect gas sales to tin* United Slates, which could start Iwo to tluee years after construction on the gas pipeline isharper iiiciease titan the couscivalivety projectedercent increase in oil prices used above would, of course, also speed improvemenl in the current account balance.

si. The ad mi nisi ration euiienlly is attempting toew devclopmenl strategy that wouldporl orieuleil and would provide lor better income distribution. The challenge facing ihc government intrategy to improve income diSlribu-lion should not lx: underestimated, Lope/ Portillo sloes, however, appear In In; effective at bringing disparate groups together and may ultimately be able to bring* reform thai would moderately improve incomeadical program would hit the vested interests ol almost all politically powerful gioiljis in Mexico, anil it ls highly unlikely that Lopez Portillo would supportolitically risky eflorl One advantage ol tbe low income base from which the distribution policy must proceed iselatively modest redistribution of earnings on the margin could substantially increase absolute income levels of certain segments of the poor, thereby mincing social tensions.

de'erml redistril the Pre oil incijt: i

t

opez Portillo is working to defuse the land tenure issue. In his state of tlte union address. the President strongly rceinpbasized lhat landno longer can fulfill agricultural workers' aspirationsore ispiitablc income distribution. Instead, be suggested rural labor legislation lo improve agricultural wages. We believe that nalional land reform ideology will not dilute Lopez Porlillo's basic

ale. Structural probiei substantial actelcralim during the next five

ut. although small land ed in order lo cement credentials and toaintain peace in the is, however, willl agricultural output years.

III. IMPACT ON IHE UNITED STATES A. Outlook for US-Mexican Relations

process of consultation set up by mechanism should help illuminate Ibe

i:Il'::li 'id.-'Iirn

especially the complex dciisiomnaking processm United Slates. Tin- Mexicans tend to suppose thai Ihe Chief Hxceutivc of the United Stales operate* in Ihc same mamici as does the Mexican President lo achieve consensus among powet elites and to act foithwitb. Conversely. US officials often fail to understand llie crosscurrents of Mexican polities and theshortcomings of Mexico's highly persona listir system.

for these reasons, ihehas nut performedpez PurtillnHe had hoped tin- mechanism would leadtangible results, with major Irade-oftsHowever, neither the structure ofnor the US political process allow* lorof iapid decision and implementationhad envisioned Pur example. Lope/reportedly upset wilh theackage deal on bilateral issues.

Mexican status as an important potential source nf oil and gas for tlte United States is likely to affect the bargaining relationship between lite two countries. The Mexican Government will believe and ail js if it lias significantly Increased leverage in its relationship with tbe United States, as its role as an important oil exporter increases. If this perception proves false, frustrations could add new strains to the relationship.

El

B. Biloteral Issues Illegal ImmigroIrO'i

n minim;he Lope* Pnrllllnwill continue In lie highly concerned river lh<-problem i4 .idocinicnlrd aliens, and thispending oti US cnngrrsiM-nalhring anhe hnneyirxiaai thai has existed in lxtalei-.il relation*the slunge in president* There i* serious Mexieun concernesidentrier's new program lor dealing wiih the problem will upset them. which.Portillo ,i< kunwlidgus provides an important safely valve for Mexico's excess work force and cnmeijueotl* helps iDevtatr inneasirrg social owl itonotnic pressure*

Nor cot ic j

he Lopez Portillo administration has beenrating* In theeradication program. jihI oroUilils iniitiniie to dohas- indtialinns that tlse program lias reduced the amount nf heroin produced Inadio lion of opium popfiirs doe* not bring progreasise successes; hamrevet. failure to ipray during one cycle of ihe growing season would wipe out pies ions gains. It isong- rangr solution

he Mexicans evidently prefer sprayingoresonal approach toptolileiii thiio interdicting Irafl'lckers,|

exir .iiii/jtioti alllmugh administeredondiscriuiiiuitory manner, continues to affect US private invcslnieiil adverselyew law regulating the automobile industry affirms the nation alisticf Mrxioan jhJh> The government lias slated that il will not change its foreign investment lawii; we iieliovo.illr I'orlilln itcognizes ihe need for selected foreign investment and will reduce tbe red tape associated ss-illi thee has stressed that, while Mexico welcomes foreign investment nod indeed needs it. such Investnieiit must be scleciivc and contribute directly to Mexico's development by dialing jobs jnd earning foreign exchange

of multinational corporationsby the governmentattitude. bul tlmy.is they have seen noregard io modilie.aliim of ihe Patentsencourages them Ioin Mexico Foreign investors areMexican investment laws arc being used tocompanies lo increase exportslevels in Mexico. Moreover, foreignwillm-liilly assessing ihe climate forgrowth potentials, and continued freedomprofits- Though there are reports ofand significant US industrial investments, itthai foreign dired investors will remaintlie next year or so

Oil

as stated above, Lope/toapid and orderly expansionoil production,esult is by noTechnical and equipment limitationsobstacles In (hearrying outprogram expeditiously. Provided theappearance of Mexican sovereignty wereUS companies might find acceptability for

he Mexicans have indicated their willingness

supply oil for the IIS Slralegic Petroleum Heserve al Iheir standard price, with no particular quantity limit. They were proud of their ability lo provide gas to the United Slates during the energy shortage last winter and probably sec bargaining advantages on other Issues by appearing able and willing to provide needed

and gas supplies this winter Debates between the governments ovei the Icrm* of the gas pipeline development and supply agreement can surface frictions stemming from live link between theand general US energy price policy.all negotiations un gas arid oil must be handled discreetly, because it is politically essential thai the oil ami gas campaign be cleady identifiedexican initiative serving Mexican, not foreign interests.

MEXICO. IMPORTANT ADVISERS TO IOPEZ PORTIUO

The President makes all important decisions, and bis support is absolutely neicMary lor tin- success of any program or policy. The beyKtone ol the Mexican system is pcrsoiudism. as it lunetlous throughvertical chalm ol patron-client relationships. Influence' with the Prewlem I*onstant.^

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