COMBINED REPORTS


MEXICO CITY -- Mexico, until recently the darling of emerging market investors, suddenly is staring recession in the face.


The abrupt, unexpected devaluation of the peso in late December has been steadily making havoc throughout Mexico's financial system. The latest victim, the stock market, has lost about 21 percent of its value since Jan. 1 -- more than half of that since Monday.


"It's as bad as you can get; this is a major collapse," said financial columnist Sergio Sarmiento. "It's a market that has lost every kind of support. The repercussions could be a real bankruptcy for the Mexican economy."


President Ernesto Zedillo, already burdened by the peso's heavy losses against the U.S. dollar, persistent trade deficits, and a peasant rebellion in the southern state of Chiapas, must now also focus on the stock market.


The financial crisis is frightening international investors and Mexico's working class alike.


"I used to give my wife 50 pesos every few days for groceries," said taxi driver Arturo Yanez. "It's not enough anymore. It's absurd!"


With the devaluation of the peso, which has lost more than one-third of its value against the dollar since Dec. 20, Mexicans who thought the days of double-digit inflation were over have been faced with a new reality.


Inflation, which totaled 7.04 percent in 1994, is projected by Zedillo's government to reach 19 percent this year -- and some analysts say it will be higher.


Zedillo has called for greater national unity in combating the financial crisis and declared that the bright side of the devaluation is that Mexican companies will now be able to sell their goods more cheaply abroad.


The crisis is seen in some quarters as a vote of no confidence in Zedillo's government, which came to power just last month. Analysts say the administration has handled the crisis poorly, and failed to keep investors informed of policy changes.


"The government hasn't managed to inject any new confidence," said Gene Frieda, a Latin markets analyst at NatWest Securities in Washington.


"This is really a meltdown of catastrophic proportions," said a senior financial analyst for a Mexican bank. "I don't think anybody is buying Zedillo's program. ... So we have the United States offering us loans; eventually you get yourself another $20 billion in debt, and how are you going to pay for it? People just don't believe the money is there."


The confidence problem extends even to the government's economic projections. Analysts say Zedillo's predictions of 1.5 percent economic growth and 19 percent inflation in 1995 are unrealistic, and that inflation will be more like 20 to 25 percent. Some also feel the nation could fall into recession, with the economy shrinking rather than growing.


The nation's financial troubles are also affecting Mexico's big corporations, which are reporting steep foreign exchange losses.


Empresas ICA, the nation's biggest construction firm, said it expects a foreign exchange loss of about 1 billion pesos, or $174 million.


Mexico's economic struggles have sent a shock wave through the region. Stock markets in Buenos Aires, Santiago, and Sao Paolo all posted losses Tuesday.


"There is just a total absence of buyers for Latin America," said Jorge Suarez, director of research at AFIN securities in New York. "The market could continue in a free fall for quite some time."


Some officials of the new government have blamed former President Carlos Salinas de Gortari, saying Zedillo tried to persuade Salinas to devalue the peso before he left office. Past Mexican presidents -- with nothing to lose as they ended their terms -- have often devalued an overvalued peso to allow their successors a clean slate. The officials say Salinas, lobbying for the top post at the new World Trade Organization, didn't want to tarnish his image as the man who brought Mexico into the North American Free Trade Agreement with the United States and Canada.


Now, however, Salinas' chances of getting that new job appear to have dimmed considerably.