MEXICO CITY -- On the day last week when President Ernesto Zedillo declared the Mexican peso stable against the dollar for the first time in seven months, the government released its latest unemployment figures: 2.3 million Mexicans were out of work, twice as many as when the economic crisis exploded in December.


The stock market was up, but so were inflation, crime and bankruptcy.


That same day, the Central Bank spent $630 million of its $20 billion U.S. loan fund to pay off wealthy and institutional bond holders -- part of a strategy that has helped stabilize financial markets. But Treasury Secretary Guillermo Ortiz simultaneously confirmed that Mexico's 90 million people "are now in a profound recession."


Foreign investment is beginning to return -- $23.8 billion in the stock market alone, officials said that day. But Mexico's banks are saddled with more than half that amount in overdue loans from a record number of bankruptcies and unpaid credit card bills.


These clashing statistics, say independent economists, underscore the paradox in Zedillo's strategy for winning back investment by imposing austerity measures -- which have frozen the nation's economy.


It is a paradox that helps explain how Mexico's markets can improve while the human impact of the crisis worsens. And it is a contradiction with significant implications for Mexico's political stability -- indeed, for its social fabric.


"The situation is getting worse," said Jose Antonio Crespo, an analyst at a Mexico City economic think tank. "If unemployment continues to rise, more people will take to the streets."


The markets may have calmed, "but it is temporary," said Jose Luis Calva, economics professor at the National Autonomous University of Mexico. Zedillo has gained time and avoided default, he said, but "time is running out."


Zedillo and his advisers have insisted that the recession was unavoidable, that it was necessary not only to stabilize financial markets but to increase domestic productivity through a better trade balance. That balance has improved dramatically; Mexico showed a record $6.9 billion trade surplus with the United States during the first five months of the year, although analysts agree that is largely because Mexicans no longer can afford to buy U.S. goods with devalued pesos.


Many analysts say Zedillo's strategy is a race against time, a gamble that increased investments and exports will save the nation's producers before accumulated debt, high interest rates and higher taxes destroy them.


As a result, they say, Zedillo's most urgent race now is against instability. A year of assassinations and a simmering revolt by indigenous Mexicans in the southern state of Chiapas shook Mexico's financial markets to the core, and analysts warn that another such shock would be a devastating blow. Moreover, some fear that the escalating economic pain caused by the austerity measures and soaring inflation could trigger a political and social backlash -- even before any positive effects of Zedillo's bitter medicine reach average Mexicans.


"This type of recessive adjustment kills the economy and produces all sorts of social problems," Calva said, stressing that social ills are fertile ground for unrest.