My Life, page 92
On December 9, I was in Miami to open the Summit of the Americas, the first meeting of all the hemisphere’s leaders since 1967. The thirty-three democratically elected leaders of Canada, Central and South America, and the Caribbean were there, including forty-one-year-old President Aristide of Haiti and his neighbor, President Joaquín Balaguer of the Dominican Republic, who was eighty-eight years old, blind, and infirm, but mentally still sharp as a tack.
I had initiated the summit to promote a free trade area in all the Americas, from the Arctic Circle to Tierra del Fuego; to strengthen democracy and effective government throughout the region; and to show that America was determined to be a good neighbor. The gathering was a big success. We committed ourselves to establishing a free trade area of the Americas by 2005, and left feeling that we were going into the future together, a future where, in the words of the great Chilean poet Pablo Neruda, “There is no such thing as a lone struggle, no such thing as a lone hope.”
On December 15, I gave a televised address to outline my proposals for middle-class tax cuts in the coming budgets. The move was opposed by some people in the administration and criticized by some in the media as an attempt to copy the Republicans, or as a belated attempt to return to a 1993 campaign promise the voters had punished me for not keeping. For both policy and political reasons, I was trying to get back in the tax-cut hunt with the Republicans before the new Congress convened. The GOP contract contained tax proposals that I thought were unaffordable and too heavily tilted to upper-income Americans. On the other hand, the United States was still suffering from two decades of middle-class income stagnation, the main reason people hadn’t felt the economy improving. We had made a dent in the problem by doubling the Earned Income Tax Credit. Now the right kind of tax cuts could raise middle-class incomes without derailing deficit reduction or our ability to invest in the future, and would fulfill my 1992 campaign commitment.
In the speech, I proposed a Middle-Class Bill of Rights, including a $500 child tax credit for families with incomes of $75,000 or less; tax deductibility for college tuition; expanded Individual Retirement Accounts (IRAs); and the conversion of the funds the government was spending on dozens of jobtraining programs into cash vouchers that would go directly to workers so they could choose their own training program. I told the American people that we could finance the tax package through further cost savings from Al Gore’s Reinventing Government initiative and still keep reducing the deficit. Just before Christmas, Al Gore and I announced the designation of the first cities and rural communities as “empowerment zones,” making them eligible, under the 1993 economic plan, for tax incentives and federal funds to spur job development in places that had been left behind in previous recoveries. December 22 was Dee Dee Myers’s last day as press secretary. She had done a good job under difficult circumstances. Dee Dee had been with me in the snows of New Hampshire. Since then we had weathered a lot of storms and played countless games of hearts together. I knew she would do well when she left, and she did.
After our annual New Year’s trip to Renaissance Weekend, Hillary and I took a couple of extra days off to go home, so that we could see her mother and Dick Kelley, and I could go duck hunting with friends in eastern Arkansas. Every year, when the ducks fly south from Canada for the winter, one of the two main flyways is down the Mississippi River. Many of them land in the rice paddies and ponds of the Arkansas Delta, and over the last few years several farmers had established duck hunting camps on their land, both for their own enjoyment and to supplement their incomes.
It’s wonderful seeing the ducks fly at morning light. We also saw large geese high overhead, flying in perfect V formation. Only two ducks came down within shooting range that cloudy morning, and the guys who were with me let me shoot them both. They had more days to hunt than I did. I pointed out to the reporters who were along that all our guns were protected by the crime bill and that we didn’t need assault weapons to bag the ducks, including one I got with a lucky shot from about seventy yards. The next day Hillary and I attended the dedication of William Jefferson Clinton Elementary Magnet School in Sherwood, just outside North Little Rock. It was a beautiful facility, with a multi-purpose room named for my mother and a library named for Hillary. I confess that I liked having my name on a new school; no one owed more to his teachers than I did.
I needed that trip home. I had worked like a dog for two years. I had gotten so much done, but often “couldn’t see the forest for the trees.” The coming year was going to present a new set of challenges. To meet them, I needed more chances to recharge my batteries and water my roots. As I returned to Washington, I was looking forward to watching the Republicans try to keep their campaign promises, and to the battle to preserve and fully implement all the legislation enacted the previous two years. When Congress passes a new law, the work of the executive branch has just begun. For example, the crime bill provided funding for 100,000 new police in our communities. We had to set up an office in the Justice Department to distribute the funds, establish criteria for eligibility for them, create and administer an application process, and monitor how the money was spent, so that we could make progress reports to Congress and the American people.
On January 5, I had my first meeting with the new congressional leaders. Besides Bob Dole and Newt Gingrich, the Republican team included Senator Trent Lott of Mississippi, and two Texans, Congressman Dick Armey, the House majority leader, and Congressman Tom DeLay, the House majority whip. The new Democratic leaders were Senator Tom Daschle of South Dakota and Congressman Dick Gephardt, as well as the Senate Democratic whip, Wendell Ford of Kentucky, and his counterpart in the House, David Bonior of Michigan.
Though the meeting with the congressional leaders was cordial, and there were some areas of the GOP contract on which we could work together, I knew there was no way we could avoid several heated struggles over important matters about which we had honest differences. Clearly, I and my entire team would have to be very focused and disciplined, in both our actions and our communications strategy. When a reporter asked me whether our relations would be marked by “compromise or combat,” I responded, “My answer to that is, Mr. Gingrich will whisper in your right ear and I will whisper in your left ear.”
When the congressmen left, I went into the press room to announce that Mike McCurry would be the new press secretary. Until then, Mike had been Warren Christopher’s spokesman at State. During the presidential campaign, as press secretary for Senator Bob Kerrey, he had taken some pretty hard shots at me. I didn’t care about that; he was supposed to be against me in the primary season, and he had done a good job at State explaining and defending our foreign policy.
We had some more new blood on our team. Erskine Bowles had come to the White House from the Small Business Administration as deputy chief of staff, switching jobs with Phil Lader. Erskine was especially well suited to the mixture of careful compromise and guerrilla war that would characterize our relations with the new Congress, because he was a gifted entrepreneur and world-class deal maker who knew when to hold and when to fold. He would support Panetta well and provide skills that complemented those of Leon’s other deputy, the hard-charging Harold Ickes. Like so many months, January was filled with both good and bad news: Unemployment was down to 5.4 percent, with 5.6 million new jobs; Kenneth Starr showed his “independence” when, unbelievably, he said he was going to reinvestigate Vince Foster’s death; Yitzhak Rabin’s government was threatened when nineteen Israelis were killed by two terrorist bombs, an act that weakened support for his peace efforts; and I signed the first bill of the new Congress, one I strongly supported, requiring the nation’s lawmakers to comply with all the requirements they imposed on other employers. On January 24, I gave the State of the Union address to the first Republican Congress in forty years. It was a delicate moment; I had to be conciliatory without seeming weak, strong without looking hostile. I began by asking Congress to put aside “partisanship and pettiness and pride” and suggesting that we work together on welfare reform, not to punish the poor but to empower them. I then introduced perhaps the best example of the potential of America’s welfare recipients, Lynn Woolsey, a woman who had worked her way off welfare all the way to becoming a member of the House of Representatives from California.
Then I challenged the Republicans on several fronts. If they were going to vote for a balanced budget amendment, they should say how they proposed to balance the budget and whether they would cut Social Security. I asked them not to abolish AmeriCorps, as they had threatened to do. If they wanted to strengthen the crime bill, I would work with them, but I would oppose repealing proven prevention programs, the plan to put 100,000 more police on the streets, or the assault weapons ban. I said I would never do anything to infringe on legitimate firearms ownership and use, “but a lot of people laid down their seats in Congress so that police officers and kids wouldn’t have to lay down their lives under a hail of assault weapon attacks, and I will not let that be repealed.”
I finished the speech with an outreach to the Republicans, pushing my middle-class tax cuts but saying I would work with them on the issue, admitting that on health care, “We bit off more than we could chew,” but asking them to work with me step by step, and to start by making sure people didn’t lose their health insurance when they changed jobs or a family member was sick; and seeking their support for a bipartisan foreign policy agenda.
The State of the Union is not only the President’s chance to speak for an unfiltered hour to the American people each year; it is also one of the most important rituals in American politics. How many times the President is interrupted by applause, especially standing ovations; what provokes the Democrats or Republicans to clap, and what they seem to agree on; the reactions of important senators and representatives; and the symbolic significance of the people chosen to sit in the First Lady’s box are all noted by the press and witnessed by the American people on television. For this State of the Union, I had a speech designed to last fifty minutes, allowing ten minutes for applause. Because there was so much conciliation, as well as some meaty confrontation, the applause interruptions, more than ninety of them, took the speech to eighty-one minutes.
By the time of the State of the Union, we were two weeks into one of the biggest crises of my first term. On the evening of January 10, after Bob Rubin was sworn in as secretary of Treasury in the Oval Office, he and Larry Summers stayed to meet with me and a few of my advisors about the financial crisis in Mexico. The value of the peso had been declining precipitously, undermining Mexico’s ability to borrow money or to repay existing debts. The problem was exacerbated because, as Mexico’s condition deteriorated, in order to raise money it had issued short-term debt instruments called tesobonos, which had to be repaid in dollars. As the value of the peso continued to decline, it took more and more of them to finance the dollar value of Mexico’s short-term debt. Now, with only $6 billion in reserves, Mexico had $30 billion of payments due in 1995, $10 billion in the first three months of the year. If Mexico defaulted on its obligations, the economic “meltdown,” as Bob Rubin tried to avoid calling it, could accelerate, with massive unemployment, inflation, and, very likely, a steep and prolonged recession because the international financial institutions, other governments, and private investors would all be unwilling to put more money at risk there.
As Rubin and Summers explained, the economic collapse of Mexico could have severe consequences for the United States. First, Mexico was our third-largest trading partner. If it couldn’t buy our products, American companies and employees would be hurt. Second, economic dislocation in Mexico could lead to a 30 percent increase in illegal immigration, or half a million more people each year. Third, an impoverished Mexico would almost certainly become more vulnerable to increased activity by illegal drug cartels, which were already sending large quantities of narcotics across the border into the United States. Finally, a default by Mexico could have a damaging impact on other countries, by shaking investors’ confidence in emerging markets in the rest of Latin America, Central Europe, Russia, South Africa, and other countries we were trying to help modernize and prosper. Since about 40 percent of American exports went to developing countries, our economy could be hurt badly. Rubin and Summers recommended that we ask the Congress to approve $25 billion in loans to allow Mexico to pay its debt on schedule and retain the confidence of creditors and investors, in return for Mexico’s commitment to financial reforms and more timely reporting on its financial condition, in order to prevent this from happening again. They warned, however, that risks were attached to their recommendation. Mexico might fail anyway and we could lose whatever money we had extended. If the policy succeeded, it could create the problem economists call “moral hazard.” Mexico was on the brink of collapse not only because of flawed government policies and weak institutions, but also because investors had continued to finance its operations long past the point of prudence. By giving the money to Mexico to repay wealthy investors for unwise decisions, we might create an expectation that such decisions were risk free.
The risks were compounded by the fact that most Americans didn’t understand the consequences to the American economy of a Mexican default. Most congressional Democrats would think the bailout proved that NAFTA was ill advised in the first place. And many of the newly elected Republicans, especially in the House, didn’t share the Speaker’s enthusiasm for international affairs. A surprising number of them didn’t even have passports. They wanted to restrict immigration from Mexico, not send billions of dollars there.
After I listened to the presentation, I asked a couple of questions, then said we had to go forward with the loan. I thought the decision was clear-cut, but not all my advisors agreed. Those who wanted to speed my political recovery after the crushing midterm defeat thought I was nuts, or, as we say in Arkansas, “three bricks shy of a full load.” When George Stephanopoulos heard Treasury’s $25 billion figure for the loan, he thought Rubin and Summers must have meant $25 million; he thought I was about to shoot myself in the foot. Panetta favored the loan, but warned that if Mexico didn’t repay us, it could cost me the election in 1996.
The risks were considerable, but I had confidence in Mexico’s new president, Ernesto Zedillo, an economist with a doctorate from Yale who had stepped into the breach when his party’s original candidate for president, Luis Colosio, was assassinated. If anybody could bring Mexico back, Zedillo could.
Besides, we simply couldn’t stand aside and let Mexico fail without trying to help. In addition to the economic problems it would cause both for us and for the Mexicans, we would be sending a terrible signal of selfishness and shortsightedness throughout Latin America. There was a long history of Latin American resentment of America as arrogant and insensitive to their interests and problems. Whenever America reached out in genuine friendship—with FDR’s Good Neighbor Policy, JFK’s Alliance for Progress, and President Carter’s return of the Panama Canal—we did better. During the Cold War, when we supported the overthrow of democratically elected leaders, backed dictators, and tolerated their human rights abuses, we got the reaction we deserved.
I called the congressional leaders to the White House, explained the situation, and asked for their support. All of them pledged it, including Bob Dole and Newt Gingrich, who aptly described the Mexico problem as “the first crisis of the twenty-first century.” As Rubin and Summers made the rounds on Capitol Hill, we picked up support from Senator Paul Sarbanes of Maryland, Senator Chris Dodd, and Republican senator Bob Bennett of Utah, a highly intelligent, old-fashioned conservative who quickly grasped the consequences of inaction and would stick with us throughout the crisis. Several governors were also supportive, including Bill Weld of Massachusetts, who had a great interest in Mexico, and George W. Bush of Texas, whose state, along with California, would be hardest hit if the Mexican economy collapsed.
Despite the merits of the case and the support of Alan Greenspan, it became obvious by the end of the month that we weren’t doing well in Congress. Anti-NAFTA Democrats were sure the aid package was a step too far, and the new Republican members were in open revolt.
By the end of the month, Rubin and Summers had begun to con-sider acting unilaterally, by providing the money to Mexico out of the Exchange Stabilization Fund. The fund was created in 1934, when America took the dollar off the gold standard, and was used to minimize currency fluctuations; it had about $35 billion and could be used by the Treasury secretary with the President’s approval. On the twenty-eighth, the need for American action took on even greater urgency when the Mexican finance minister called Rubin and told him default was imminent, with more than a billion dollars’ worth of tesobonos coming due the following week.
