By Tod Robberson
Washington Post Foreign Service
Friday, March 10, 1995; Page A23

MEXICO CITY, March 9 -- Treasury Minister Guillermo Ortiz announced a new package of harsh austerity measures tonight designed to reverse Mexico's growing economic crisis, promising sharp price and tax hikes and painful fiscal measures aimed at restricting consumer spending.

Ortiz told reporters he expected 1995 inflation to be "close to 42 percent" and forecast what amounts to a recession for the rest of the year. He said the gross domestic product would decline 2 percent for 1995, compared with the goal of 4 percent annual growth set by President Ernesto Zedillo when he took office Dec. 1.

The new measures, Ortiz acknowledged, were designed to comply with strict economic and fiscal measures imposed by the Clinton administration as part of a $20 billion package of emergency loan guarantees signed last month.

The austerity plan came in stark contrast to the optimistic forecasts of economic and commercial prosperity following last year's implementation of the North American Free Trade Agreement.

The Mexican currency continues to plummet in value against the dollar -- even as the dollar itself is suffering on international exchange markets -- while each day brings shocking new revelations of a growing political scandal involving top associates of former president Carlos Salinas de Gortari.

As rumors of tonight's impending announcement swept through financial markets, the peso dropped to yet another historic low, trading as much as 8 pesos to the dollar in contrast to its pre-devaluation exchange rate of around 3.45 pesos to the dollar.

Financial analysts said today that even with the government's new program, they do not expect the peso's slide to halt soon and warned that the peso's value could drop well below 10 to the dollar before the currency begins to stabilize.

Ortiz conceded that the "economic emergency plan" implemented in January by Zedillo has failed to restrain inflation or halt Mexico's currency collapse since the president devalued the peso Dec. 20. Ortiz said Zedillo had instructed his top economic advisers to devise a "more realistic and responsible alternative to overcome this crisis."

But tonight's announcement fell far short of the public acknowledgment demanded by Salinas during a one-day hunger strike Saturday that the crisis was caused by "the errors of December" and not by Salinas's own financial management policies.

"In the past years, the goods and services we imported from abroad were in excess of the Mexican products we exported," Ortiz said. "The situation is similar to that of a family that spends more than it earns, having to cover the difference with borrowed resources."

The price Mexico must pay for living beyond its means, he added, will now be steep. "The short-term adjustment will be difficult for all Mexicans," he said. "But one thing is clear . . . there are no easy solutions."

Ortiz said it was unquestionable that Mexico would experience a sharp economic contraction for the rest of 1995 as the government takes deliberate measures to slow the economy and bring down Mexico's mushrooming current accounts deficit -- a broad measure of the nation's total debt versus income.

Also to comply with U.S. stipulations for the loan guarantees, he said, the government would implement new revenue-raising 5measures, including tax increases and hikes in fuel and transportation costs. Government spending will be cut by 9.8 percent this year.

The federal sales tax tacked onto virtually all consumer purchases will be raised as of April 1 from 10 percent to 15 percent. Gasoline and diesel fuel prices will increase 35 percent, while household electricity prices will go up 20 percent. Fuel prices also will be allowed to increase an additional 0.8 percent monthly. Government-regulated usage fees for all airports, ports and toll roads will be allowed to jump 2.5 percent per month.

The plan has "high costs for the population, but the costs are less high than those of any alternative," Ortiz explained.

Despite the sharp price increases, Ortiz said the government would not guarantee but rather would "promote" a 10 percent increase in the federal minimum wage, which currently stands at less than 40 cents per hour.

In one of his most dramatic departures from previous policy, Ortiz said the government would scrap a four-year-old wage-price pact that had exacted salary concessions from workers in exchange for a government pledge to keep inflation at a certain predetermined level.

A pact that Zedillo negotiated with labor leaders in January limited wage increases to 7 percent while the government pledged to keep inflation at 19 percent. Ortiz tacitly acknowledged economic planners could not guarantee that inflation would stay below his new target level of 42 percent and said organized labor was now free to negotiate wage contracts individually with each employer.