LIKE A GIANT stone hurled into a small pond, collapsing oil prices are causing ever-wider repercussions in the world economy. Some of these are powerful enough to rock whole nations and regions that have barely, over the past decade, adjusted to high-priced oil.
Unless novel strategies are used to damp down this destabilizing force, today's crises could easily explode into economic chaos, political upheaval and even war before the end of this decade.
One potential stabilizer is what might be called the "Mexi-Yen Strategy."
The collapse of OPEC, the cartel of oil-exporting nations, has produced a rapid build-up of funds in oil-importing economies geared to the higher price. Japan, for example, whose manufacturers adapted relatively well to the shock of higher oil prices in the '70s, now finds itself with an embarrassment of yen.
Last year $50 billion of capital flowed out of Japan, making it the biggest creditor nation of all. And that was before its $34 billion oil bill was slashed almost in half. Combined with a severe slump in domestic demand for loans, the latest oil price cuts have left Japan sitting on a virtual Fuji of yen.
This yen mountain is waiting to erupt into the world capital market. Just as Arab petro-dollars had to be recycled, Japanese post-OPEC yen are going to have to be exported -- and fast.
But where to?
Too big or sudden an expansion of Japanese investment in Southeast Asia would threaten to revive painful memories of the Greater East Asia Co-Prosperity Sphere promoted by the Japanese military before and during World War II. Investments can, no doubt, be further expanded in China, and after the visit of the Soviet foreign minister to Tokyo, one can imagine more yen being pumped into Siberia. But political realities in both countries and in the entire region closest to Japan make that route too slow and problematical.
Reflecting this, the real pattern of Japanese investment is shifting to more distant outlets for capital. Japanese investors are re-directing funds toward western Europe and the United States, concentrating on transportation, financial and commercial service enterprises.
The flood of yen into these markets will no doubt expand rapidly. But if the furor over the Japanese trade surplus is any indication, major investments may trigger demands for countermeasures to prevent "a Japanese takeover" of this or that sector of the economy.
Economists may argue that in due time the world capital market will absorb all these excess yen, because money is, after all, fungible. But small "imperfections" in the money system can trigger enormous political responses in the real world that exists outside econometrics. Moving the yen mountain is harder than it might appear.
What may be the single most important national security issue for the United States today is not the Soviet threat in Europe but the danger of a political upheaval in Mexico just south of the border.
Mexico owes the outside world $97 billion. Its only hope of paying even rescheduled loans has lain in its oil revenues. Mexico's oil has brought in about 75 percent of its foreign exchange and half of its tax revenues.
Americans anguish over the Gramm-Rudman-Hollings budget-cutting meat cleaver. But imagine lopping 15 or 20 percent off a country's total tax take all at once. That's the significance to Mexico of the drop in the average price of a barrel of crude from $23.75 to $15 in a single month. And some oil experts are talking of $10 oil this summer.
If the anticipated slide continues, the Mexican government might not have enough tax money left to fill the gas tank in the president's limousine. Worse yet, from Washington's point of view, Mexico owes $25 billion to U.S. banks. Without an emergency transfusion, Mexico could be forced to pull the pin on the debt bomb and go into default, which could lead to U.S. bankers hurling themselves through high windows throughout the southwestern states.
Adding human dynamite to this already combustible situation is the tidal wave of illegal immigration from Mexico into the U.S. The U.S. Immigration and Naturalization Service, recently called this "startling" increase "the greatest surge of people in history across our southern border."
A Mexican debacle could intensify ethnic hostilities in the southwestern states. It could also transform the issues and the odds in the 1988 presidential campaign.
The technology for squeezing blood from a stone is not yet perfect, even in Mexico. Today's crisis threatens the internal stability of the country. In a country ruled by a single party for 57 years, a once insignificant opposition party, PAN, is gaining strength in Monterrey in the north amid violence and charges of government corruption and political repression. The middle classes seem to have lost what shreds of faith remained in PRI, the government party. In the south, one finds a hot mix of suffering peasants, Guatemalan refugees and, not so far away, military conflict in Nicaragua and El Salvador.
In return for a promise of more loans, Washington "gringos" are pressuring Mexico to sell off many of its fat, often corrupt, state enterprises to raise money. Treasury officials in Mexico are pasting up a list of some 200 such enterprises to add to the 236 they already placed on sale last January. That makes 436 state-run companies or enterprises -- only 26 of which have actually found buyers so far.
The nightmare scenario few want to think about pictures a real collapse, coming after last year's earthquake and the intense battles over high-level corruption. Such a collapse could lead to widespread violence and even guerrilla warfare in a country in which low-grade terrorism has been a chronic fact of life for decades.
In the worst-case scenario, one can even imagine Mexico City calling upon Washington for military support to put down its guerilleros, followed by a kind of Vietnam (or Afghanistan) spreading over the border into California, Arizona and Texas where the Hispanic population numbers in the millions.
This sounds like melodrama, and I am assuredly not saying this scenario will materialize. It is highly improbable. But history is made up of realities that begin as improbabilities. What were the odds, for example, that Corazon Aquino would become president of the Philippines? When a scenario has a set of consequences as chilling as those sketched above, prudent policymakers would do well to take it into account. More to the point, to head it off.
A Mexican upheaval holds unthinkable implications for the world economy, for the control of inflation, for the role of the dollar, for NATO, for the ability of the U.S. to project military power elsewhere in the world, and hence for the Soviet Union. It could alter world history for the next generation.
This takes us back to Tokyo's far less pressing troubles. Where one nation is sucking in capital and another is losing it, there is always some potential for recycling. Japan has all those yen. Mexico -- a country with enormous possibilities for development if it could get its economic and political house in order -- needs them.
Japan, with its mighty economy, its talent for strategic planning and its future consciousness, before long will, and probably must, assume international responsibilities beyond its own immediate region.
Japan's future will not be served by international upheavals of the kind implied in a Mexican catastrophe. Nor will its mountain of yen be safe for long if the U.S. banking structure flies apart. Japan's own concept of "comprehensive security," which wisely recognizes that national security reflects more than just military power, suggests that Japan study its own self-interest in heading off a Mexican calamity.
In 1983, according to its Ministry of Finance, Japan invested only a paltry $121 million in Mexico. Today there are signs of greater interest -- reports, for example, that the Japanese are looking at investing in major port facilities. But this is only a starting point. What should now follow are loans (perhaps convertible into equity), direct and indirect investment, and other financial inputs.
For Mexico, a massive infusion of Japanese capital, accompanied by a push for political democratization, could trigger a spiral of development. Mexicans, for good reasons, have long resented economic penetration by the U.S., often accompanied by cultural arrogance. Bitter memories remain of the conquest of parts of Mexico in the 19th century. Anti-U.S. nationalism remains a major political factor.
By contrast, Japanese yen come without this history. They should be accompanied by managerial support and significant technology transfer. The Mexi-Yen strategy, in fact, would provide Mexico an important ally, strengthening its hand in dealings with the giant to the north.
As for Washington, anything that takes pressure off the southern border of the U.S. at a time when the U.S. is already embroiled in two Central American wars should by warmly welcomed. Stabilization of the Mexican economy means fewer illegal immigrants and more jobs for American workers. And the prevention of the worst-case scenario would make it possible for the U.S. to continue to exert its worldwide muscle, whereas a Mexican upheaval would so distract military and other resources from the rest of the world as to weaken the entire western alliance immeasurably.
As suggested above, today's solutions inevitably turn into tomorrow's crises. The Mexi-Yen strategy raises questions about what will happen to the goods eventually produced south of the Rio Grande and whether their export will simply add to the U.S. trade deficit. It raises even larger questions about Japan's role in global geopolitics and its emergence from the role of "junior partner" assigned by the United States in the days when Japan was a war-shattered, poverty-stricken nation.
Nevertheless, at this moment, an opportunity exists to head off a monumental crisis. Several of the most serious economic problems facing the world today point to a single powerful strategy. One hopes the long distance lines are busy between Tokyo and Mexico City.