Each year, Michigan businesses sell approximately $6 billion in goods and services to Mexico-about 20 percent of Michigan's total export sales. Serious financial crises triggered by the collapse of the peso, however, have put those sales in jeopardy.

President Clinton responded to the crisis by arranging a $20 billion bailout for Mexico, paid for by American citizens. Though months have passed since it was announced, it has failed either to restore investor confidence or stabilize the Mexican economy. Skyrocketing interest rates in Mexico are preventing everyone, from large businesses to small credit cardholders, from making payments on their debts. As a result, Mexico's deteriorating banking system has become insolvent, prompting the government to rescue several banks. During the next year, Mexico's total debt of $160 billion could double in size, meaning that the U.S. package will not be enough.

The U.S. has tied its economy to Mexico through the North American Free Trade Agreement, and many Michigan jobs are linked to trade with our Southern neighbor. Unfortunately, there is little the U.S. can do to repair Mexico's broken economic system. For several years, Mexicans bought most of their American products with money borrowed from Americans. When these massive debts came due, Mexico found itself unable to repay them. Continuing to make bad loans in Mexico, this time from the U.S. Treasury, makes little economic sense.

If these new, very risky Mexican loans are not repaid, then essentially the money will have been given away, and the U.S. taxpayer will be left to pick up the tab. This has happened several times in the past, most notably in 1982. Mexico's failure to make payments on foreign loans that year prompted an international debt crisis. The bailout may just be sending good money after bad.

The Mexican government's harsh economic plan does little to resolve the country's massive debt problems. Instead it has produced a severe and prolonged recession by implementing wage and price controls, higher taxes on businesses and individuals, and burdensome measures to reduce the country's imports.

Without U.S. financial assistance, the Mexican government would be forced to take a heavy dose of fiscal discipline and sell off numerous publicly owned assets. Full privatization of state-run monopolies in telecommunications, electric utilities, and oil production would be painful to the politicians accustomed to their privileges, but would alleviate the economy's structural weaknesses, revitalize the private sector and renew prospects for economic growth. These reforms would also enable the government to borrow short-term funds from private credit markets, rather than the American taxpayer. The bailout, by infusing Mexico's bankrupt government with new funds, has given Mexico an excuse once again to postpone its long awaited reform measures.

The situation in Mexico is having serious repercussions. Large loans and guarantees to Mexico from the U.S. Treasury have put stress on the U.S. dollar, which recently fell to all-time lows against major currencies. When Congress failed to ratify the balanced budget amendment, currency markets questioned how the spendthrift U.S. government could justify making such risky loans to Mexico. Too many off-budget accounting gimmicks like the Mexico bailout have made the U.S. the world's largest debtor nation.

The collapse of the Mexican currency has also exposed similar but fewer severe problems in Canada, one of the largest external borrowers in the industrialized world. Canada's inability to come to terms with excessive government spending and debt has sent its currency tumbling too. Indeed, the Canadian dollar and the Mexican peso are the only major currencies the U.S. dollar has substantially outperformed in recent months.

Financial stability is vitally important to the U.S. economic relationship with its major trading partners. It cannot be achieved through the smoke and mirrors of taxpayer-financed bailouts and other gimmicks. The best thing the U.S. government can do to help its neighbors is to put its own house in order, and let the markets discipline other countries for their own mistakes.