Andres Oppenheimer is the author of Bordering on Chaos, a book detailing politics and corruption in Mexico. He is the senior Latin American correspondent for the Miami Herald and co-winner of a Pulitzer Prize for his reporting on the Iran-Contra scandal.

Carlos Salinas came to power in probably the most dubious election in recent Mexican history. It was an election that the opposition said was won with fraud. There were riots on the street. The opposition, the leftist opposition candidate who at the time said he had really won the election, staged riots all over the place, they said it was a fraudulent election.

YOU SAY THE 1988 ELECTION WAS A CORRUPT ELECTION, A RIGGED ELECTION. GIVE ME AN EXAMPLE.

The 1988 elections were the most dubious one in recent Mexican history. After the voting the counting was stopped. Later the ballots were burned. The opposition said he had won, the government said it had won. Nobody knew what was going on.

BUT CARLOS SALINAS WON.

In the end the government put out a statement saying that Carlos Salinas had won the elections . . . So Salinas came into power as a pretty weak president. He needed support and to get that support he went to the three places that previous governments had sort of kept at a distance: the U.S. government, the Mexican Roman Catholic church and the military and those were the sort of three pillars on which he built up his presidency in the years to come.

AND THIS HAD NEVER BEEN DONE BEFORE?

Well you see, previous Mexican presidents had built their entire ideological and political apparatus on the concept of nationalism. So they kept the army at arm's length, they kept the church at arm's length and more than anybody else, they kept the U.S. at an arm's length. Salinas changed that all in part because of political needs, because he needed a new source of support.

WHY EXACTLY DID HE JUST CHANGE THE WHOLE STRUCTURE AROUND?

Well we have to keep in mind that when Salinas took office, Mexico was deeply, deeply in debt. It owed $98 billion to foreign banks. So Salinas needed to do something and what everybody was telling him to do and what he had to do and what he did was open up the economy. So he sold state owned companies to the private sector, got the money and used that money to pay off Mexico's debts and get the country back on its feet, and he did it and quite successfully.

WAS HE BEING DICTATED TO, OR WAS HE HIS OWN MAN ON THIS? WAS HE HIS OWN VISIONARY?

Well there is a beautiful anecdote that one of his aides told me when President Salinas went to Davos, Switzerland to a world economic summit; it was in 1990 and he went there to sell, to try to attract investments to his country. He was at his office in his room in Davos trying to give his speech, trying to attract foreign businesses and foreign investments in Mexico and of course at the same meeting were the Russians and the Poles and all these countries that had just left behind communism. And Salinas found that nobody was paying attention to him. The Wall Street and European investors were in a neighboring room listening to the Russians and the Hungarians and the Poles were doing. That's where the action was. And he found himself, according to what his aides told me later in a virtually empty room with very little interest for investors, and no press. When he came back to Mexico he told one of his close aides who told the story to me that what he had been doing at the beginning wasn't working. He needed to do something bolder, he needed to do something quick and he soon did it and that was to begin laying the ground for the North American Free Trade agreement.

DO YOU THINK THAT WAS HIS BIGGEST CLAIM TO FAME?

I think that NAFTA will remain Salinas's biggest claim to fame in the good sense. I mean he did many good things and many bad things. That's certainly one of the things he did that will remain in place.

AND CAN WE SEE THE EFFECTS OF THAT FREE TRADE AGREEMENT NOW IN MEXICO? ARE THE RESULTS OF THAT AGREEMENT OBVIOUS?

From a macro economic point of view yes, NAFTA has been good for Mexico. The trouble is it has only been good for a very small minority of Mexicans. Virtually the entire portion of the big jump in Mexican exports to the U.S. is concentrated in perhaps 10, 15, or 20 big Mexican companies. It hasn't trickled down to the people yet. So micro economically, NAFTA has been a big boon to the Mexican economy. But it hasn't trickled down to the people and it hasn't trickled down to all regions of Mexico because what we are seeing now is that most foreign investors are setting up their manufacturing plants in northern Mexico which is the industrial, the most developed part of Mexico and very few are doing it in the southern part of Mexico where the Indians live, where you have higher levels of illiteracy and a rural, peasant society.

WAS THIS PART OF CARLOS SALINAS'S PLAN? DID HE HAVE IT IN MIND TO GIVE THE BIG DEALS TO A CERTAIN PERCENTAGE--THE RICH BUSINESSMEN?

No of course not. I think Carlos Salinas wanted to turn Mexico, as he said publicly, into a first world country and to do that he opened up the economy. But when we are asking ourselves about his motivations, we have to look back in history. Carlos Salinas, as most of the young people of his generation, grew up with socialist ideas. His brother Raul flirted for a while with Maoism, he went to the southern states, he worked with the Indians. He was a socialist revolutionary, quote, unquote organizer. And Carlos Salinas pretty much was in that same circle of friends. Then he goes to Harvard, he goes to the U.S. When he took office - I'm not sure that he planned to do what he later did. When he took office, he probably did not plan to open up the economy to the extent that he later did. But because of the circumstances of the moment --the weakness of his presidency because of the allegations of fraud in the elections which took him to power, and because of his experience in his early failures in trying to attract foreign investments into Mexico-- by 1990-91 he took a big turn and went ahead with revolutionary measures like privatizing 18 banks which had been nationalized in 1982 by a previous president, like starting to talk about a free trade agreement with Mexico. He did that about two years into his presidency.

SO PRIVATIZATION WAS A POLITICAL MOVE ON HIS PART TO BUILD UP HIS OWN BASE OF SUPPORT.

It was a decision made out of need to bring in money to pay off Mexico's foreign debt and I think because Salinas, at that point, was convinced that there was no other way to go.

TELL ME MORE ABOUT THE PRIVATIZATION. WOULD YOU SAY THAT IS ANOTHER DISTINCTIVE MARK OF SALINAS?

Carlos Salinas privatized about 300 state owned companies. He did it in part because he needed to sell off public companies to get money to pay Mexico's huge foreign debt. He did it in part because Mexico needed to open up the economy, to attract foreign investment. And he did it in part because these state owned companies were sort of the cells or the focus of corruption in Mexico. These were the companies where, you know, ruling party bosses ruled at their will and committed all kinds of things that were no longer well viewed all over the world. And if he wanted to bring the U.S. into a free trade agreement, he could not afford to have these political party bosses with their pockets full of government money running around doing all kinds of crazy things.

SO HE WAS DOING IT FOR THE RIGHT REASONS?

I think he did it for the right reasons. I think he didn't have much of a choice. Mexico needed money to pay its huge foreign debt. That's the thing people keep forgetting about. When Salinas took office, it was not that he has this vision or this ideological urge to become a crusader for free trade. He took office and he found himself with a huge foreign debt, a $98 billion foreign debt. Where was he going to get the money from? The only way, the quickest way to get the money --considering that the bankers wouldn't lend more money to add more good money to the bad money that they had already lent-- the only way he could get that money was from selling inefficient and very badly managed state owned companies and he did it.

AT THE SAME TIME, HE SEEMS TO BE THUMBING HIS NOSE AT HISTORY. SINCE THE REVOLUTION MEXICO HAS BEEN A VERY NATIONALISTIC PLACE, A PLACE THAT HAS BEEN VERY INTENT ON KEEPING WHAT IS THEIRS, THEIRS AND KEEPING ESPECIALLY THE U.S. AND OTHERS OUT. HOW DID HE MANAGE THAT?

He was very smart. He had a very good and efficient management of the foreign press. And the way he managed it mainly is by what I would call a boomerang effect. He seduced the Washington powers that be - the president, President Bush, later President Clinton, the U.S. Congress, Wall Street, the American press and that boomerang of Mexico and suddenly the Mexicans on the streets opened up the daily papers and said, President Bush says wonderful things about President Salinas; President Clinton says wonderful things about President Salinas. The big New York-Washington papers praised Salinas. The Wall Street brokers praised Salinas and the Mexican people said hey, if this guy gets these kinds of reviews in Washington and Europe, he can't be that bad. So he created this atmosphere and for a while it was legitimate praise because he did things that were necessary and that no other president in recent years had done and that no other Mexican president in recent history had had the guts to do.

AND SO HE HAD BOTH THE U.S. AND HIS OWN PEOPLE ON HIS SIDE IN A SPACE OF A COUPLE OF YEARS.

Whatever the Mexican people will tell you now, the fact is that by the end of his presidency before the collapse, he was one of the most popular presidents in Mexico history. People respected him. I remember driving in cabs, talking with people on the street and people respected him. And when I asked people, hey but isn't he building a free economy on a pretty backward political system, they sort of waved that off. They said, well yeah but you know, things will come, and that was his big mistake.

EXACTLY WHAT WAS HIS BIG MISTAKE?

His big mistake was building a free open market economy with backward, corrupt political system of which he was part.

AND HOW COULD YOU DESCRIBE THAT SIMPLY, THAT CORRUPT POLITICAL SYSTEM? HOW DOES IT WORK?

Well, the Americans come to Mexico and see a free press and a semi-free press and see people speaking out and what you see in Mexico today is a pretty open society. Definitely much more open and much more democratic than it was 10, 15 years ago. There's no question about that, but there are still mechanisms of political control with which the ruling party manages to win elections or to do better than it would have in a level playing field.

PERHAPS YOU COULD GIVE ME AN EXAMPLE OF THE POLITICAL SYSTEM YOU'RE ALLUDING TO WHICH HAS BEEN IN PLACE SINCE THE REVOLUTION, IS THAT RIGHT?

Do you want me to tell you an anecdote? Let me tell you a story. A few days before the 1994 election, I went down to the streets and looked for a shoe shiner who I knew. And he wasn't there and neither was any other shoe shiner in downtown Mexico. I couldn't find any. So after the elections, I went to the one I knew and I asked him where had he been. And he said, oh well for the elections and the week before, we had all - we all were summoned to go to the ruling party rallies, political rallies for the presidential campaign. So I told him, come on, you're not a pro-government type. Why did you go? So he explained me how it works. If you're a shoe shiner in Mexico City, you need a license. To get that license you have to go to the shoe shiners union which is tied to the ruling party. So when you get that license, along with it you get a credential which makes you a member of the ruling party. So you've got social benefits, you get free lunches, you get free uniforms, you get a free burial when you die. You get all kinds of benefits but on the other hand, you're required to attend ruling party meetings. That's why when you go to a . . . a political rally, you see tens of thousands of people. So I asked him, well what happens if you don't go? And he says, well you have to go because when you go you get a little stamped ticket that says that you have attended the political rally. And the next day when you go to work to your corner an inspector passes by and if you don't show your receipt, your stamped piece of paper, you're suspended for three days. So the system still has mechanisms of political control which are not visible. They're traces of old times, you know, dirty, authoritarian mechanisms of political control in a society that indeed has become much freer and much more open.

IS THE SHOE SHINER PART OF THE CORRUPT POLITICAL SYSTEM YOU'RE TALKING ABOUT?

Mexico has become a more open society in recent years but it is still an authoritarian democracy.

AND WHY DID SALINAS NOT BOTHER TO LOOK INTO THAT?

Because he had seen what was happening in the Soviet Union and he reached a conclusion that it would be best for him to do perestroika first and glasnost later, to do the economic reforms first and the political reforms later. He felt he needed to have a political system in place to get the support in congress and in public opinion to push through his economic reforms. But that turned out to be his big mistake as he is now recognizing because the very people who he had around him were, in the end, defending political interests which were not necessarily democratic or free enterprise.

AND YOU REALLY BELIEVED HE WANTED TO EMBARK ON THOSE POLITICAL REFORMS?

I think once he plunged into the economic reforms and he began to realize the praise he was getting overseas, in the U.S. especially, he sort of became convinced of his own rhetoric and his own plan to open up the economy.

BUT THIS IS THE MAN, TO COME BACK TO PRIVATIZATION, THAT DID SELL OFF MANY OF THE STATE MONOPOLIES TO SOME OF HIS FRIENDS WHO HAPPENED TO BE THE RICHEST PEOPLE IN MEXICO, ISN'T THAT RIGHT?

The trouble with Salinas's privatization plan was that he did indeed sell inefficient, old, corrupt, state owned companies, but he sold them in the end to a small clique of friends. What you wound up with was a transfer of power from old, corrupt party bosses to new, in some cases corrupt, private sector bosses.

SO HE WASN'T REALLY INTENT IN CLEANING UP THE CORRUPTION IN THE OLD SYSTEM. HE WAS INTENT IN MAKING SURE THAT HE HAD THE APPEARANCE OF A FREE MARKET.

I think he did it to get rid of inefficient, money losing companies, to get money to help Mexico pay its foreign debts and to contribute to a more dynamic economy.

WHO EXACTLY WERE THE BIG BENEFACTORS OF THIS PRIVATIZATION?

Well there's several billionaires who benefited from the sale of a public company. Among them Carlos Slim who bought the telephone company, the television baron, Emilios Caraga who got licenses of regional television stations. You name it. Virtually all the people who make up the list of the richest people in Mexico today, almost all of them were close to the Salinas administration.

THERE WERE A LOT OF QUESTIONS BEING RAISED NOT ONLY TO THE EFFECT OF WHO BENEFITED, THE FRIENDS OF SALINAS HIMSELF WERE THE BENEFACTORS, BUT OF THE WHOLE PROCESS. IT WAS DONE RATHER HASTILY, TO SAY THE LEAST, WASN'T IT?

Some more than others. There were some privatizations that raised a lot of questions. You just mentioned the telephone companies. A lot of critics at the time said that the process was apparently clean. But the telephone company was sold to Carlos Slim and then 3 months later, the Mexican people found out that the telephone rates went up by enormous percentages and a lot of critics asked themselves whether there was not some kind of secret deal whereby Salinas gave - sold the telephone company to Slim with a secret understanding that Slim would be allowed to raise telephone rates tremendously a few months later.

AND THIS WAS THE GENERAL VIEW OF -

I think if you look at the privatizations, most of them, you won't find any flagrant abuses. If there was some hanky-panky, it was behind the scenes.

LET'S TALK ABOUT THE FAMOUS DINNER. A WHOLE CHAPTER OF YOUR BOOK IS DEVOTED TO THAT DINNER. IN FEBRUARY '93, SALINAS HELD A PRIVATE DINNER.

On February 23rd, 1993, there was a secret dinner party at the home of Antonio Ortiz Mena, an old time government official. All the 30 biggest businessmen in Mexico, the wealthiest people in Mexico, all men by the way, arrived in limousines and sat down. They had an idea, but didn't quite exactly know what they had been summoned for.

AND AMONGST THEM WERE ALL THE PEOPLE THAT BENEFITED FROM PRIVATIZATION . . .

Among them were, you know, Carlos Slim, Carlos Hank Rohn, Emilio Azcarraga, all the big businessmen, billionaires as they call them here who in some way or another, benefited from the privatization of state owned companies. And at the dinner, they were asked to contribute $25 million each to the upcoming presidential campaign, $25 million each. That's a lot of money. That made together about $750 million. It was like way, way, way beyond what any American president ever got from the private sector or from anybody else and this is from a country whose economy is about the size of that of the state of Ohio.

AND THE REACTION WAS?

Well eventually the word leaked out and this made a big, big scandal in Mexico because this was sort of a reflection of how the system works. This was a secret meeting behind the backs of the people, and it sort of illustrated the close relationship between some of the richest people in this country and the government. It was all done secretly behind the people's back without anybody knowing. And two or three people who attended that dinner who told me how it went, gave me the details about it, and explained to me that some people were very uneasy about it. Some of these rich people said, hey, you know, should we be in the business of bankrolling the presidential candidate? But eventually the whole thing came out in the open and the official word was that the whole thing was, you know, forgotten. But insiders of the party say that most of them gave money under the table afterwards.

$25 MILLION.

Each.

IS THIS A DEPARTURE FROM THE PAST -- THIS BEING SO CLOSELY, SO OBVIOUSLY LINKED TO THE BUSINESS SECTOR?

No there has always been a relationship between the president of Mexico and the industrial past. But remember for the past 30 or 40 years, Mexican governments claimed to be revolutionary, nationalist and it wasn't chic to be seen, to be pictured with big businessmen. So governments kept big business sort of at arm's length. When Salinas takes office and privatizes 300 state owned companies, suddenly he appears in photographs with the private sector, it's no longer badly seen to open up the economy and to mix with big industrialists. All over the world we are seeing that. So that changed.

AND AGAIN HE'S DOING IT FOR SO-CALLED DEMOCRATIC REASONS IN THE SENSE THAT HE NO LONGER WANTS HIS PARTY TO BE FUNDED BY GOVERNMENT FUNDS. THAT WAS ONE OF THE REASONS WASN'T IT?

Well the reason, as it was explained to me by the person who hosted the dinner, was that they did it for democratic reasons. They wanted, for the first time in Mexico's history perhaps, to stop the funnel of money from the government to the ruling party. Traditionally, one of the reasons the ruling party won almost every election, state, local and national since the 1920s is that they enjoyed incredible amounts of money that were funneled under the table from the government. So the Salinas people said, this has got to end, among other things because now we have the International Monetary Fund, the World Bank, the U.S. Treasury, all our creditors looking at our finances so we have to come up with new ways of funding the ruling party. So they turned to the industrialists and said, we've got to stop this funneling of money out from the government into the ruling party, you help us. And they did.

AND AT THE SAME TIME, BECAUSE THEY THINK THEY'RE DOING A GOOD THING THEY DON'T REALIZE THAT THIS MIGHT CREATE A CONFLICT OF INTEREST. THAT YOU CAN'T JUST TURN AROUND AND ASK FOR $25 MILLION FROM A COMPANY AND NOT EXPECT TO HAVE SOME KIND OF FAVOR ASKED FOR IN RETURN.

You see in Mexico, until very recently, there wasn't really a concept of conflict of interest. It simply didn't exist. It happened to me when I interviewed some of these billionaires. One of them was the fund raiser for President Zedillo's campaign, while he was chairman of one of the biggest companies in Mexico, and I asked him, isn't there something wrong with this? Won't some people say that if the President gets elected he will owe you a lot of favors? And he looked at me sort of with blank eyes and couldn't understand quite what I meant. Until very recently, there was no concept of conflict of interest in the Mexican law and if there was, nobody knew about it or paid any attention to it.

WHAT YOU HAVE DESCRIBED SO FAR IS THAT THE PEOPLE WHO USED TO BE INVOLVED IN THE INSTITUTIONAL CORRUPTION OF THE PRI --THE BIG BUSINESSMEN WHO WERE TIED TO IT, THEN WOUND UP WITH THE PRIVATIZED COMPANIES, ALMOST LIKE NOTHING REALLY CHANGED.

Most of those who benefited from the privatizations were in some way or another close to the presidential family. That's a fact.

SO WAS IT, IN A WAY, SUBSTITUTING ONE FORM OF CORRUPTION FOR ANOTHER?

No because don't forget that by giving - passing on these companies to the private sector, the state was getting rid of money losing operations. So I think in Salinas's mind he thought, okay I better give this company to so and so because the company keeps losing money, and then it becomes his problem not mine. So I don't think he implemented that part of his economic plan out of any greed or corruption. We may learn - let me ...

THE DESCRIPTION IS THAT GONZALES, MINISTER OF TOURISM, BECOMES A BILLIONAIRE WHILE HE'S IN GOVERNMENT. HE'S THE OLD STYLE GUY. BUT WHEN PRIVATIZATION COMES, HIS SON STARTS BUYING UP PRIVATIZED COMPANIES. IT SOUNDS LIKE THE SAME SYSTEM.

Well Salinas didn't change the basis of the system which is that there are no rules of conflict of interest, very little accountability and very little focus on corrupt practices. He didn't do that.

NOR DID HE APPARENTLY STOP HIS BROTHER FROM TAKING ADVANTAGE OF PRIVATIZATION. WHAT WAS HIS BROTHER'S ROLE IN ALL OF THIS?

It was an open secret in Mexico that Raul was in cahoots with many of the private sector businessmen, that he was engaged in influence peddling, and was friends with business people who eventually got government contracts. Raul Salinas was known at the time, at least in political circles, in business circles, as Mr. Ten Percent.

WHAT WAS THE SIGNIFICANCE OF THE ARREST OF RAUL SALINAS AFTER CARLOS LEFT OFFICE?

The arrest of Raul Salinas opened up the window to something everybody knew but nobody could put his finger on which was the institutionalized corruption in government circles in this country. Until the arrest of Raul Salinas, it was an open secret to everybody that every president of Mexico since the days of the revolution, ended up incredibly rich, that their families ended up with lots of money etc. etc. It was an open secret but it was sort of a fact of life. Nobody had ever seen a check, nobody had ever seen a cable, nobody had ever seen evidence of that happening. When Raul Salinas was arrested, suddenly the Mexican people woke up and read in the papers that he had an $84 million bank account in Switzerland. They saw copies of the wire transfers. They saw that he had a $23 million bank account in London and people began to say, holy cow, how come? This was the first time that they saw that in black and white. So it created a shock in Mexico. For the first time, the Mexican people could face, could see in black and white, evidence of corruption within their ruling elite.

.... you've got to remember when it happened, Raul Salinas was arrested in February 1995. This was only two months after the worst depression in Mexico's history, no matter what economists on Wall Street will call it. It was a huge depression. Mexico's economy sank by 7%.

SEVEN PERCENT?

7% in 1995. That's the worst year since the Mexican Revolution. So here you have a massive devaluation of the peso in December 1994.

WHEN YOU SAY THE ECONOMY SLIPPED 7% AND THAT IS A MASSIVE DEVALUATION, GIVE ME AN EXAMPLE OF WHAT THAT MEANS.

If an average Mexican on December 20, 1994, had 10 pesos in his pocket, a week later or two weeks later he had half of that or less. The money suddenly wasn't worth anything. And here you have the worst economic depression in this country's recent history. Tens of thousands of - millions of people, over the next year it would be more than one million people, were laid off from their jobs. For rent signs were all over Mexico City. I remember walking on the streets in December and January and suddenly seeing for rent, for rent, businesses going under. And two months later in the midst of this incredible depression, Mexicans wake up and read in the papers that they've found $84 million in the ex-president's brother's bank accounts in Switzerland. And then the next day they find out that another $23 million was found in Britain and another 30 million in France and on and on and on. And people just were flabbergasted.

HOW DID HE GET THE MONEY?

He got the money from leading industrialists in Mexico who are, some more than others, very close to the ruling party. One of them, Carlos Peralta, gave him $50 in 2 or 3 or 4 installments, through U.S. banks, by the way. Others were Carlos Hank . . .

CARLOS PERALTA GAVE HIM HOW MUCH MONEY, THROUGH WHAT U.S. BANK, AND WHY?

Carlos Peralta transferred about $50 million in four installments through various U.S. banks mainly Citibank in New York over a couple of months in - I don't remember what year.

WHY?

When I found that out and I called Carlos Peralta on the phone he told me that it was not a bribe, not a pay-off for anything but money he had given Raul Salinas to invest in a fund, an investment fund that Raul Salinas was setting up in Switzerland with several other friendly businessmen.

WAS THIS A PARTNERSHIP? I MEAN DID HE HAVE A CORPORATION? WAS THERE A NAME?

Carlos Peralta says, and Raul Salinas says that it was a fund that both of them and several other friends were setting up and Raul Salinas was managing for a later investment in various enterprises allegedly in Mexico. Now the question is why would a smart, intelligent, successful businessman like Carlos Peralta and the others give that kind of money to somebody who didn't have any experience in managing money. It should be the other way around.

DID THEY HAVE A WRITTEN AGREEMENT?

They didn't have a written agreement.

DID HE HAVE A RECEIPT?

He said he didn't have a written receipt. Carlos Peralta says that it was a gentleman's agreement, that the money was given to Raul for an investment fund and friends are friends.

WHO ELSE GAVE RAUL MONEY?

According to Mexican investigators, the other people who gave money to Raul Salinas were Carlos Hank Rohn

WHO IS CARLOS HANK ROHN?

Carlos Hank Rohn is the son of Carlos Hank Gonzales, one of the legends of this country's political system. A very charming man, a very smart politician who has been in various government jobs for the past 30 years and whose latest job was agriculture minister for Carlos Salinas.

SO WHAT DOES HE DO, AND HOW MUCH MONEY DID HE GIVE?

Carlos Hank Rohn, according to people who were at that party, participated at the dinner where the ruling party raised $25 million from each of the 30 richest people in Mexico.

AND HE GAVE RAUL MONEY FOR HIS PRIVATE BANK ACCOUNT AS WELL?

What Mexican investigators have said and to the best of my knowledge, Carlos Hank Rohn has not denied, is that he contributed $15 million to this alleged investment fund that Raul Salinas was setting up in Switzerland.

AND AGAIN NO RECEIPT, NO AGREEMENT THAT WE KNOW OF.

According to investigators, no receipt, no nothing.

AND WHAT DID CARLOS HANK ROHN GET FROM PRIVATIZATION?

I can't remember.

HE GOT A COUPLE OF PRIVATIZED BANKS. WHO ELSE INVESTED IN THIS INVESTMENT FUND IN SWITZERLAND?

Ricardo Salinas Pliego, owner of the second largest television network in Mexico; Adrian Sada, a leading industrialist; Carlos Hank Rohn, and others who say they were asked to contribute money such as Roberto Gonzales, the owner of Maseca but who as I understand it says he was asked but never contributed to the fund.

SO THIS IS A LITTLE STRANGE ISN'T IT?

It's very weird when you see these very successful businessmen, billionaires, giving their money to a presidential brother who doesn't have much experience in business affairs to manage it. It should be the other way around. These people are consummate businessmen. They know more than Raul Salinas or any of us, about how to turn money into more money. Why would they have to send money to Raul Salinas for him to manage their money?

THE U.S. AMBASSADOR TOLD US, LOOK, ALL PRESIDENTS HAVE PROBLEMS WITH THEIR BROTHERS. NIXON HAD PROBLEMS; JIMMY CARTER'S BROTHER.

IS THIS SIMILAR?

Well you see, the U.S. government, and this goes both for the Republican and Democratic administrations, has a tendency to turn a blind eye on anything that sounds bad about Mexico. It's a see no evil, hear no evil attitude which in the end hurts America and hurts Mexico.

SO COULD YOU PUT THAT ANSWER IN CONTEXT?

This is on a different scale than anything we would have seen in the United States is what you're saying, as far as we know.

YOU MENTIONED CARLOS HANK GONZALES. WHO IS HE? SOME PEOPLE SAY HE'S THE PROTOTYPE OF WHAT?

Carlos Hank Gonzales is seen in Mexico as the symbol of the old system, of the authoritarian system that people would like to change. He's a man who was, as he himself told me, was born poor, never inherited a penny, worked all his life in the state government sector. He never worked in the private sector and according to Forbes magazine ended up with a fortune of $1.6 billion. Now you have to remember the culture in Mexico. For all we know he may not have done anything illegal because in Mexico there's no law, at least there wasn't any law during his years in government, prohibiting influence peddling or stating rules against conflict of interest.

OR MONEY LAUNDERING.

We don't know.

BUT I MEAN THERE WAS NO LAW AGAINST IT IN MEXICO.

There was no law against money laundering.

YOU SAY THAT RAUL SALINAS WAS --IS "BAGMAN" THE RIGHT WORD -- THE CORRUPT SIDE OF THE SALINAS FAMILY DURING THE REGIME, RIGHT?

Right.

WHEN WAS IT PUBLIC KNOWLEDGE IN MEXICO AND WHEN WOULD THE U.S. GOVERNMENT HAVE KNOWN ABOUT IT?

This was known as early as 1991. There were stories in the Mexican press. There was a story in the Mexican press in June 1991 saying that Raul Salinas was involved in some dirty deal at the Mexico City racetrack. Then a year later in 1992 there were several stories in the magazine Proceso, even in the L.A. Times. On the other hand, U.S. embassy officials who were at the U.S. embassy at the time tell me that they had discussed within embassy meetings the fact that Raul Salinas was involved in shady businesses. And then in 1992, Raul Salinas was quietly sent into exile into California with some kind of a fellowship which everybody in Mexico knew at the time was the president's way of sort of keeping him away.

SO -

It was known at the time that Raul Salinas was involved in shady business deals.

SO WHEN A CITIBANK VICE-PRESIDENT WHO IS IN CHARGE OF MEXICO, AND SPECIFICALLY RAUL SALINAS'S ACCOUNT, SAYS THAT SHE DIDN'T NEED TO CHECK ON THE ORIGIN OF THE MONEY BECAUSE IT WAS LIKE MONEY FROM THE ROCKEFELLERS, IS THAT BELIEVABLE?

Nobody could have said in 1993 or 1994 that it was a surprise to him or her that there were allegations of corruption's against Raul Salinas. If somebody did that, he or she turned a blind eye to reality because in Mexico City the only thing you had to do is to you know, go out, and have a coffee with any politician, any diplomat, or read the press. It was all there.

AND YOU SAY THE U.S. GOVERNMENT KNEW? THE AMBASSADOR ACTUALLY TOLD US THAT HE EVEN HAD INFORMATION ABOUT RAUL BEING TIED UP WITH DRUG MONEY.

I think there is a see no evil, hear no evil policy towards Mexico that in the end hurts the U.S. and hurts Mexico.

WHAT WAS CITIBANK'S ROLE IN THE RAUL SALINAS SAGA?

Citibank acted as Raul Salinas's private banker. According to investigators, Citibank took Raul Salinas's money and helped him invest it in foreign trust funds all over the world. So they basically acted as his private banker and . . .

CITIBANK TOOK HIS MONEY BUT THIS WAS NOT A NORMAL TRANSACTION, IT IS NOT LIKE HE WENT INTO THE BANK HERE IN MEXICO CITY AND HE SAID HERE'S MY MONEY, INVEST IT FOR ME. WHAT HAPPENED? DID HE OPEN A BANK ACCOUNT AT CITIBANK IN MEXICO CITY?

Raul Salinas was introduced to Citibank by a close friend of his, Carlos Hank Rohn who tells him they will show you the way to hide your money in foreign bank accounts which is, by the way, a normal practice for businessmen all over the world. Except that banks have in their guidelines policies about not to taking money from politicians or members of political families, not to take large sums of money from them.

IT'S NOT UNUSUAL FOR A MEXICAN POLITICIAN OR A WEALTHY MEXICAN TO GO TO CITIBANK IS IT?

Citibank has a long, long relationship with Mexico. It was the first foreign bank in Mexico, the most successful one, the one that survived several administrations where other foreign banks were kicked out of Mexico and a lot of Mexican industrialists and, according to what you hear in political circles, a lot of Mexican politicians had bank accounts at Citibank. After the whole story broke out we learned that several of them had bank accounts at Citibank.

SO CARLOS HANK ROHN--WHO GAVE RAUL SOME OF THE MONEY THAT HE'S GOING TO GET, WHO IS PART OF THIS POWERFUL FAMILY--TOOK RAUL TO CITIBANK TO, YOU SAY, TO HIDE THIS MONEY. HOW DOES CITIBANK DO THAT FOR HIM AND WHY?

Well Raul Salinas, from what investigators tell me, told Citibank that like many other wealthy Mexican businessmen he was worried about kidnappings, and government persecutions in later years etc. etc. And because he didn't want anybody to find out that the brother of a former Mexican president had hundreds of millions dollars in foreign bank accounts he needed a safe place to keep his money . So Citibank set up trust funds in Switzerland, in London, and in several other places that would basically hide his name under several layers of secrecy.

HOW DID THEY MOVE THE MONEY?

According to Mexican investigators, a woman who later they say turned out to be Raul Salinas's wife, took checks to a Mexico City brokerage house which in turn transferred the money to New York where the money was sent to Swiss, British, and other European bank accounts.

SO THIS WASN'T DONE OPENLY. THIS WAS DONE -

This was done secretly.

DO YOU BELIEVE THAT RAUL SALINAS REALLY IS BEHIND THE MURDER OF FRANCISCO RUIZ MASSIEU?

No.

SO THEN WHAT - WHERE DO ALL THESE PSYCHICS COME FROM, THESE MISTRESSES WHO SAY THEY HEARD THESE THINGS, THESE BODIES THAT NO ONE IS CLEAR WHAT BACKYARD THEY CAME FROM. WHAT'S THIS ALL ABOUT?

This is part of a judicial system that the Mexican president will be the first to admit has been doing awkward, dubious, shady things forever. The tradition in Mexico is for a prosecutor if he's convinced that his witness is telling what is true, to go out of his way to, you know, produce evidence to prove his case. Over the two years that I've been following this story it has changed 5 times. So the conclusion is that you can't believe anybody. You can only believe the basics where all sides agree and you have to narrow them down to 1 or 2 little things and make your judgment from those.

THE ARREST OF RAUL SALINAS HAS GIVEN US A SORT OF WINDOW INTO ALL THESE INVESTIGATIONS. TODAY THE PROSECUTORS HAVE BEEN FIRED. IN FACT, THE PROSECUTOR MAY IN FACT BE PROSECUTED. WHAT'S GOING ON?

This is a game of shadows, you know. You never see the real thing. You see the shadows on the wall. Today's heroes are tomorrow's villains. Tomorrow's villains are yesterday's heroes. What's clear in this story, what seems to be clear, what everybody agrees on so far is that the people they arrested after the murder of Jose Francisco Ruiz Massieu, have named Raul Salinas. That seems to be a fact.

OKAY.

It also seems to be a fact that Raul Salinas was very close to the man who hired the gunman to kill Jose Francisco Ruiz Massieu. Those two seem to be facts. From that point on, it's a comedy of errors.

NOW WHAT ABOUT THE MONEY? IS IT CLEAR THAT RAUL ACTUALLY GOT THE MONEY?

It's a fact that Raul Salinas has --even if everything else is fantasy-- it is a fact that Raul Salinas has $100 million in Switzerland, $23 million in London, maybe $30 million in France, $5 million in Canada and who knows how much he has in dozens of U.S. bank accounts all over the U.S. That's a fact.

IN MEXICO THIS WHOLE COMEDY OF ERRORS, THAT SURROUNDS THE MURDER INVESTIGATION, THIS THEATER OF THE ABSURD THAT SEEMS TO BE GOING ON WITH PSYCHICS AND SO ON, IT IS UNIQUE. HOW CAN WE UNDERSTAND WHAT IS GOING ON? IT SEEMS SOMETHING LIKE PLATO'S CAVE.

Mexico is a country of shadows, a country of make-believe. This system has a long history of misinformation. It's not like in some totalitarian regimes where the government doesn't put out information. It's the contrary. They flood you with information, so much so that by the end there's no telling what's true and what's not -- where the people are, who they're supposed to be, whether they're acting for the reasons they claim to be acting.

IT'S A MYSTERY INSIDE AN ENIGMA.

It's - it's a country where things are not what they seem to be. Until they set a system in place with checks and balances and the government's ability to circulate the information it wants without any accountability, without any checks, is corrected, it will continue being that way.

YOU SAY THAT THE ARREST OF RAUL SALINAS WAS A WATERSHED IF YOU WILL, A TRAUMA IN THE HISTORY OF MEXICO. WHAT HAPPENED AROUND THAT ARREST?

It was a very dramatic scene because in those days and we should give credit to the government, to the current government for having done that. It was mind boggling that the system would turn against one of its own. And what happened was that the attorney-general went to the president, according to the attorney-general's account of the story, and he said Mr. President, we have reason to believe that Raul Salinas murdered this person. And President Zedillo said, well, do whatever the law commands. So the attorney-general sent his troops to arrest Raul at his sister's home here in Mexico City. And then Raul Salinas called his brother's bodyguards and told them, you know, they're coming to arrest me. And for a while, for 10 minutes or 20 minutes that day you had two armies, the new government's army and the old government's army rushing to the place where Raul Salinas was staying and for a couple of minutes it seemed like there was going to be a clash between the old government and the new government, who by the way belonged to the same party and to the same political elite. And in the end, the orders came from the presidential house saying there's a formal arrest warrant against Raul Salinas. And Carlos Salinas's bodyguards turned back and went home. It was a watershed moment in Mexico's history because although previously there had been big names, big politicians arrested, the head of the oil workers union, former president of the oil company, etc. etc., this was a member of the presidential family in a country where the president used to be a king. This was a big deal.

TODAY, GIVEN EVERYTHING THAT'S GONE ON SINCE THEN, WHAT'S THE FUTURE LOOK LIKE IN THIS COUNTRY?

There's no question that Mexico is a more open, a more democratic country than it was 10 or 15 years ago and there's no question that in recent years both under President Salinas and President Zedillo there have been important democratic reforms. However, the problem is that you still have an authoritarian democracy in place. You still don't have a level playing field for opposition parties to win the presidency. It's a daily struggle. One day it looks like the forces of evil are winning. The next day it looks like the good guys are winning. The trouble I see today is that we're building a whole new house of cards on very shaky political ground. In 1997 we are seeing a young U.S. educated Mexican president, very well intentioned, talking about democratization. We see the American president praising him, we see Wall Street praising him, we see the American press praising him. We see investors coming back to Mexico investing billions of dollars into Mexico. We see the Mexican stock market go up, we see brokers on Wall Street saying how great Mexico is and telling their customers to invest in Mexico and we are seeing that some important political reforms are not being carried out. So I'm afraid that the danger now is that President Zedillo may make the same mistake President Salinas made 3 years ago which was putting off political reforms until the economy gets better. And what I'm afraid of is that if he doesn't do the political reforms in the 3 years he has left in office this whole new house of cards will collapse just as it did in 1994.

BEFORE YOU WERE TALKING ABOUT SHADOWS AND THINGS. I ASSUME YOU WERE TALKING ABOUT ALL THESE MURDERS, I MEAN YOU'VE GOT A DEAD COLOSIO, YOU'VE GOT A DEAD CARDINAL, YOU'VE GOT A DEAD HEAD OF THE PRI AND YOU'RE NOT SURE WHO'S DONE WHAT TO WHOM AND WHEN.

Look at the investigation, first it was a lone gun man. Then the government said it was a conspiracy of three gun men. Then it was four gun men, then it was back to one. This is a country of shadows.

You know, putting the whole thing in perspective. What you are seeing here every six years or so is a government with very little accountability spending more than it should, and going bankrupt, going to America or to Canada or to the Europeans begging for money, being told that to get the money they have to impose drastic economic reforms, and then a new president takes office, promises to release economic reforms, does them, but does not do the political reforms necessary and then the system goes on, they spend more than they should, they go bankrupt and it's the same story over and over. So until they implement a system of checks and balances with real accountability, this story will repeat itself . . .

BUT HOW CAN THEY DO THAT IF THE PRESIDENTIAL CANDIDATE GETS ASSASSINATED, THE CARDINAL IN A MAJOR CITY GETS ASSASSINATED, THE HEAD OF THE RULING POLITICAL PARTY GETS ASSASSINATED, EVERY POLICE COMMANDER AND PROSECUTOR WHO TRIES TO GO AFTER A NOTORIOUS DRUG CARTEL GETS ASSASSINATED IN BROAD DAYLIGHT, AND THE GOVERNMENT DOESN'T SEEM TO BE ABLE TO DO ANYTHING?

Because that may be a system of the transition Mexico is going through. What you're seeing now, all these murders you're talking about, this is not Mexico 1910, this is Chicago 1930. What I mean by that is that it's not a revolution, what you're seeing here in Mexico is not a people's uprising against the government, that's not happening, I don't think it will happen. What you're seeing is a fight among families or tribes or clans within the ruling elite that are fighting among one another for a shrinking piece of the political pie they used to have. So it's not the Mexican revolution of 1910, this violence we are seeing here is not a people's uprising -- it's a bloody fight among political mafias who were then the ruling elite that are fighting one another for a shrinking political and economic pie. And that's good in a sense...

IT'S GOOD?

It's a symptom that they're losing power, so what we are now seeing, the violence and the bloodshed and death --what makes the headlines and the stuff we are writing about and everybody's focusing on--is a symptom of a healthy change Mexico is undergoing, because these people are losing power. Otherwise they wouldn't be fighting to keep the shreds of it. Is that clear?

DO YOU THINK THE PAN IS GOING TO WIN - AND WHAT WILL IT MEAN FOR MEXICO IF THEY DO?

I think there's a chance they could win the capital but I don't think they're going to allow them to win the congress, because you see congress is the one that has committees that look into corruption and . . . and you know, government secret funding for the ruling party etc. etc., so I think they'll win Mexico City but not congress.

AND WHAT DOES THAT MEAN, WINNING MEXICO CITY?

It means two things, winning the biggest political job in Mexico after the presidency and sort of creating a candidate for the year 2000, or making their job level so difficult that it'll be an embarrassment for the PAN for the year 2000. Maybe the PRI will allow the PAN to win in order to embarrass their win because it is an impossible job.

WHAT DID CARLOS SALINAS ACHIEVE IN YOUR MIND THAT IS STILL STANDING AND POSITIVE TODAY?

On the positive side, for the first time in Mexico's history he allowed for some states to go to the opposition party. He opened up the economy. He sort of ended the old-time taboos that trading with the U.S. was bad or was against nationalism and that sort of thing. And he put in writing what was already an existing fact.

More than 90% of Mexico's foreign trade before NAFTA was with the U.S. So what it did was institutionalize a situation that was already there but by doing that he brought greater confidence to foreign investors.

AND ON THE NEGATIVE SIDE?

Well Salinas failed to do the basic economic reforms that would have helped Mexico to become a more efficient, open economy. Let me explain this. You privatize state owned companies, you invite foreign investors. You get headlines all over the world that Mexico is opening up. But at the same time, you have an authoritarian system where there was no accountability. So for instance, the government issued statistics, financial statistics, and there was no way of knowing whether they were right or wrong because there was no independent auditing commission in Congress, let's say, to look at the government figures. Congress was, and continues to be, in the hands of the ruling party. The central bank was managed like a puppet by the central government so the elections were you know if not heavily fraudulent, I mean not that fair--or at least the process leading towards the election. So you had a government that functioned without accountability. So it's very hard to build an open economy without a system of checks and balances where investors can know where they put their money and what the real figures are. And basically that's what Salinas did. He opened up the economy without creating a system of checks and balances in a democratic system that would have allowed people to know what the real situation was and that would have helped prevent the economic collapse of 1994.