The MacNeil/Lehrer NewsHour

Intro JIM LEHRER: Good evening. In the headlines this Tuesday, President Reagan performed his first public duties since his surgery as he welcomed the president of China to the White House. There are reports OPEC has agreed to cut oil prices, and hundreds more were arrested in the state of emergency crackdown in South Africa. Robin?ZROBERT MacNEIL:ZThis is your guide to the NewsHour tonight. After the news summary we have three focus sections. Three experts on China discuss the latest turns in U.S. and Chinese policy with the visit of President Li. Then part two of our week-long documentary look at Mexico; tonight, the capital that may become the world's largest city. Then, a debate on whether President Reagan should be given line item veto power. News Summary

LEHRER: It was a special day for President Reagan. He made his first major public appearance since his cancer surgery 10 days ago. It was at the White House, and the occasion was the visit of President Li Xiannian of China. The two heads of state spoke of good will and the growing good relationship between their two countries.

Pres. RONALD REAGAN: Both our peoples should be proud that in a few short years a solid foundation of good will has been laid. Ours is an increasingly productive relationship based not on personality or momentary concerns, but on the recognition that our nations share significant common interests and an understanding of the many benefits we reap from the good will between us. Now, this doesn't mean that there are no areas of disagreement; however, we will continue to put any differences in perspective.

LI XIANNIAN, President, People's Republic of China China [through interpreter]: Mr. President, I am very happy to see that you are recovering so fast, and I am deeply touched by your participation in this welcoming ceremony. The Sino-U.S. relations have made very big progress. A dozen years ago, very few people could foresee the present level of development in our bilateral relations. I hope that a dozen years hence when we look back we shall be able to feel gratified, as we do today, that as we proceed difficulties are increasingly reduced and our steps grow more vigorous. Thank you.

LEHRER: The welcoming ceremony was 15 minutes long, half the usual length for such events. President Reagan, during a photo opportunity with President Li later inside the White House, was asked how he felt. "Fine," he said. Did he have any complaints? "No," he said. After their meeting, White House spokesmen said Mr. Reagan told President Li he would sign a nuclear cooperation agreement that had been stalled, and the agreement was signed later in the day. Our first focus segment tonight is on President Li and the so-called new China. Robin?

MacNEIL: In Geneva the Saudi Arabian oil minister, Akmed Zaki Yamani, said the Organization of Petroleum Exporting Countries is close to an agreement on reducing the prices on some grades of crude oil. Other sources predicted a reduction of 50 a barrel in heavy crude oil, which now has a posted price of $26.50. Here's a report from Rod Muir of the BBC.

ROD MUIR, BBC [voice-over]: Following the second day of discussions the 13 oil ministers left the OPEC conference with at least some hope of formulating a solution to the crisis they face. The present slump in world market demand for OPEC oil has meant a drop in oil prices over the last five years of about $13 U.S. a barrel. However, Saudi Arabia's Sheik Yamani, a key figure at this conference, is just one minister who is advocating a reduction in the price of heavy crude oil. To balance that price cut, though, he wants to see an increase in the price of light oil. It's hoped that the combination of both factors will renew market strength and therefore keep the OPEC cartel afloat.

LEHRER: Here at home the government reported inflation running lower than last year. The consumer price index rose 0.2 in June, for an annual rate of 3.7 . The government said orders for durable goods were up 1.8 , the third monthly increase, a sign for private analysts of an improving economy for the second half of the year.

In business news, Toyota Motor Corporation, Japan's biggest car maker, announced it will be opening factories in the United States and Canada. About 200,000 cars a year will be built in the U.S., and 50,000 in Canada at locations yet to be decided.

MacNEIL: In South Africa police said they had detained 441 people, mostly blacks, under the state of emergency declared three days ago. Two men were shot dead in a clash with armed forces, bringing to 11 the number of deaths since the emergency. Here's a report from James Robbins of the BBC.

JAMES ROBBINS, BBC [voice-over]: Politics and the exercise of power dominated this funeral from the outset. The day-long dramatic act of burying 15 people killed in the past threeweeks by the security forces tested first the police, who came near but did not intervene. The funeral tested the popular strength of Bishop Desmond Tutu, as usual hailed at his entrance, but determined today to preach uncompromising non-violence, whatever the reaction. And it tested the Bishop of Litchfield, envoy for the Archbishop of Canterbury, treading a delicate path, caught up in a highly charged demonstration against the South African government. Bishop Tutu threatened his own special form of retaliation if blacks continue the brutal killing of other blacks.

Rt. Rev. DESMOND TUTU, Bishop of Johannesburg: When that woman was shown on television being burned to death, you know that it was shown right around the world. And the world is filled with people who support us, people who want us to be free, people who are struggling on our behalf in other countries. And when they saw that awful thing happen there, many of them said, "Uh-uh. If these people can still do things like this, maybe they are not yet ready for freedom." But if we use methods such as the one that we saw in Duduza, then, my friends, I am going to collect my family and leave a country that I love very deeply, a country that I love passionately. And I am asking now we are going out of here. I want you to demonstrate the discipline of a people who know that they are ready for freedom.

ROBBINS [voice-over]: The applause from the crowd who bore the coffins away for burial had been unusually restrained, and Bishop Tutu desperately wants all 20 million blacks to heed his words.

MacNEIL: The leader of the exiled African National Congress, Oliver Tambo, called today for nationwide rioting against apartheid. The ANC has sworn to overthrow white rule by force. Speaking by radio from Zambia, Tambo said, "All areas of our country should join in the general offensive to make the apartheid system unworkable and South Africa ungovernable."

One of those arrested today was the leading white opponent of apartheid in Cape Province. Molly Blackburn, an opposition member of the provincial council, was scheduled to meet three former members of the United States cabinet today. Instead, she was arrested on charges of attending an illegal meeting. She was taken to court in Port Elizabeth and released on $50 bail. She was not asked to plead innocent or guilty, and the case was postponed for two weeks.

LEHRER: One hundred more Lebanese will be released from an Israeli prison tomorrow. They are part of an original 700 whose freedom was demanded by the hijackers of TWA Flight 847. Three hundred were set free after 39 American hostages aboard the plane were released. Israel has consistently maintained there was no deal made with the hijackers and that the Lebanese, mostly Shiite Moslems, would have been released anyhow. An estimated 335 will remain in captivity after tomorrow.

Also in Lebanon, Israeli gunboats damaged a cargo ship off the coast of Sidon in southern Lebanon, and there was an exchange of fire with Palestinian-backed Moslem militiamen on shore. For several hours the ship lay burning. It is a 998-ton vessel called The Roule. It is owned by a Lebanese businessman, and the captain is a Greek who said he was carrying a load of cement from Roumania to Lebanon. The captain and his crew of six jumped overboard when the ship was shelled and made it safely to the shore. The Israelis said the ship had behaved suspiciously when their gunboats intercepted it.

And also today, Israeli Prime Minister Shimon Peres approved the names of two Palestinians to serve as peace negotiators. The two were included on a list of possible members of a Palestinian delegation that would meet with United States diplomats. The list was reportedly drawn up by PLO chief Yasir Arafat.

MacNEIL: Rock Hudson, the film and television star, is reported to be in a hospital in Paris gravely ill with cancer of the liver. A spokesman said no operation to relieve the condition is possible. Most recently, Hudson appeared in the ABC television series "Dynasty." China: A Delicate Relationship

MacNEIL: The visit to Washington of a high-powered Chinese delegation headed by President Li has focused attention once again on U.S. relations with China, and we devote our major focus section to China tonight. We begin with a closer look at the man who met President Reagan today.

[voice-over] The man who welcomed President Reagan to China last year, and who is now being greeted at the White House in return, is above all a survivor. Like most of China's elder leaders, President Li is a veteran of the Communist Long March of 50 years ago. Only a few thousand survived that journey, and Li was wounded twice. The hardened band of Mao Zedong's followers then fought through the Japanese occupation of China and through the civil war against Chaing Kai-shesk' Kuomintang government. By the end of the civil war, with Mao and the Communists running China, Li was by then 36, a senior revolutionary despite his youthful looks. In the early years of the Communist regime, he served mostly in economic jobs. But Mao's Cultural Revolution of the late 1960s threatened to cut short that career. Many veterans of the revolution were imprisoned or banished to the countryside. Li was luckier, serving relatively mild house arrest. Li's greatest influence came towards the end of the Cultural Revolution. Long a rival of Deng Xiaoping, he's since managed to survive the ascendancy of Deng's pragmatists. Reaching his '70s, Li became part of China's new but aging leadership. Now at 76 President Li is helping Deng play China's American card, an important political assignment for an old revolutionary, one who, after playing a major role in China's history in every decade since 1949, finally has the political security to enjoy an old age -- appearances with actresses and the company of his grandchildren.

LEHRER: More now on the long career of President Li from Harrison Salisbury, long-time China-watcher and New York Times reporter and editor. He is the author of the forthcoming book on China, The Long March: The Untold Story.

Mr. Salisbury, does President Li have any power as president, to begin with?

HARRISON SALISBURY: His power comes, really, not from his office of the presidency, which is a largely ceremonial task, as it is in many governments, but his long service in the Communist movement, the fact that he's one of the six members of the so-called Standing Committee; this is the inner circle of the Politburo, which really runs things. And the fact that in a sense he represents a middle group, a middle group which perhaps would not go as far or as fast as Deng Xiaoping, but certainly would not revert back to the horrors of the Cultural Revolution and Mao Zedong. That's quite an important group. And in that role he is a constituent. He is a representative of a constituency which Deng Xiaoping needs, wants, and employs in the furtherance of what he calls the new long march.

LEHRER: But for all practical purposes he is president because Deng Xiaoping wants him to be president. Is that correct?

Mr. SALISBURY: I think that's quite true, and I think that is apolitical decision by Deng Xiaoping. Deng Xiaoping, among other things, is a consummate politician. After all, he has been up and down. He is the little man who never could be put down, and he knows his Chinese politics as we could never possibly imagine, and he knows it's valuable to have a man of Li's stature, his long service and his age. Age is still very important in China. Deng Xiaoping himself, of course, is about 80 or 81, coming up to 81. And Mr. Li is about the right age for a Chinese president. They like to have an elderly figure. It's unusual in this country that we have a Reagan who is in his 70s, but in China they like a president who is in his eighties.

LEHRER: I see. Li, as Robin just outlined, he survived the Long March, he survived the Cultural Revolution, he has survived everything, President Li. What is his secret?

Mr. SALISBURY: Well, as a young man he was a brave and daring and very lucky officer. His life could have been taken away from him, oh, a dozen or a hundred times. Perhaps his most dangerous moment came after the Long March, which he had participated in. He'd marched 6,000 miles or probably 10,000 miles, with all the skirmishes he was involved in. And he finally --

LEHRER: Over how -- over what period of time?

Mr. SALISBURY: This was in the mid-30s. He joined the Red Army as a youngster, a teenager. Most of the Red Army people were teenagers. He became an old man in the middle of the '30s because he was 26 or 27. He was a general. And he was sent on a mission at the end of the Long March, out into the -- they called it the Western Expedition. He wound up with a handful of men in the Gobi Desert without any equipment, without -- with no maps, with a compass and the stars to guide him, and no idea where he could go or whether he would ever be saved. Fortunately he was found, rescued, by a plane that brought him back in, and nearly two years after the other long marchers had made it home to Northern Shaanxi, he came in. From then on -- that was his most narrow escape, I think. But from then on his career was not quite as dangerous as it had been then. But like all of these men who came through the Long March, the survivors, they know the genuine danger of life in a revolutionary situation. They've been through war, and they've been shot at. They've come to the verge and, as he said when I met him last year when I was researching the Long March, he said, "Mr. Salisbury, you and I are on the way out," but he said, "none of us really want to hurry our meeting with Lord Yangwong," he said, "or God, as you call it." And he doesn't want to hurry that meeting.

LEHRER: Is he an impressive man in personal terms?

Mr. SALISBURY: In personal terms he is an impressive figure. He's a little frail now, as you see in the newsreels, a little frail.

LEHRER: Physically frail, you mean?

Mr. SALISBURY: Physically frail, but his mind seems to be quite alert. He speaks with considerable force. But he speaks with moderation, too. I think that he will speak with nothing but moderation with Mr. Reagan because Mr. Reagan has done something which would touch the Chinese as I cannot think of anything else touching them, and that is for the first step from his illness, from his hospital bed, he has come out to greet a Chinese leader. And this is the sort of gesture which happens once in a lifetime, and the Chinese will always remember that.

LEHRER: Is President Li the kind of man that President Reagan is likely to like? Do you think they hit it off today? What's your guess?

Mr. SALISBURY: I don't think that they're at all similar in temperament. I mean, President Reagan is an outgoing, jovial raconteur; he loves stories and things of that kind. Li Xiannian is rather reserved in his speech. He's learned that in Chinese politics it doesn't pay to speak out as much as we do in American politics. But I'm sure that his response to President Reagan -- after all, he met him first last year. I was there but way in the deep country when this happened. But I met some Chinese who had seen President Reagan, and I think that Li's reaction probably would be the same. I said, "What do you think of President Reagan?" "Oh," they said, "he's wonderful, that wonderful cowboy smile." It reminded me of the American response to Mr. Reagan.

LEHRER: Harrison Salisbury, thank you. Robin?

MacNEIL: The big news of this visit so far has been word that the United States has agreed to a nuclear cooperation treaty that will let U.S. businessmen bid on Chinese nuclear products. The accord was discussed last year when President Reagan visited China. This return trip by the Chinese president and the nuclear agreement mark a growing stability in the political relationship between the two countries. We look at that now with Michael Oksenberg, professor of Chinese politics at the University of Michigan's Center for Chinese Studies. A former member of the National Security Council staff during the Carter administration, Professor Oksenberg joins us tonight from public station WTVS in Detroit.

Professor Oksenberg, how significant is this nuclear agreement?

MICHAEL OKSENBERG: I think it's an important agreement. It signifies that China is indeed becoming a responsible and mature nuclear power. The administration endorsement of this agreement at this point suggests to me that probably we have received stronger private assurances than we had in the past that China indeed is opposed to nuclear proliferation, and I think that it also suggests that whatever questions may have existed about Chinese assistance to Pakistan in the nuclear realm has -- those concerns have now perhaps been met.

MacNEIL: That's what held this up, a suspicion that China had helped Pakistan develop a bomb?

Prof. OKSENBERG: That was one thing; the second was the degree of explicit assurances that the Chinese had given that they will not engage in nuclear proliferation in the future. We have laws that of course govern transfer of nuclear technology to other countries.

MacNEIL: Now, apart from this agreement, in the sort of spectrum of visits back and forth since Mr. Nixon opened the door again, how important is this summit meeting?

Prof. OKSENBERG: Well, it's not what I would call one of the most significant visits, but on the other hand I believe that each one of these visits has its role to play in a maturing relationship. First of all, this is Mr. Li Xiannian's first visit to the United States, and he brings with him two younger people who are probably going to have a very important role in Chinese politics in the future. So it's a laying on of hands of someone who has in the past perhaps not always been enthusiastic about the American opening, but he now is becoming part of it, and then he brings two younger people with him, about whom we're going to hear much more in the future. And then also in the visits there is an exchange of views that I think are very important. Sino-Soviet relations are improving now. The Reagan administration hopes to engage in talks with the Soviets, with President Gorbachev later in the year. And it's very important that each side be candid to the other and indicate what really is at stake here in their own relations with the Soviet Union, not taking each other by surprise. There are also some bilateral issues to be straightened out. We have the normal kind of trade problems with China, and they have with us, and it's important that all of these things be talked through. These visits have the role of galvanizing the bureaucracy to deal with problems that they might not otherwise grapple with.

MacNEIL: Let's pick up on a couple of those points. You referred to the fact that Li himself in the past may not have been an enthusiast about improving relations with the United States, or a skeptic about it. Does his presence mean that that faction in China is now so dominant that its sway is unquestioned and it's no longer challenged?

Prof. OKSENBERG: You mean the faction that --

MacNEIL: The fact that President Li, a former skeptic, is now here taking part in this improvement, does that mean that Deng has complete sway in this desire to open relations with the West?

Prof. OKSENBERG: I don't think that one would ever choose to use the words "complete sway," but he certainly has the initiative, and it seems to me that the relationship is now cushioned from at least minor shocks, and that most Chinese leaders now are supportive of a gradually increasing relationship with the United States. There are still issues. There are some Chinese who are concerned about Taiwan; there are some Chinese who are concerned about the excessive opening to the West, the erosion of Chinese values that may come with that. There are other Chinese who, from a strategic point of view, may wish a more balanced relationship in the way that China handles the Soviet Union and the United States. But, on the whole, I detect very few Chinese leaders who would be called opponents to an improved relationship with the United States.

MacNEIL: On the other point, how seriously or how avidly will U.S. officials be looking for reassurances about China's new overtures to the Soviet Union?

Prof. OKSENBERG: I don't think that they wish to indicate any nervousness on this issue and, indeed, what has transpired thus far in Sino-Soviet relations is no cause for alarm. But at the same time the Chinese must be given the understanding, though not necessarily by government officials, that our broad-based support for relations with China in part is rooted in the assumption that China is concerned about Soviet expansionism. And if we saw that the Chinese resolve on such matters as the Soviet occupation of Afghanistan or of the Vietnamese occupation of Kampuchea, or indeed of the Soviet military expansion, rapid buildup, in the Pacific, if all of these concerns that we have are not matched by Chinese concerns, then obviously we would have to, to some extent, reappraise the nature of our relations with China.

MacNEIL: I see. Well, thank you. Jim?

LEHRER: A major part of the new China-U.S. relationship is economic. China wants U.S. technology, the U.S. wants to tap China's vast consumer markets, among other things. Dwight Perkins, a specialist on Chinese economics, is here to tell us about that. He is director of the Center for International Development at Harvard University. He met President Li last November and recently returned from another trip to China. He joins us tonight from public station WGBH in Boston.

Professor Perkins, what kind of technology is it that China wants from the United States?

DWIGHT PERKINS: Well, they want high technology. Of course, they have bought aircraft from us. They want electronic goods, computers, the lot. But they of course also want things that aren't high technology. They've bought a good deal of our grain in the past, and while at the moment they don't really have that much need for our grain. I think you can see in a few years from now when the crops aren't quite as good as they are in the last few years you're going to see them wanting to purchase grain again. In fact, they are still purchasing some.

LEHRER: Well, there's no problem, is there, in their buying all the high technology that they have the money to buy? Is that not correct?

Prof. PERKINS: Well, as you know, we've gradually changed the rules to make it easier and easier for them to purchase technology from us, but they are still subject to the COCOM rules, that is, the rules that govern all trade with communist countries in Eastern Europe, the Soviet Union and China. So we still have to get approval. And then, even though we've put them into a green category, as it's called, they have to -- there's still a bureaucratic procedure to go through, and sometimes the bureaucratic procedure doesn't go quite as smoothly as theory says it should.

LEHRER: Now, they also have some things they want to sell to us, like textiles, is that correct?

Prof. PERKINS: Well, in my own opinion, really more important for China than the high technology from us is their ability to earn foreign exchange from us, as we were the major market that made it possible for Japan to grow and recover after World War II, for South Korea, for Taiwan to develop. And they really want a piece of that market themselves. I mean, they want to sell us their textiles and food and other things, but particularly textiles.

LEHRER: Is it a particular kind of textile? I mean, what are they really big on? What do they want to really sell here?

Prof. PERKINS: Well, I'm no expert on details of textiles, but basically they operate, as did the Koreans and Taiwan before them, and Hong Kong, at the cheap labor end of the textile market. That is, a large part of textiles can be made with semi-skilled, low-cost labor, and they have a lot of that kind of labor. And it's those kind of textiles that are the key to their exports to us. That is, they're basically going to be taking over, are taking over, from where the Japanese led in the '50s and where the Koreans and Taiwan and Hong Kong came in in the '60s and '70s, China is now moving into that market.

LEHRER: Now, the U.S., or I should say U.S. business and industry sees China as a vast consumer market for their goods, do they not?

Prof. PERKINS: Well, they see it as one. It is a market. But the market is often exaggerated in the minds of some people; that is, people see a billion customers and they think of selling one of almost anything they have to each of those customers and they see a huge market. It's a good-sized market, but it's a market comparable to, say, that of Korea or Taiwan. It's about $25-$26 billion in foreign exchange that they earn each year. That's what they have to buy goods from us and from Europe and Japan and elsewhere in the world. Now, that's a fair amount of money, but it's not anything comparable to China's population.

LEHRER: Are there barriers to U.S. companies getting in there and competing and trying to sell U.S. goods?

Prof. PERKINS: Well, there are not very many anymore. I mean, there are these relatively small barriers still remaining in the technology area. I don't think that's a major problem. The bigger problem has to do with adjusting to the Chinese system itself. The Chinese system is still primarily a system of central planning, and American firms are used to dealing with a market and with the ability to buy abroad whatever they need to repatriate their profits in foreign exchange whenever they need to. And that's not so easy to do in the Chinese system as it works today. The Chinese are trying to make changes to make it easier, but they have a ways to go.

LEHRER: Thank you. Robin?

MacNEIL: Harrison Salisbury, back to you. Would you say that China is now a country that the average American could consider he has normal relations with? Have the relations reached a stage of normalcy where, as President Reagan said, you can have disagreements but still the relations go on improving, or is it still in a precarious state, do you think?

Mr. SALISBURY: A precarious state of the relationship between the two countries. I don't think it's quite normal yet because there are some outstanding issues. And one which is not going to be raised I think very loudly in the present meeting is the Taiwan question, which is simmering there in the background. And the business of economics, the exports, the ability, the access to the American market for sales to earn foreign exchange is a very important question for the Chinese. I think that those are the things which keep it from being entirely normal. But basically we get along well with them. I don't know what country I would compare it with so far as normalcy is concerned, but certainly we get along as well with them as we do, say, Yugoslavia, just to take another communist country. I think we probably get along much better with the Chinese and our relationship is better than that with India, for example, although we've had a long history with India. But it is a little bit short of normal.

MacNEIL: Professor Oksenberg, do you agree with that, a little short of normal?

Prof. OKSENBERG: Yes, and one also has to recognize that the challenge of building a strong, enduring relationship with China is perhaps different from dealing with any country in the world. The Chinese do retain, to a certain extent, their center-of-the-world mentality that dates back to their imperial past, and I might add the United States has, to a certain extent, a center-of-the-world mentality. And so how two nations as different as we and China are can really interact in a, what might be called normal fashion is something that is going to take, I think, many decades to really work at.

MacNEIL: Harrison Salisbury mentioned Taiwan and he said it was going to be downplayed this time, but President Li mentioned it quite heatedly in Canada just before he came here and said it was the principal obstacle. Why is he downplaying it? Is it because, out of deference to Mr. Reagan?

Prof. OKSENBERG: Well, I think it's too early to say that -- after all, he just arrived. I think it's too early to say that he's going to be downplaying it. He has important talks that he and his associates are going to be giving, public addresses in Washington and Chicago, then when they get out on the West Coast, and I think it's something that we're going to be looking for. How Li Xiannian treats the Taiwan issue, how he treats the trade issues which vex him and other Chinese, how he treats the Congress' imposition of restrictions on giving assistance to China for their family planning program; how he reacts is still something that we're going to be looking for. He could still prove to be somewhat acerbic in the days ahead.

MacNEIL: I see. Mr. Perkins, what do you think about Harrison Salisbury's point that perhaps we're something short of normalcy in the relations?

Prof. PERKINS: Well, as Mike Oksenberg hassaid, we've got another few decades to go before we will probably have a competely normal relationship. We've spent 14 years developing the relationship, but you have to remember there was some 600 years before that when China was turned inward most of the time. In fact, in a real sense it's only in the early 1970s that China turned outward voluntarily. It had been forced to turn outward in the past, but it turned outward voluntarily in the early '70s and we're both feeling our way. This is a new kind of relationship. It's a big country that operates under very different principles from ours, not just the principles of a communist party-ruled government, but also principles of a large state with a long history, one much longer than our own. There's a lot to learn to live with.

MacNEIL: Well, Mr. Perkins, Professor Oksenberg, Harrison Salisbury, thank you all for joining us. Jim?

LEHRER: Still to come on the NewsHour tonight, a portrait of the world's new urban giant, the city of Mexico City, and a debate over the issue of a line item veto. Troubled Neighbor

MacNEIL: All this week we are paying special attention to Mexico, and tonight we have our second documentary report. Mexico is one of the largest Third World nations and, like many developing countries, now finds itself saddled by the twin problems of a heavy international debt and a declining economy. In Mexico's case the economy has been badly hurt by the continuing drop in the world price for its product, oil. And last night President Miguel de la Madrid outlined a new effort to cut government spending and reorganize the country's financial structure. The size and scope of the problems facing Mexico can be found in its capital, Mexico City. Special correspondent Charles Krause reports.

CHARLES KRAUSE [voice-over]: By any definition, Mexico City is one of the world's great capitals. More than a mile high, it stretches across a mountain valley, far beyond what the eye can see. Eighteen million people live here. Mexico City is bigger than New York, Calcutta and Tokyo. It's now the largest megalopolis on earth. It's fast, it's chaotic, it's noisy. It's a monstrous city that's been called an urban nightmare. Driving only a few miles can take more than an hour. Fernando Lazcano knows Mexico City as well as anyone. He's a tour guide and chauffeur. In the morning he commutes 16 miles from home to the hotel where he works.

FERNANDO LAZCANO, tour guide: It takes me one hour, one hour and a half, sometimes two. If I have a date at 10 o'clock, I have to leave my home at 7:30. Otherwise, if I leave my home at nine o'clock or 9:30 I will never make it.

KRAUSE: Does it bother you to have to drive in this kind of traffic?

Mr. LAZCANO: Yes, it does, but I have to do it. This is the way I make my living, and I have to do it. Yes, I get mad, I get nervous, and I believe everybody have the same reaction. Right now, for instance, it's nice. The traffic is not very bad. But later on, after five p.m., this is going to be like a mental hospital.

KRAUSE [voice-over]: Mexico City is congested, overpopulated, polluted. It's an historic, monumental city that's been overwhelmed by urban development and unplanned economic growth. Its population has doubled in just 15 years, and may double again by the year 2000. Parts of Mexico City look more like the moon than God's earth. Vast neighborhoods have sprung up almost overnight, out of nowhere. Two million poor people live in Netsa,(?) for example. Twenty years ago it didn't exist. Mexico City's government struggles to provide essentialservices -- paved roads, electricity, sewers. But every year the population gets bigger, and each year Mexico City's problems get worse. For the poor, life is barely tolerable. Even where there are proper houses, rivers of raw sewage often run through unpaved streets. Julio Lopez Pedrazo told us there aren't enough hospitals in Netsa. Crime is a problem. Schools are overcrowded and far away. But in a way the Lopez Pedrazo family is fortunate. Mexico City has grown so fast that millions of other poor families live in homes without running water. It's delivered by truck or by horse cart every other week. Mexican novelist Carlos Fuentes calls Mexico City "the capital of underdevelopment." National Geographic says it's become an alarming giant. But urban planners here look at it from a different perspective. They're continually amazed that Mexico City functions at all.

CARLOS TEJEDA, urban planner: It's it incredible that the city works in the way it works? With 17 million people and with very limited resources. I mean, there are all these problems, yes, but on the other hand one has to look at the mechanisms which make the city work in a most astonishing way.

KRAUSE [voice-over]: One of those mechanisms is Mexico City's new, multi-billion-dollar metro system. Every day it carries more than four million passengers from home to work and back again. It costs only a peso, less than a penny, and is usually packed to overflowing. Yet, as efficient as it is, rapid transit hasn't made a dent in the number of private cars and buses that crowd Mexico City's streets. Aboveground, traffic congestion is worse today than when the metro opened 16 years ago. Environmentalists warn that air pollution could make Mexico's capital unliveable within 15 years. Alfonso Cipres is head of the Mexican ecological movement.

ALFONSO CIPRES, ecologist [through interpreter]: The danger is enormous. If measures aren't taken immediately, the death rate, that is, disease in Mexico City, will continue climbing at a very dangerous rate. Many children here already die as a result of pollution. There's just no question. If no one pays attention to this problem, Mexico City will soon become the largest ghost town in the world.

KRAUSE [voice-over]: Three million cars, trucks, buses and factories pump an estimated 11,000 tons of pollution into the air every day. Environmental groups claim that as many as 30,000 children die every year from chemical and biological poisons. Mexico City's middle and upper classes are beginning to recognize the danger. But the poor majority can't afford to complain very much. Factories provide jobs; cars and buses provide a way to get there.

Mr. LAZCANO: The people don't worry too much about the pollution because they're always running, you know. They rush, rush all the time. But the pollution affects very much to all of us.

KRAUSE: How?

Mr. LAZCANO: Infections, the throat. And we are always coughing. We're always cleaning our nose. The eyes burning. Problems like that.

KRAUSE [voice-over]: Environmentalists blame the government, which has a long history of poor planning and corruption. That's beginning to change somewhat. The planning department now has computers, and pollution is becoming a political issue. But the capital's appointed government sees little need to defend or explain itself to journalists or to the public.

[on camera] We had hoped to talk to Ramon Aguirre, Mexico City's mayor, to ask him about his vision of the city's future and to allow him to respond to his critics. But over a month's time the mayor's office never responded to our repeated requests for an interview.

[voice-over] For those who care about the quality of life, Mexico City's decline is poignant. It was once one of the world's most pleasant capitals. Even now there are parks, fountains, colonial barrios like San Angel. Tucked away, they provide refuge from the urban crisis around them. What happened? How and why did the rest of Mexico City become what Time magazine calls "a grim lesson for the world"? We found part of the answer at the National Palace. Here, magnificent murals by Diego Rivera chronicle Mexico's history. According to urban planners, the roots of Mexico City's problems go back 600 years. It was the Aztecs who first concentrated political and economic power in the capital.

Mr. TEJEDA: In the latter part of the 19th century and the 20th century many political changes just reinforced the capital as the center of power, as the seat of federal power, and therefore the seat of economic power and the rest. The great majority of industry and of the industrial establishment was concentrated here. I mean, roughly speaking, about 50 of the industrial product was produced and has been produced here since, you see? Now, that of course attracted a lot of immigration from the rest of the country.

KRAUSE [voice-over]: Beginning in the 1940s the Mexican government began to industrialize what was largely a rural economy. Factories meant congestion and pollution but, far more important, they meant economic opportunity. Mexico City's population grew out of control. For 30 years a thousand immigrants a day have flooded into the capital, immigrants like Francisco Diaz, who came here three years ago from his father's farm. He works 10 hours a day, six days a week, but considers himself fortunate. Catalina Vasquez came to Mexico City when she was nine. She works hard during the day, then goes to fashion design classes at night. Francisco and Catalina were married last year and they're proud of what they've achieved -- their car, their clothes and their tiny apartment. There is no bathroom, no kitchen, room for only one bed. But it's theirs. Only now, at the eleventh hour, has the Mexican government recognized that rural migration is a key underlying cause of Mexico City's overpopulation and urban crisis.

MANUEL CAMACHO, Mexican Budget Ministry: That's one of the reasons why the government is trying to move as fast as it's possible in the direction of getting a better federal equilibrium in the country.

KRAUSE [voice-over]: Manuel Camacho is in charge of decentralizing government bureaucracy and new economic activity away from Mexico City.

Mr. CAMACHO: We are very convinced that in two, three, four years we will see a big difference in the decisions that are taken within Mexico City and the decisions that are taken inside the country, in the level of resources we have in the city and the level of resources which are inside the country.

KRAUSE [voice-over]: But others are skeptical.

Mr. TEJEDA: We need much better tools to really bring that into reality and to make it happen. I would say that in any case in any country decentralization of the economy, of bureaucracy, administration, is a very difficult task.

KRAUSE [voice-over]: We asked Carlos Tejeda if he thinks conditions in Mexico City will be better or worse 10 years from now.

Mr. TEJEDA: It's a difficult question, obviously. I think -- I honestly want to think, and to some extent I do, that things will marginally improve. You won't see dramatic improvements in these areas. They will improve somehow. But we have to accept the idea that Mexico City in any case, even in the best of scenarios, will be basically a city of the poor and for the poor in the future. So if you're talking about the middle classes, if you're talking about people trained and educated in many other countexts, they will find Mexico City increasingly difficult to live in. And they won't like it.

KRAUSE [voice-over]: So far Mexico City's 18 million people have proven resourceful and ingenious. They've managed to cope with congestion, pollution, overpopulation, shortages of housing, water and electricity. But there may be a limit to what they can endure. Mexico City is like the country itself. Traditional strategies of development and economic growth have not solved Mexico's problems. Both the country and its capital are under pressure, now as never before.

MacNEIL: That report was by our special correspondent, Charles Krause. Tomorrow our week of documentary reports on Mexico continues. The topic is illegal immigration to the United States as seen by some of the immigrants in their home village. Line Item Veto

LEHRER: President Reagan wants to change the way of the presidential veto, the way he kills things in the federal budget. He wants the right to redline individual items in a spending bill rather than have to take it all or leave it all, as he does now. It's called the line item veto, and it is so important to him that it was at the top of his lobbying agenda when he returned to the White House from the hospital this weekend. He has been on the phone the last few days trying to break a Senate filibuster over it, but late today he failed to pull it off. A move to end the filibuster came up three votes short; another attempt is expected tomorrow. The principal Senate pusher of the legislation is Senator Mack Mattingly, Republican of Georgia. A principal opponent is Senator Lowell Weicker, Republican of Connecticut. Both are with us from Capitol Hill.

Senator Weicker, what's wrong with giving President Reagan or any president the right to line veto?

Sen. LOWELL WEICKER: Well, I think the root of the exercise is in the deficit which we presently have. And if the President wants to balance the budget he can do that right now by sending a balanced budget to Congress. You don't need any sort of legislation as proposed by Senator Mattingly or any sort of a constitutional amendment. Basically I think it's a ruse to hide the tremendous deficits which were piling up and which we're not reducing. So that, I repeat, it's a -- I'll tell you, I'll give you an example. It's like the quarterback leaving the team on the field, going up in the stands and yelling, "We want a touchdown." You know, if you want to balance the budget, the President can do that right now without this legislation.

LEHRER: Is that right, Senator Mattingly?

Sen. MACK MATTINGLY: Well, of course what we're faced with in this country is a $200-billion deficit and a tremendous national debt. And we see a budget process, the 1974 Budget Control Act, we see an appropriations process that is failing. We're not able to control those deficits because we're not able to get the Congress to control spending. We've really actually taken the ability of a president to really usefully use the constitutional veto power. So we do need some new tools.

LEHRER: Now, how would this tool of the line veto change what you're just talking about?

Sen. MATTINGLY: Well, one, it's not the panacea. It won't do away with the $200-billion deficit. It's just one of the needed tools, along with the constitutional amendment to balance the budget and other things. What the line item veto will do will really give the President the ability to go in and line through items that either have pork-barrel projects in them or programs that he doesn't want. And the Congress really has both the first and last word, as given in the Constitution. It doesn't have the only word, though.

LEHRER: Give me an example of how a line veto could be exercised. Let's say, in a particular spending bill on dams there would be so many dams in there and the president could go through and, say, take every third one or kill all the ones in Georgia and leave the ones in Connecticut? Is that what you're saying?

Sen. MATTINGLY: Well, the good question right now is that what is faced now with the Congress are large spending bills. What I'm asking to do is break those down into smaller parcels than just one great big large bill, if it comes to him, say, my $8-billion military construction bill. Well, what the President is generally faced with is at the end of the year a continuing resolution like last year that was $400 billion. He has two choices: either veto it or sign it and take all the pork-barrel and bad programs, or, if we give him the line item veto, he can go out and veto different sections of it, send it back to the Congress and with the instructions to the Congress of things he doesn't like and then he can be overridden by the Congress.

LEHRER: Now, Senator Weicker, what would be the harm in that?

Sen. WEICKER: Well, first of all, let me say that you've got a very delicate balance between the three branches of government, between the judicial branch and the executive branch and the legislative branch. This in effect would take the power and shift it in a large dose to the President. Hey, do I think it's more efficient? I sure do. Do I think that it fulfills the constitutional mandate? No, I don't. Now, don't forget, I'm in charge of most of the appropriations for health, for education, for science, for the retarded, disabled, etc. Can you imagine the job -- I've had a difficult enough job in the last several years. If the President had a line item veto, believe me, all those people would have been leveled during the Reagan philosophy as far as the budget is concerned. So the President doesn't need any more power than he presently has. Believe me, he just doesn't come in at the last act. He is a part of this budget process. What the President's confronted with is trying to shift the gaze of the American people from these deficits, which are mainly due to large tax cuts and big defense spending, shift the gaze to what would be a panacea, an easy way out without in any way causing any discomfort to the American people, and that's not possible. Now, Mack Mattingly is, you know, he's an honest politician. This guy does -- he sits on the Appropriations Committee with me. This guy balances his budgets. So I'm not referring to Mack. But I'm saying as far as the President is concerned this really is about the ultimate -- this and the balance-the-budget constitutional amendment is the ultimate in hyprocrisy when compared to the Reagan record on spending.

LEHRER: How would he -- excuse me, Senator Mattingly. I just want to make sure I understand this, Senator Weicker. If it had been line item veto, what could the President have done to the kinds of programs that you're talking about? He could have vetoed them anyhow. You're saying he could have gone through program by program and killed them, and probably would have? Is that what you mean?

Sen. WEICKER: Are you talking to me?

LEHRER: Yes, sir.

Sen. WEICKER: Oh, I beg your pardon. Sure. What I'm saying to you is that a budget is an entire package, and in effect what he would have done was to go ahead and zero in on the matters of education and science and health and things that he didn't like, leaving defense spending intact. Well, we know there has to be a give-and-take in this legislative process. And if you give that kind of power to the President there is not going to be much give and-take, and thre's not going to be much talk, and it's going to be all one way.

LEHRER: Is that right, Senator Mattingly?

Sen. MATTINGLY: Let me address that particular issue because, number one, it's a two-year trial. What we wanted to do is pass a statute giving him the authority for two years; in other words, a trial, an experiment. Now, if the executive branch abuses it the Congress is not going to renew it. In fact, if he abused it this year the Congress wouldn't even let him have it for the balance of the year. So the two-year trial is an important trigger in this. In other words, we're not passing a constitutional amendment. What we're doing is trying for two years to try a new tool to try to control some of the federal wasteful spending that we have. Now, I would say to the opponents of it, you know, what are they afraid of? Are they afraid of the success of it? Are they afraid of the failure of it? I don't think they want to sit around and defend the status-quo $200-billion deficits.

Sen. WEICKER: Yeah, but then when the President's given the opoprtunity to cut the budget, either cut defense spending, raise taxes, reform the entitlements, he says, "I'm not going to touch any of those. Give me some sort of a constitutional amendment." So make no mistake about it, the Senate, the House and the President can reduce that deficit today without one single additional piece of legislation. They won't do it because they don't have any guts. And I don't think you can have legislation which creates guts. That comes from within.

Sen. MATTINGLY: Let me say one additional thing. We've had 57 people two times in a row now vote for the line item veto just to get it up to be considered.

LEHRER: You mean the filibuster, to break the filibuster.

Sen. MATTINGLY: That's right, to break the filibuster. You know, I think what they really fear of trying to get to the 60 votes, they fear if we ever get it to the floor, to an up-or-down vote, that it will pass the United States Senate and there will be a new tool, a trial period, of trying to control federal spending.

Sen. WEICKER: You know, it's really interesting. On every one of these hot issues, whether it's the budget or whether it's prayer or whether it's abortion or whether it's court-stripping or whatever, everybody's trying to change the Constitution of the United States. You know, there's a lot wrong in this country, but the Constitution is all right, and my answer is very simple: just leave it alone.

Sen. MATTINGLY: I would say to that, the constitutionality part of it is answered with the two-year trial.

LEHRER: Well, you lost on the cloture vote again this afternoon, Senator Mattingly. You going to try again tomorrow, is that right?

Sen. MATTINGLY: Yes, there is going to be one more trial tomorrow and, you know, it may be that the high-water mark for this vote, the cloture, will probably be 58 or 59 votes.

LEHRER: That means you lose.

Sen. MATTINGLY: Well, no, really what has happened is the people of our country have lost. But it won't be the last opportunity. If we don't get thebill up I will somehow attach this bill as an amendment to an appropriate piece of legislation sometime this year so we can get an up-or-down vote on it.

LEHRER: Senator Weicker, have you been called by President Reagan on this? He's called a lot of folks.

Sen. WEICKER: No, but he never calls me on very much of anything. So, you know, we understand where we're coming from. And I think, again I repeat, as a constitutional matter this Constitution has worked well for all of us, and I'm not going to go ahead and have the American people believe that there isn't going to be some pain and suffering to reducing that deficit. There is. And those are the decisions that have to be made, not screwing around with the Constitution.

LEHRER: Senator Weicker, Senator Mattingly, thank you both very much for being with us.

Sen. MATTINGLY: Thank you.

LEHRER: Robin?

MacNEIL: And, once again, the main stories of the day. President Reagan made his first ceremonial appearance since his operation, welcoming the President of China to the White House. OPEC was reported ready to cut prices on some grades of crude oil. More arrests were made under the state of emergency in South Africa. Good night, Jim.

LEHRER: Good night, Robin. And we'll see you tomorrow night. I'm Jim Lehrer. Thank you and good night.