The MacNeil/Lehrer NewsHour

MS. WARNER: Good evening. I'm Margaret Warner in Washington.

MR. MAC NEIL: And I'm Robert MacNeil in New York. After tonight's News Summary, we talk to Congressman Bill Richardson just back from dealing with North Korea over the downed U.S. helicopter crew, then two reports updating a Russian army assault on the rebel province of Chechnya. Next, two experts analyze the political and economic fallout for Americans from Mexico's peso devaluation, and we close with political analysis from Mark Shields and Paul Gigot. NEWS SUMMARY

MS. WARNER: The U.S. helicopter that strayed over North Korea was shot down and did not accidentally crash. That word came today from Congressman Bill Richardson. He just returned from North Korea, where he served as an intermediary for the Clinton administration. Richardson made his comments during an interview with the NewsHour. He said North Korean authorities told him that the chopper was shot down perhaps by small arms fire. Richardson helped negotiate the release of the body of one of the American pilots who was killed in the incident. He said he thought the surviving pilot would be released very soon. We'll have the full interview with Congressman Richardson right after the News Summary. Robin.

MR. MAC NEIL: For the second straight day, Russian jets and attack helicopters unleashed a furious barrage at the capital of Chechnya, causing many of the city's people literally to run for their lives. Government officials in the breakaway republic claim that hundreds have been killed in Grozny, but that is impossible to verify. The presidential building was a key target of the Russian offensive. Despite that, the republic's president today called on the mostly Muslim population to wage a holy war against Moscow. Meanwhile, the lower house of Russia's parliament called for a cease-fire, and President Yeltsin said he would speak to the nation about the crisis soon. We'll have more on the story later in the program.

MS. WARNER: Bosnia's Serb and government leaders agreed today on most details of a four-month cease-fire. The final plan negotiated by the United Nations special envoy sets tomorrow as the day the cease-fire will begin. The broad outlines of the deal were brokered by former President Jimmy Carter. The cease-fire was originally set to begin today. We have more in this report from Tania Shields of Independent Television News.

TANIA SHIELDS, ITN: There was delay, discussion, and then agreement. If the cease-fire holds, the signing of this accord by both Serbs in Parle and Muslims in Sarajevo will be remembered as the day peace broke out in Bosnia. A handshake between Serb Leader Karadzic and U.N. Envoy Akashi sealed the initial seven-day deal. Implementation delayed for a day, but Karadzic said the killing had already stopped.

RADOVAN KARADZIC, Bosnian Serb Leader: As far as it is concerned with the cease-fire, it is effective for Serbian army today, noon, no matter if it is signed today for tomorrow, but we have ordered our army to stop, to cease all activities today at noon.

TANIA SHIELDS: The signing ceremony was repeated in Sarajevo hours later, this time, the pen in the hand of Bosnian President Alija Izetbegovic. His vice president, Ejap Ganic, spoke to waiting journalists after the ceremony.

EJAP GANIC, Vice President, Bosnia: We are committed to the obligations that are signed, the obligations that are in this cease-fire agreement will be promptly executed from our side, and we are inviting you to follow what we are doing.

TANIA SHIELDS: Though gunfire could still be heard in Sarajevo, the seasonal wish of happy Christmas and a peaceful New Year may be close at hand.

MR. MAC NEIL: Three people have been arrested in separate incidents near the White House. This morning, a man drove his car up to a fence around the Executive Mansion and jumped out, claiming to have a bomb inside. Police arrested the man but no explosives were found. Another man carrying an illegal handgun was arrested between the White House and the Washington Monument. And on Wednesday night, the Secret Service say they arrested a man who wandered onto White House grounds through a security gate that opened to let a car out. Police said none of the incidents posed a threat to the President or his family.

MS. WARNER: New York Senator Daniel Patrick Moynihan said today he's going to try to get baseball's antitrust exemption repealed. Moynihan said he'll introduce the legislation when the new Senate convenes on January 4th. His comment comes one day after talks broke down on ending the Major League Baseball strike. Today baseball owners imposed a salary cap on the players. The players are expected to challenge the move in court. Their representative made this comment after the talks broke down.

DONALD FEHR, Baseball Players Union: If the owners believe that players are prepared to roll over and accept their June 14th salary cap or its equivalent, because this particular game was played out this week, they're just wrong about that. If they believe that any significant numbers of players are going to come into camp, and they can play replacement games, they're just wrong about that. But, unfortunately, in the circumstances we have, the only thing that will cause them to believe that, I am afraid, is the passage of time.

MS. WARNER: In economic news today, the Commerce Department reported that personal income fell for the first time this year in November, down .1 of 1 percent. But consumer spending rose .6 of a percent, the seventh straight gain. In another report, orders for big ticket items shot up 3.4 percent in November, the biggest gain since August.

MR. MAC NEIL: An arson fire swept through a Philadelphia house this morning, killing six children, ranging in age from two to fifteen. The mother of some of the victims managed to escape. Investigators said gasoline was used to start the fire. The U.S. Coast Guard today barred the ocean liner Queen Elizabeth II from leaving New York because of fire and safety violations. The ship arrived from Europe yesterday and was due to set sail for the Caribbean. Many of the passengers aboard complained of unfinished renovations. That's our summary of the top stories. Now it's on to the Korean helicopter incident, the Chechnya war, the Mexican peso crisis, and Shields and Gigot. NEWSMAKER

MR. MAC NEIL: First tonight, a Newsmaker interview with Congressman Bill Richardson, the Democrat just returned from North Korea. While there, he helped negotiate the return of the body of U.S. Army helicopter pilot David Hilemon, who was killed last weekend when his plane crashed into North -- crossed into North Korea. One American serviceman, Bobby Hall, remains in captivity. Congressman Richardson talked with Charlayne Hunter-Gault late this afternoon.

MS. HUNTER-GAULT: Congressman Richardson, thank you for joining us. You've expressed the hope that Chief Warrant Officer Bobby Hall might be released by Christmas. On what do you base that hope?

REP. RICHARDSON: What I am able to conclude, after intensive negotiations, is that Bobby Hall will be released very soon after they complete North Korean military investigation of the incident. My only basis is that for one day I stress the importance of letting him out by Christmas, by December 25th, given the importance of that holiday. I was not able to conclude or close on that part of the deal. They said that they would not stand by my publicly announcing Christmas, however, it was possible. And so all other avenues, such as the meetings in Panmunjom between our military officials have been accelerated so that we would get all the daggers and all the negatives out before Christmas, and all the facts out so Bobby Hall could come home.

MS. HUNTER-GAULT: What do you mean, daggers and negatives?

REP. RICHARDSON: Well, there's a lot of differences in approach in negotiations between the United States and North Korea. They remain very suspicious of us at the same time that they want to improve relations with us. Their negotiating methods are not the same as ours. They have a very strict chain of command, and a complicating factor for me was that the vice foreign minister was designated as my negotiator but all the decisions had to be approved and made by the Korean military on this incident. So there was a little bit of a shuttle diplomacy aspect, plus the fact that I was in a foreign country that has had a lot of hostility towards the United States, but at the same time has concluded a nuclear agreement with us. So it was new territory for both of us. And I think what helped a lot was my determination at least to stay, that I would stay beyond the one day that my visit called for, that I would stay until this matter was resolved. I became a source of pressure, a source of annoyance. So part of the deal at one point was that I leave, and that's eventually what happened.

MS. HUNTER-GAULT: Why was part of the deal that you leave? I mean, what was the annoyance?

REP. RICHARDSON: The annoyance was that North Koreans don't like to be pressured. They don't like to appear to be succumbing to public pressure.

MS. HUNTER-GAULT: And were you pressuring?

REP. RICHARDSON: Yes. The very first two days I said I did not want to discuss the nuclear agreement or other bilateral issues that we have to resolve the helicopter incident that I needed to see Airman Hall that I needed to bring the body back, that this had to be settled.

MS. HUNTER-GAULT: The body of, of his --

REP. RICHARDSON: Of David Hilemon --

MS. HUNTER-GAULT: Yes.

REP. RICHARDSON: -- which was eventually returned at Panmunjom. So one of the things that I don't want to do is criticize the North Koreans and say anything that would change the tone of our negotiations, which ended up being good after a lot of heated discussions, because I think our main objective should be to see that Bobby Hall gets out soon, and then we can overanalyze and see what the implications to the relationship might be.

MS. HUNTER-GAULT: Is there any doubt in your mind now that Chief Warrant Officer Bobby Hall is alive and in good condition, any doubt at all?

REP. RICHARDSON: I have no doubt that he's alive. I believe he is in good condition, however, a young man trapped in a military base, in an installation near the crash site, and not having any access to any American, I've been allowed to pass a note to him, that may be the only thing he's seen to show that we do care for him. He hasn't heard from his wife. I passed on a message from his wife.

MS. HUNTER-GAULT: All right.

REP. RICHARDSON: I would think that he's very tense, and he's going through some type of interrogation, but --

MS. HUNTER-GAULT: What is it that they're trying to find out? I mean, what -- just go back a little bit to the beginning and, and tell me what you know about that. What do they --

REP. RICHARDSON: Well, what they want to find out was that, in fact, it was an accidental mission, that it was a map reading mistake that caused the American helicopter to stray into North Korean territory, that it was not a nefarious plot of some kind.

MS. HUNTER-GAULT: Some kind of intelligence --

REP. RICHARDSON: That's right.

MS. HUNTER-GAULT: Have you been assured --

REP. RICHARDSON: It was a training mission.

MS. HUNTER-GAULT: Have you been assured by the President, whom you met with today, that it was not a nefarious mission?

REP. RICHARDSON: I was assured by American officials in South Korea and State Department officials on the phone. It was obviously not an intelligence mission. It was a training mission, and these were two young, excellent pilots, but a mistake was made, and the helicopter was shot down.

MS. HUNTER-GAULT: The North Koreans shot down the plane?

REP. RICHARDSON: Yeah, that's right. Either small arms or some - - it doesn't have to be a sophisticated weapon, but yeah, I do believe that's what happened. They told me that. It --

MS. HUNTER-GAULT: They said they shot it down?

REP. RICHARDSON: Yeah. It didn't crash just on its own. What the North Koreans wanted to be assured of was that they would not be, they would not be, that they could conduct their investigation without pressure on their own terms. They're big on the sovereignty issue, on non-interference, especially the Korean military, which is very authoritarian chains of command.

MS. HUNTER-GAULT: Do they seem to be in charge right now, the country, and the investigation, and everything?

REP. RICHARDSON: Well, they certainly were in charge of the investigation in terms of -- in terms of the country, the leader is Kim Jung Il, the son of the late Kim Il Sung. I tried to see him. He wouldn't see me, but he did send me a present after I sent him a note expressing the view that we have to resolve this incident. So we ended on good terms. I --

MS. HUNTER-GAULT: Could we just go back, though. After the North Koreans shot down the plane, I mean, can you clarify for me how the pilot died. Was he shot, or did he die as the helicopter crashed, or what?

REP. RICHARDSON: Well, Charlayne, the U.S. military will issue a report on that. They're investigating it already. The North Koreans claimed that it was trauma resulting from the crash site.

MS. HUNTER-GAULT: Not -- they did not shoot him, themselves?

REP. RICHARDSON: That's correct. I saw the body, and I believe that based on a non-scientific view that I have, I would agree that it was trauma from the crash, rather than a gunshot wound or any other damage that I was able to foresee.

MS. HUNTER-GAULT: And you say that their suspicion is that there might have been -- this plane might have been on an intelligence mission, this helicopter?

REP. RICHARDSON: That's right. And, Charlayne, we've had such a tense, negative relationship with North Korea. We have 35,000 troops on their border. They have close to a million troops ready for a war. It's a real Cold War scenario that still exists.

MS. HUNTER-GAULT: Well, do you have any doubt -- I mean, you do you have any concern that after this investigation there's a possibility they could put him on trial if they determine that the mission might have been intelligence?

REP. RICHARDSON: Well, there is no evidence whatsoever that their mission has any intelligence component, and I believe that the foreign ministry and the political leadership there is going to realize how important resolving this case is to the bilateral relationship with the United States, which they care about. They want to improve ties with the United States, and I said to them, look, unless we resolve this issue, the whole relationship will be clouded on future issues. Let's put it behind us.

MS. HUNTER-GAULT: Did they give you any indication that there was anything that they wanted in exchange for this pilot, you know, that they might be using him as the bargaining chip, or --

REP. RICHARDSON: No.

MS. HUNTER-GAULT: -- that they want an apology from the United States about this incident?

REP. RICHARDSON: No, Charlayne. No commitments were made on the part of the United States. They never asked for an apology. They asked for an explanation, and the United States has made it in several forms, that it was an accident, it was a mistake, that it was unintentional, that it was a training mission, as opposed to an intelligence mission. I think once that they, the North Koreans, are convinced by getting that in writing through proper channels with high level military officials, then they will have a reason to say Hall can leave. And once the removal of the American Congressman who was pounding them and trying to get this issue resolved takes place, as it did, with the body, then I believe that the normalcy of the decision making will return, and they can allow Bobby Hall to come home before Christmas.

MS. HUNTER-GAULT: I heard you say earlier, after you left the White House today, you again alluded to people urging caution about the kind of public statements they make. Was there any reason, anything that happened there that made you feel that -- or anything that was said on their side, or the U.S. side, that made you urge such caution?

REP. RICHARDSON: Yes. They read what was is said in Congress about the U.S. nuclear accord. What was very helpful was the fact that the State Department, particularly Sec. Christopher, who I was in touch with a lot, made some moderate, yet good, statements that helped me negotiate properly. I believe that Christopher really stage managed this issue very well, and what I was alluding to, Charlayne, is before Bobby Hall comes home, let's not say anything provocative that casts aspersions on the North Koreans or ruins what I've been able to achieve, along with a lot of people involved in these negotiations. That's all I was saying.

MS. HUNTER-GAULT: How did you happen to be there in the first place? I mean, what were you doing there?

REP. RICHARDSON: Well, what I was doing was oversight trip for the House Intelligence Committee on the nuclear agreement. I was scheduled to be there one day, then go on to Indonesia and Burma, and I ended up staying there five days.

MS. HUNTER-GAULT: Because of this incident.

REP. RICHARDSON: Because the Secretary of State asked me to stay, and I agreed. I was the only entity, American entity, there, along with a very capable State Department officer and my staff that would be able to conduct these negotiations. We have no presence there. We have no entity that we can rely on simply to communicate, so it's difficult to phone there. It's difficult to fax. You're talking about a country living very much in a 1950's scenario, Cold War, propaganda, Kim Il Sung, chants by people, a very --

MS. HUNTER-GAULT: But you --

REP.RICHARDSON: -- very closed society.

MS. HUNTER-GAULT: You said earlier that the negotiations that you conducted were testy and at times difficult. Was there any way of getting an overall sense of the atmosphere, though, outside of this conversation, and your negotiations in terms of the country, and whether or not this whole thing will, in fact, have a more serious impact?

REP. RICHARDSON: After two days of negotiations and getting nowhere and then being enormously tense, I decided that our team should take half a day off and go into the city and learn something about North Korea and about the society and the culture. We were in a very deluxe compound. And I think that was important, because we let things cool off, they made an assessment that they had to deal with this issue, and after we had that break, they started negotiating seriously, but had I not been there, I think that the movement that we've had would not have taken place, and had I not been able to -- the Secretary of State, the Secretary of Defense were intensely involved throughout the stage managing of this issue -- had we not had that leadership and flexibility on their part, we may not be here at this stage right now.

MS. HUNTER-GAULT: Well, Congressman, we have to leave it here, but let me have just one final word from you. Are you at this moment now optimistic that this will be resolved before the end of the year?

REP. RICHARDSON: Yes. I'm optimistic that Hall will be out very soon, at the end of the year, but I'm even saying there's a decent chance before Christmas. And we have two days before that happens.

MS. HUNTER-GAULT: All right. Well, Congressman, thank you very much for joining us.

MR. MAC NEIL: Still ahead on the NewsHour, today's Chechnya fighting, the Mexican peso, and political analysis. FOCUS - BREAKING AWAY

MS. WARNER: Next tonight, the fighting in Chechnya. Russian forces continued their campaign against troops loyal to Chechen President Dudayev. Russian warplanes bombed the capital, Grozny, and convoys brought fresh Russian troops into the region. We have reports from Independent Television News Correspondents Ian Williams and Andrew Simmons.

ANDREW SIMMONS, ITN: The Chechens can do little to quell Russia's growing onslaught from the skies, swooping low over Agoon, a suburb seven miles out of Grozny. Below, anyone with a gun responds. The helicopter gunships are preparing the way for Russian ground forces. These Chechen fighters know only too well they're advancing. Their capital city faced another relentless day of bombing. Large parts of Grozny are now in ruins. There are no reliable estimates on the dead and injured, or how many are missing in the rubble. Warnings had been made about civilian bloodshed, but it's happening now. Some are staying on. They say they have no choice. But many are leaving. Here, refugees cross the border into Dagistan, thanking all they can manage with them. These are the sullen figures of bereaved or simply homeless women and children, seeking sanctuary in a kindergarten. They had spent last night crouching in cellars before running for their lives. "We had our babies in our arms," this woman said. "We didn't know where to hide them. Our houses were shaking. We had to leave." Chechnya's leaders have sent out a new call to the Islamic world. Dudayev is calling for a holy war, appealing to all Muslims across the caucuses to rise up against what he calls satanic Russia. And Russia isn't underestimating the threat of this conflict spreading. This evening, reports from Moscow say there are plans to seal off the border of Chechnya with Dagistan.

IAN WILLIAMS, ITN: Fresh columns of Russian tanks, armored personnel carriers, and lorries piled high with ammunition have been rumbling across the snowy plains of Northern Chechnya, heading for Grozny. But it's a sign not so much of military might but of the weakness of this entire operation. Many are reinforcements replacing soldiers or units who officials say are too inexperienced or lack the will to fight, especially when confronted with unarmed civilians. And this route is through territory held by pro-Moscow groups who oppose President Dudayev. It's the only route the army can now be sure of passing through unobstructed. The authorities in Dagistan to the East of Chechnya have asked for and received an assurance their territory will not be used by troops in transit to Grozny. The first stop for this convoy is the town of Zemenskoi, where a division of special forces and interior ministry troops wait for orders to move towards Grozny, orders for which they have no enthusiasm.

COLONEL ALEXIE POLOZOV, Deputy Commander of the Interior, Ministry Division: [speaking through interpreter] I believe this operation has not been thoroughly planned, and we have not been given the supplies we need for the task. The mood here is bad. The troops think that nobody needs this conflict, and it will be long- lasting, and can only make the situation worse across the region.

IAN WILLIAMS: Most of these troops are conscripts from the Kuban region of southern Russia. They've set up road blocks across Northern Chechnya, and during our visit, they brought to the base an injured local man who they'd shot in the legs after he failed to stop when ordered to. The man was unarmed and drunk. This unit had been ordered to disarm local pro-Moscow opposition fighters, but they've abandoned that, fearing it may inflame the situation. It will be the job of this unit to pacify the civilian population, once the regular army has done its job, but pacifying Chechnya will not be an easy job, and it's not a task that's looked forward to with any great relish by these men. Colonel Polozov has no respect for defense minister Pavel Grachev, a mood shared, he says, by colleagues. He believes this conflict cannot end cleanly.

COLONEL ALEXIE POLOZOV: [speaking through interpreter] I believe that by seizing Grozny, the problem of Chechnya will not be solved. It will simmer for a long time. It will be a never-healing wound for Russia.

IAN WILLIAMS: A short distance from the base, a bullet-scarred portrait of Lenin overlooks the central square in Zemenskoi, alongside it the headquarters of the provisional council, the Moscow-backed opposition group in Chechnya. Inside, fighters mill around with their guns. Moscow had originally ordered the disarming of all armed groups in Chechnya, but here they confirm that although the Russians have taken away their heavy armor, they've left the Kaleshnikovs. During our visit, they were handing out permits for the guns to give them a semblance of legality. The prime minister of the council, who could soon be installed by Russia in Grozny, shows little gratitude towards his sponsors in Moscow.

SALAMBEK KHADZHIEV, Chechen Opposition Prime Minister: [speaking through interpreter] If Russia continues to act as badly and clumsily as she has until now, she will only increase the number of her enemies here.

IAN WILLIAMS: The official line from the army here is that they're still trying to seal, not seize, Grozny, that they're only bombing strategic targets and trying to drive fighters from the city. That makes it sound like there's a strategy, but so far, there's little evidence of one among the troops and officers required to carry it out.

MS. WARNER: Opposition to Russian military moves in Chechnya continued in Moscow today. The lower house of the Russian parliament passed a resolution asking President Yeltsin to immediately end the fighting. FOCUS - A FREE RIDE?

MR. MAC NEIL: Next tonight, a week of political and financial crisis in Mexico. It was just three weeks ago that Ernest Zedillo was inaugurated as Mexico's president. His honeymoon was short. On Monday of this week, rebels in the province of Chiapas announced they had occupied 38 towns. On the news, which proved to be false, the Mexican stock market had a wild day, and the value of the peso dropped. On Tuesday, Mexican officials announced the devaluation of the peso, something they'd only recently said would not occur. That led to more confusion in the markets and more pressures on the peso. And by Wednesday night, the Mexican government decided to take the still more dramatic step of removing all restraints and allowing the peso to float against the dollar. On Thursday, the peso floated in just one direction, downward, eventually losing another 20 percent of its value. Today there was more movement, with the peso starting stronger but ending the day down again slightly. To help sort out the consequences for Mexico and the United States, we're joined by John Purcell, head of Emerging Markets Research at Salomon Brothers, the New York Investment Bank, and Bill Orme, director of the Committee to Protect Journalists and author of a book about Mexico and the North American Free Trade Agreement. Mr. Purcell, I've been reading today conflicting accounts from there of why Mexico devalued the peso in the first place. Chiapas or to fight the trade deficit?

MR. PURCELL: Part of the conflict is the fact that the government put a heavy burden on Chiapas in explaining why they did it. I think the real reason is a combination of both, probably mostly economic. I think that the trade deficit, the current account deficit, and the fact that the markets were just wondering where the capital inflows were going to come from in Mexico started the ball rolling.

MR. MAC NEIL: The capital inflows that would be necessary to finance the trade deficit?

MR. PURCELL: To finance the trade deficit, yeah. And as the markets began to lose confidence, Mexico had to spend more and more of its foreign exchange reserves to prop up the peso within the band which they had set as the appropriate value for the peso.

MR. MAC NEIL: Bill Orme, what was plausible in the claim that the Chiapas situation caused them to devalue?

MR. ORME: Very little. I think there's a consensus now that perhaps the most serious of the several errors that they committed managing this devaluation was the contention that it was a response to Chiapas.

MR. MAC NEIL: What was the logic there?

MR. ORME: Well, first, people who understood the economy in Mexico understood that this, on its face, was ludicrous. You had a long problem of the current account deficit, which without belaboring the economics of it meant simply that Mexico was in a trade deficit situation.

MR. MAC NEIL: Like we are.

MR. ORME: Just like we are, but unfortunately for them, the peso's not a world currency. We have that luxury, and they do not. And this meant that the peso could only be sustained at its historic level if it money kept coming in. Money was not coming in at the rates it hoped because of instability in places likeChiapas, so in that sense indirectly it was a factor.

MR. MAC NEIL: So the people who would lend -- who would invest in Mexican bonds and things in order to finance the deficit were already leery because of the Chiapas unrest, were they?

MR. ORME: Well, really not so much because of the Chiapas unrest per se, but because of the question of how the new government was going to deal with this among several other political crises. I don't think anyone seriously thinks that a few hundred guys running around in the jungle with old hunting rifles is really a threat to the stability of Mexico or to currency. The question is, rather, was the government preparing to negotiate with them, was it preparing to respond by force? It was sending mixed signals. At the same time, it was also failing to confront coherently very severe political crises within the ruling party.

MR. MAC NEIL: We'll come back to those in a moment, but John Purcell, let's just go over the impact of what has happened, the devaluation, on the United States. In the short-term, who has been hurt by this in the states?

MR. PURCELL: Well, exporters to Mexico I think are the main people that have been hurt.

MR. MAC NEIL: Why? Just spell that out.

MR. PURCELL: Because the peso being worth less means that Mexicans have less buying power vis-a-vis the U.S. dollar, and, therefore, would be able to buy less and would be less likely even to buy U.S. goods if there was a choice between say Mexican producers and U.S. goods, they would tend more to buy Mexican goods.

MR. MAC NEIL: And what about investors, people who had invested money in Mexican securities and things and bonds?

MR. PURCELL: People like mutual fund investors in mutual funds that invest in emerging markets, including Mexico, have seen their shares drop by some fairly large percentages, both because the market has driven down the price of those shares, but also because the underlying stocks and bonds that those shares represent are worth less.

MR. MAC NEIL: Do you have any sense of the magnitude of that loss? Are we talking many billions of dollars?

MR. PURCELL: It's in the billions. And the number of funds that are involved is in the many hundreds.

MR. MAC NEIL: I mean, how does that compare with a bad day on the New York Stock Market, for example, with losses?

MR. PURCELL: Well, from that point of view, it's bad, but it's certainly not massively bad. It's not a huge number, no.

MR. MAC NEIL: I see. Who may be hurt in the long-term by this, speaking of the United States now?

MR. ORME: I think in the long-term, the impact on the United States is going to be very marginal, almost infinitesimal. I mean, ultimately, this is a very huge and diverse economy, and this is an internal domestic affair. I mean, the people on Wall Street who have been hurt in the short-term are frankly accustomed to tremendous volatility in these markets. And they're going to shift their funds elsewhere, and over the long-term I think most investors would still think that Mexico is probably a sound investment. I think John and I both agree that this is, despite the billions of dollars that have been lost in the last few days, this might sound anomalous but this is not fundamentally an economic crisis. It's more of a crisis of political management. It's not the fact that they devalued; it's how they devalued.

MR. MAC NEIL: Do you agree with all that, that it's still a sound --

MR. PURCELL: I don't fully, I don't fully agree. I think that it's going to hurt Mexico for some time I think, and it might be quite a long time. I think that the credibility, the lack of credibility that's developed as a result of this I think is going to take a long, hard slog for the Mexicans to get back.

MR. MAC NEIL: I mean, somebody who'd been buying Mexican bonds or stocks on an idea that this is an emerging market and the returns might be dramatic might have second thoughts and look somewhere else now, is that --

MR. PURCELL: Yeah. I think that's correct. The other thing that's happened that's a little bit surprising but not entirely is that markets in many other parts of the world, from South African bonds to Moroccan bonds to Eastern European bonds have gone down in sympathy, and that's a bit of a, that's a bit of a reaction I think some of us hadn't expected.

MR. MAC NEIL: Of course, that could make the Mexican problem even worse. If the lack of confidence stops people from investing, that makes their balance of payments situation even worse, doesn't it, and it threatens the peso again, does it?

MR. PURCELL: Well, the peso is beyond threat now, because it's going to -- I mean, it would weaken the peso further. I mean, the peso is freely floating, so I doubt if the Mexicans would try to prop it up, but it could go lower, certainly.

MR. MAC NEIL: But both your points is that while it may have undermined the confidence of investors at the moment, it has not undermined the basic confidence of the international community in the Mexican economy, itself, is that --

MR. PURCELL: I wouldn't go that far either.

MR. MAC NEIL: You wouldn't say that. Okay.

MR. PURCELL: I think that, I think that a lot of people are asking the question, as they did of the finance minister yesterday, how are you going to manage this situation going forward, and I think Bill's point about it being a management problem is very, very true.

MR. ORME: I didn't mean to imply, by the way, that this will not have a serious impact on Mexico. I just wanted to stress that the impact of events in Mexico along the overall U.S. economy are quite marginal. And this was often a distorting factor during the NAFTA debate on both sides. I think that what's happened immediately, the people who really are going to suffer in the short-term over the next year or so are the ordinary Mexican workers who NAFTA proponents have certainly argued were the ones who would benefit most from free trade integration with the United States. If you have a 15 or 20 percent devaluation, that's a 15 or 20 percent pay cut, and this means that overnight the imported products that are now available will become more expensive.

MR. MAC NEIL: And Mexican -- I'm sorry, American voters, particularly American union members, were assured under NAFTA that the -- that prosperity of Mexican workers was going to rise so that they wouldn't be such a threat to American workers.

MR. ORME: Exactly. And now the Mexican government is faced with a very, very difficult choice, and the choice essentially is between satisfying short-term wage demands, as it had promised that it would do, or containing inflation. Mexico is going through a very difficult process of wrestling inflation down to the single digits. It's been 8 or 9 percent, and they're hoping to get it down to 4 percent in '95. I don't think anyone thinks that's possible now. The question is: Can they keep it in single digits? If they grant the wage increases to Mexican workers who have been waiting for a long, long time to get these wage increases, inevitably, this ratchets up the spiral of wages and prices again. And the one thing that the previous government had managed to do was to contain inflationary expectations and to keep the peso stable.

MR. MAC NEIL: Does this mean that the bloom is off the Mexican miracle? I mean, Mexico's been touted by financial analysts and politicians and everybody else for a number of years now under Salinas as the miracle country, the country that had been beaten back its social tendencies, its government control, it had privatized, it had gone the way American wanted it to go. Is, is that going to be -- what is going to be the consequence of that?

MR. PURCELL: Well, I think for some time the bloom is off the Mexican miracle, but I think in some ways it's a little sad that it started like this, because President Zedillo had a number of things that he had said that he was going to do that are needed and would, in fact, improve the Mexican situation.

MR. MAC NEIL: Let's turn in our few minutes remaining to the political situation. Mr. Orme, how stable is Mexico politically after a year in which we saw an armed uprising and two very important political assassinations, which is why Zedillo is president?

MR. ORME: In comparison to its central American neighbors say, it's still an extremely stable country and will continue to be for the long term. The real question I think for Mexicans and for most Americans is, in contrast, Mexico's immediate past, where you not only had one party in power for sixty years, you had a total absence of the military uprising, coups, even threats of coups, that the rest of Latin America had lived with routinely. Now you're seeing two major political crises happening within the ruling party. One is how to deal with this Chiapas uprising. Some people favor negotiations. Some people feel that it's better to respond with the male fist and get it over with. You also have two assassinations which remain unsolved, both of which appear to implicate powerful factions within the ruling party, itself. Now, Zedillo inherited all this. He's a man who has no experience in elective office. He does not seem to have the same political skills that he has in the economic area. And frankly, this is an inauspicious beginning of his presidency.

MR. MAC NEIL: How do you feel about the Mexican political situation?

MR. PURCELL: Well, I think it's probably better than it's being viewed right now. I think the Chiapas situation was underplayed at first. Now, it's being overplayed, and I think as Bill says it's a small matter. I think President Zedillo has done one or two things in the first three weeks that were actually quite spectacular. He actually managed to create a good negotiation with all of the opposition parties, even getting the PRD, the Democratic Revolution Party, which was his most left wing opposition party, into a good, equal negotiation within him, and they've joined the peace commission to try to, try to negotiate in Chiapas. That's - - in Mexico, that's quite a --

MR. MAC NEIL: So you would argue that he has demonstrated some political skills?

MR. PURCELL: I definitely would.

MR. ORME: The irony, however, is that he's perhaps more adept at negotiating with the opposition than he is within the forces within his own ruling coalition. And that's -- if there is a danger posed to Mexico's stability, it is having the ruling party fracture into warring camps.

MR. MAC NEIL: Does this --

MR. ORME: I'm not predicting that, but that would be the danger we would all look for.

MR. MAC NEIL: Just briefly to end this, does this give any justification to people like Ross Perot, who argued, among other reasons, that it was wrong to join them in NAFTA, because Mexico was a country politically and economically too far behind the United States?

MR. ORME: No, it does not. To begin with, Ross Perot, he says he predicted a devaluation, and he did, but he predicted a devaluation as if it were a deliberate plan by the crafty Mexicans to right their trade imbalance with the United States. This is a crisis for Mexico. They never wanted this to happen. They were trying to avoid it, and it would have been objectively much harder for them to avoid it without NAFTA than it is with NAFTA.

MR. MAC NEIL: Do you have any comment on that?

MR. PURCELL: Yes. I think this devaluation says a lot more about a short-term management problem than it does about Mexico's level of development.

MR. MAC NEIL: Well, gentlemen, thank you both. FOCUS - POLITICAL WRAP

MS. WARNER: Now for a look at the week's political events we have our own Shields and Gigot. That's syndicated columnist Mark Shields and Wall Street Journal columnist Paul Gigot. Welcome, guys.

MR. SHIELDS: Welcome, Margaret.

MS. WARNER: Let's start with President Clinton and his budget cuts that he announced this week, Mark, $76 billion in cuts over the next five years. What did you make of them, what did you make of the timing of this announcement?

MR. SHIELDS: I think the President has not gotten his footing or his traction yet from the election of 1994, is still reeling. It was, you could say, the companion piece to his tax cut, but now his budget cuts proposed are sitting out there, all by themselves, waiting to be sniped at by the other side, and secondly, waiting to be organized against by those groups that are most effective. Almost half of the budget cuts, proposed budget cuts of the President, come from the Energy Department, which is really cleaning up outdated, archaic nuclear arms production facilities. Now, you're going to think there's going to be some hue and cry from local authorities, as well as citizens and communities when that is slowed down?

MS. WARNER: What do you think, Paul?

MR. GIGOT: Well, I find myself in the odd situation of defending the White House a little bit here. I mean, they responded to the election. The election called for spending reductions. The White House made them, and their political strategy is they know they're going to get some Democrats upset who don't want to touch the programs. And what they're trying to do is capture the middle here by offering some spending cuts that they hope will not -- and they think the Republicans, some of the Republicans will try to go further, try to cut a lot more, maybe more than the country wants cut, and they're hoping to occupy that middle ground. I don't know if they can succeed, but it seems to me it's a better response than simply saying, we're going to protect everything in the government and not try to cut everything.

MS. WARNER: What about that point, Mark? I mean, are you just saying that Clinton should have just waited, the President should have waited until the Republicans came up with their cuts?

MR. SHIELDS: Absolutely. I think first of all you have to understand this, Margaret, that the election of 1994 was a ringing repudiation of the administration's positions, its record, and an endorsement of the opposition, so you accept that. So I think the field is ready for a great debate in this country. What should government do? And at what level should government do it? And I think, quite frankly, in the ranks of the Republicans who were elected and the ranks of some who are re-elected there are those who are truly, they call themselves libertarian, they're neolists. They would like to dismantle all of government. I think what Bill Clinton has is a wonderful opportunity to make the case of what government he feels is necessary, is wise, is helpful. Margaret, over the past 20 years in this country we have gone from the point where 3/4 of the rivers and streams in the United States were unswimmable and unfishable. They are now swimmable and fishable. 99 percent of the lead has been removed from the air. We have absolutely saved the Great Lakes. That is the federal government that's done that. Now you won't here that in conservative journalists. You won't hear that in conservative circles. You don't hear many liberals even talking about it. I think that's where the President ought to be making his case, rather than let me cut here, let me cut here.

MR. GIGOT: But in order to make that case, Mark, in order to make the argument that government ought to do certain things and can do them well, you have to be able to jettison the things that it doesn't do well. You have to put your bona fides on the table. And that's what the people in the White House are saying, look, we've had to defend a government, we've had to defend an activist government, and we're willing to do that, but we've had to defend it with all these gargoyles that have been hanging on that the Democrats on the Hill just didn't want to touch. Now we can get rid of some of these things and actually make the case for some kinds of government that works.

MS. WARNER: So you think it's genuine, that they actually wanted to do this?

MR. GIGOT: I really do think that. I think there is actually a kind of a liberation in parts of the White House that says now we can maybe become the new Democrat that we campaigned as, rather than having the answer to every Democratic Subcommittee chairman on the Hill who doesn't want to touch anything that's been grown here for 40 years.

MR. SHIELDS: Wrong, wrong, wrong, wrong. That's it. Next question. Rep. Jim Leach, I mean, Paul wants to endorse Bill Clinton, I'll endorse every Republican. Let's just do that. Jim Leach said that Bill Clinton is riding in the caboose of the freight train that somebody else is running. And I don't think there's any question about that. He cannot compete. He cannot win a debate about how much should be cut and where it should be cut, because the Republicans will up the ante. They will double, they will triple constantly. What he's got to do is make his case, in my judgment, where his own economic record is. Margaret, next year's deficit will be $123 billion less than it was in 1992. It'll be $88 billion less than it was in 1993. That's impressive. That's taken discipline. That is progress, and Bill Clinton ought to be playing that card instead of trying to get into it a poker game with the Republicans, who aren't going to be bluffed.

MS. WARNER: And, of course, now both sides, though they're talking about budget cuts, want to use that money to pay for more tax cuts. I mean, where's deficit reduction?

MR. GIGOT: Well, deficit reduction is going to be a second or third tier priority. I don't think it's going to go away, but, look, for the last two years, Mark's been making this argument here about the deficit is going to be this and this, and look where it got Bill -- Bill Clinton was trying to make that argument too, and it really didn't help much, because taxing and spending and growth are more important items. And that's where the focus of political debate, I think, is going to be. I think the Republicans are not eager to expand the deficit. The mood among the Republicans is much different than the last time Republicans were in office here in 1980. Well, a lot of Democrats are saying, well, it's going to repeat 1980, we're going to expand everything. No. This time there was a real mood that now is the time to cut spending, and I think you're going to see a serious effort to do it on Republicans' part.

MR. SHIELDS: Facts are bothersome things. I mean, yes, I have - -

MR. GIGOT: As everyone says.

MR. SHIELDS: That's right. And the problem is that the deficit has gone down. I mean, the deficit has gone down, and Bill Clinton deserves credit for that. I think Paul is right here, like the broken clock that's right twice a day. I think -- you look at it, I mean, Bob Packwood, the chairman, the incoming chairman of the Senate Finance Committee, says I am not going to support a single tax cut until -- that's going to contribute in any way to increasing the deficit. I think Republicans did -- were burned in the 80's, and I think that they are mindful of that going into 1995.

MS. WARNER: Well, let's turn to something else. This week the most visible spokesperson in the White House, I mean, maybe other than the President, Dee Dee Myers resigned. What's that going to mean for the White House?

MR. GIGOT: I don't think it means much in a political sense. She was never really given the tools to do her job, the tools meaning access to the President, which is crucial for a spokesman. She, she never was part of the real inner circle. I think if there's any importance here, it's probably symbolic in the sense that she represented a lot of the younger campaign people who came into the White House, eager; they'd run a brilliant campaign in many respects but never made the transition to governing, never made the transition to the sense that not everything was about the next election, not everything was about political spin. And I think that's one of the reasons that Leon Panetta, when he came in as chief of staff, wants to make the change for a new spokesperson because he wants to give that job a little more gravidas, a little more seriousness than it's had.

MS. WARNER: Do you think it will change the public perception of the White House, Mark?

MR. SHIELDS: No. No, it won't. I mean, do you want to tell me who Ronald Reagan's press secretary was? I mean, seriously, Larry Speaks was the key to Ronald Reagan's re-election in 1984. I mean, in all due respect, Ron Ziegler saved Richard Nixon. Jim Hagerty was Dwight Eisenhower's press secretary. I mean, a press secretary is not an unimportant person. For the press secretary to be effective in any administration is to have total access, total confidence, and total trust. And there was an ambivalence about feeding lies right from the beginning. And in defense of her, she didn't have that, and for that reason, I don't think anybody under those circumstances could succeed, regardless of her own experience or lack of Washington savvy or whatever.

MS. WARNER: The last big political story of the week, of course, is the announcement that Newt Gingrich has signed a $4.5 million deal with a New York publisher for two books. Do you have any views on this, Mark?

MR. SHIELDS: Now that you've told me, Margaret --

MR. GIGOT: Christmas comes early for Newt and for Mark.

MR. SHIELDS: The doubts about Newt Gingrich have never involved his intellect or his brightness. Even his severest critics stipulate that. The doubts about him have involved his character and his judgment. And this goes right to the core. This reinforces all of his critics, all of the ammunition they need. I mean, it is wrong. It brings back memories of Ronald Reagan taking $2 million for two twenty-minute speeches from Japan, but that was after he left office. I mean, an American hero, Colin Powell, was criticized in some quarters for taking a $6 million advance when he left as Joint Chiefs of Staff. I mean, this is just wrong. What he's done is he's robbed the Republicans who've had all the symbols, all the momentum. He's given all the energy and all his adversaries an issue, his issue, and I think it's a question -- a real test of his judgment, how he responds to it, how he reacts to it.

MS. WARNER: Has he given the Democrats a big issue here?

MR. GIGOT: I don't know that he's given the big issue. He certainly has not given them the issue they want to make of it in one sense, which is that this is some kind of great conflict of interest. This seems to be a straightforward commercial deal, a fair auction, capitalism between consenting adults in that sense, and there's no -- there's no quid pro quo, which David Bonior, the Democratic Minority Whip, was trying to make an issue of, and the White House --

MS. WARNER: Because Rupert Murdoch owns this publishing company - -

MR. GIGOT: Owns the publisher.

MS. WARNER: -- and he has a lot of business in front of the FCC and the Congress.

MR. GIGOT: That's right. So I don't think that's going to score any points, because I don't think there is any factual basis for it. However, I have to agree with Mark on the political symbolism of this. I mean, the Democrats are looking for an issue. The strategy that they've focused on so far is trying to begin to try to make the case that Republicans are tools of the rich, that Republicans only represent the fat cats and the Fortune 500, and this is a big fat, you know, pitch right down the middle of the plate for those Democrats who want to make that argument. I thought that Newt Gingrich should have been smarter in, in avoiding that sort of temptation.

MR. SHIELDS: I accept Paul's endorsement of my position. I do - -

MS. WARNER: A red letter night.

MR. SHIELDS: Really, I think there really are doubts here. There are legitimate questions that are raised. I mean, this is so beyond anybody else's advance. I mean, we're talking $4 1/2 million. We're talking about half of that to edit a book on the documents of American history, the Constitution, and the Declaration of Independence. Now, I don't know how many changes you're going to make, upsets, ibids, footnotes you're going to put in the Declaration of Independence.

MS. WARNER: But are you saying is really going on here?

MR. SHIELDS: What I'm really saying is, first of all, Rupert Murdoch, who owns Fox Broadcasting, whose company owns Fox Broadcasting, there are limitations imposed by several federal regulations which prohibit federal foreign ownership of broadcasting rights, broadcasting outlets in this country. That is the established status quo. Newt Gingrich is on record as saying he's opposed to that, but it's a legitimate question. We have never had in this country where a foreign company, which is William Erich's company, he's a naturalized American. All right. But his company, which is an Australian-based company, has six television stations in this country. So that's a legitimate -- that's a legitimate area of inquiry. And I think it raises doubts about Gingrich's judgment.

MS. WARNER: We have to go in a minute, but, Paul, do you think there's any chance that Gingrich will reverse this?

MR. GIGOT: I think that what he probably will do -- because I don't think he's going to reverse it all, because he is -- the one thing he is, is stubborn. I think he might give a good portion of the advance to charity or some other cause. That would be my guess for the way that he softens the political impact of this.

MS. WARNER: Guys, we've got to go. Merry Christmas to both of you.

MR. SHIELDS: Merry Christmas. Merry Christmas, Paul. RECAP

MR. MAC NEIL: Again, the major story of this Friday, Congressman Bill Richardson said on the NewsHour that North Korean officials told him their troops shot down a U.S. Army helicopter that strayed over its territory last Saturday. Until it was not known why the chopper crashed. Richardson helped negotiate the release of the body of the American pilot who was killed in the incident. He said he was confident that the surviving co-pilot would be freed soon. Margaret.

MS. WARNER: Just before we go tonight, a holiday weekend look at the many faces of Santa.

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MS. WARNER: Merry Christmas, Robin.

MR. MAC NEIL: Merry Christmas, Margaret. Have a good weekend for the holiday. We'll see you again on Monday night. I'm Robert MacNeil. Good night.