Companies Were Formed for Political Purposes : Mexico Plans Garage Sale of ‘Parastate’ Firms

The Mexican government is about to hold a giant garage sale. Some bargains may be available, but the watchword is: buyer, beware.

In a significant reversal of long-standing economic policy, President Miguel de la Madrid plans to sell, transfer or just plain liquidate about 236 so-called “parastate enterprises” that the government has accumulated over the years.

Previous governments bought or simply created hundreds of enterprises. Money was no object, and neither were profits. The object was usually political. Excess unemployment could be soaked up to keep the labor movement happy, and private enterprise could be crowded out of “strategic” or “priority” sectors of the economy in order to lessen dependence on politically unreliable businessmen.

In the process, the government’s economic structure came to resemble an enormous warehouse filled with the odds and ends of a developing industrial society. There are bicycle companies, textile factories, sugar refineries, tobacco wholesalers, steel mills, hotels and tourist resorts, ceramic and tile manufacturers, real estate promoters, and much more.

Managed by Cronies

Many of the firms are managed by cronies of government officials holding political sinecures. Oceans of red ink have been needed to keep these businesses afloat.

In the first nine months of 1984, the parastate firms, according to government figures, were running a deficit of about $3 billion--nearly twice as much as the “budgeted” deficit for the entire year.

Some of these enterprises are more in the nature of government trusts than businesses, with a potential for earning a profit. But the Mexican government can no longer afford the luxury of supporting money-losing companies that are not essential to the smooth functioning of the economy.

The overall budget deficit for 1984 stood at 6.9% of the gross domestic product, the sum of all the goods and services produced in Mexico--not bad compared to the whopping 17.6% deficit registered in 1982, the last year of President Jose Lopez Portillo’s free-spending administration. But it is significantly greater than the target of 5.5% that was agreed to with the International Monetary Fund.

For 1985, Mexico and the IMF have agreed to give the economy greater latitude by allowing a projected spending deficit of 5.1% instead of the planned 3.5%. It appears, however, that even that level will be difficult to reach, and the target figure of holding the inflation rate to 35% for 1985 seems nearly impossible to achieve, given the 7.4% inflation registered in the month of January.

Linchpin of Rescue

Mexico’s agreement with the IMF is the linchpin of an international financial rescue package designed to help the country repay a foreign debt of $96 billion. If the IMF agreement goes by the boards, so does the desperately needed bail-out money; in consequence, so does Mexico’s economy and the well-being of many American, European and Japanese banks.

Such an outcome is considered unthinkable. Yet that is what is at stake in Mexico’s garage sale. The policy reversal is part of President de la Madrid’s answer to stopping unnecessary spending and maybe even earning some money for the treasury.

Other parts of the new fiscal adjustment package include a 5% reduction in government personnel and a 3%-to-4% reduction in the cost of government operations. The minister of programming and budgeting, Carlos Salinas de Gortari, said the second of these would be achieved by cutting back on telephone calls, printing and purchases of new office furniture.

The two steps will amount to a reduction, he said, of roughly $1.1 billion, out of a proposed federal budget of roughly $80 billion for 1985.

Cabinet ministers, under attack from leftist critics who feel that de la Madrid is embarked on a full-scale retreat from hard-won socialist economic policies approved by earlier governments, remind listeners that times are tough.

Doesn’t Reduce Role

“All modern states are adjusting their economies to the world’s new conditions,” said Salinas de Gortari, a Harvard-trained economist and public administrator. “Selling companies that produce fine cashmeres, soda pop or luxury china--no matter how good the quality--doesn’t reduce our role in developing the economy.

“It’s just the opposite. They are competing for resources with other concerns. We would rather build roads, schools, hospitals, steel companies.”

Salinas de Gortari said the government has no intention of abandoning its role in such “strategic” areas as telecommunications, the oil and energy sector and electricity. These are areas of the economy reserved for the government.

The government also will continue to operate and invest in “priority” sectors such as steel production, which the government deems very important.

But the switch from a policy of gobbling up companies to one of selling them marks a significant turnabout. Salinas de Gortari, a friend and protege of the president, said there are more than 800 parastate enterprises, but private economists put the figure higher, from 1,000 to 3,000, depending on one’s definition.

Many Do Not Exist

Many of them simply do not exist, the government has admitted. They were conceived in order to fulfill a perceived economic need but, as in the case of some sugar refineries, the plans were never carried out for lack of money.

How much is the government going to realize from the sale of these companies?

“We don’t know,” Salinas de Gortari told a group of reporters.

In many instances, the government has little idea of how much the enterprises would fetch on the open market. In others--for example, modern hotels in thriving resort areas such as Cancun--it expects to make a tidy profit. Foreigners will be allowed to invest in this program under the general guidelines for non-Mexican investors. This usually means they can own no more than 49% of any enterprise.

Salinas de Gortari said the government’s new policy on tourism is to sell off many of its holdings and use the profits to develop new tourist areas--he mentioned the coastal area of Oaxaca as the next target--then to sell off what is developed and start yet other projects.

In its original announcement, the government said it would get rid of 236 parastate firms, but Salinas de Gortari scaled that down to 230. So far, fewer than 100 have been listed, and many of these are either non-existent or are to be transfered to the control of state government.