Mexico’s New Investment Rules Greeted--With Caution--in U.S.

Mexico’s decision to liberalize its restrictions on foreign investment represents another major step by the government of President Carlos Salinas de Gortari to open the country’s economy and relieve its staggering foreign debt burden.

The new regulations, announced Monday and published formally Tuesday, will for the first time permit foreigners to own 100% of Mexican corporations instead of the minority-partner position to which they have been restricted in the past.

Foreigners also will be permitted to invest in the Mexican stock market through special trust funds designed for that purpose. And Mexico will try to spur more foreign investment in tourism by liberalizing rules affecting trusts that involve tourist projects.

“The bottom line is, it’s a very, very positive step on the part of the Salinas Administration,” said Michael A. May, assistant director of Latin American Affairs for the U.S. Chamber of Commerce. “I think American business is very receptive. It’s been needed for a long time.”

The overhaul of Mexico’s investment laws constitutes a major departure, not only from that country’s own longstanding attitudes toward foreign investment but also from those of all of Latin America, which has long been suspicious of foreign ownership.

Yet investors and business executives also struggled to interpret the 27-page rule change which retains certain important restrictions on foreign investment in Mexico.

Jaime Serra Puche, Mexico’s secretary of trade and industry, told reporters Tuesday that areas deemed strategic--such as banking, petroleum, mineral exploration, electrical generation and broadcasting--will remain off-limits to foreigners.

As a result, some U.S. corporate officials responded cautiously: “We think they’re moving in the right direction,” said Don Smith, regional director for Latin America for AT&T; Corp., which runs an assembly plant in Matamoros, just across the border from Brownsville, Tex.

But he added that, at first glance, the policy does not change Mexico’s rule that limits foreigners from owning more than 49% of telecommunications firms.

Proximity, Labor Costs

Mexico’s past resistance to foreign investment stems from the philosophy espoused in the late 1940s by Argentine economist Raul Prebisch, who preached that Latin American countries should be inward-looking to guard their sovereignty and keep their economies from being overrun by the United States.

Most economists believe that the region has been hobbled by the Prebisch doctrine, which also saw exports as damaging on grounds that they sapped resources that otherwise could be used to meet domestic needs.

Mexico has been attractive to foreign investors because of its proximity to the giant U.S. consumer market and its low-cost labor force.

Yet U.S. business executives have long complained that investing in Mexico is complicated by heavy-handed bureaucracy, unclear regulations, the nation’s fragile economy and other factors.

“There were many, many obstacles that would keep the small and medium-sized investor out of the country,” said Gary L. Springer, deputy director of the U.S. Council of the U.S.-Mexico Business Committee in Washington.

He continued: “Confidence attracts capital--and certainly the series of moves being made in Mexico is begining to create that kind of confidence.”

The United States and other industrialized nations have argued that foreign investment could help Mexico and other Latin American countries by providing the capital they need to develop their economies. Southeast Asia has welcomed foreign investment and has prospered as a result.

Eases Trade Rules

Tuesday’s overhaul of Mexico’s foreign investment rules is the latest in a series of sweeping reforms that Salinas has engineered during the five months he has been in office to streamline Mexico’s economy and push toward free-market policies.

Besides liberalizing its investment laws, Mexico has also eased trade restrictions, imposed stringent economic reforms that have won the approval of the International Monetary Fund and held inflation down through a social compact involving business, labor and the government.

Salinas has also ousted the head of the union that controls the corruption-plagued, state-owned Pemex oil conglomerate and has cracked down on drug dealers and stock market manipulators--at least some of them Americans.

The new Mexican Administration has been building a track record as a “model” debtor that will make it difficult for U.S. banks--and the Bush Administration--to refuse it new loans and aid to help reduce its debt burden.

The Mexican government is in negotiations with U.S. commercial banks over Salinas’ demands that the banks both provide Mexico with new loans and write down a portion of its $108-billion foreign debt. But the talks, which resume this week, are going slowly.

The steady march toward a free-market economy has come despite moves toward the left in Argentina and Brazil and the Salinas government’s disappointment with the United States for not moving as quickly as Mexico would like in providing new debt relief.

May Want Formal Steps

In light of such pressures, Douglas A. Campbell, head of a Los Angeles investment firm that sells several Mexican corporate securities, called Salinas “the Margaret Thatcher of Latin America” and predicted that the nation will “become the showcase of Latin America within 10 years.”

Tuesday’s announcement revamping the investment regulations was a backdoor way of overhauling the country’s investment policy. Salinas had hoped originally to push through new legislation, but backed away from that course after his victory margin last year proved slim.

Still, some analysts suggested that potential foreign investors may insist on seeing formal legislation before they step up their investments in Mexico. The new regulations do not require the approval of Mexico’s Congress.

The Mexican secretary of trade and industry said Tuesday that in issuing the new regulations the Salinas Administration intends “to make Mexico a competitive participant in the international economic process.”

“In order to achieve a satisfactory rate of growth, we need to establish a positive investment climate,” he said. “Our strategy is to remove unnecessary barriers to investment . . . and to broaden the range of opportunities open to investors.”

Art Pine reported from Washington and Jonathan Peterson reported from Los Angeles.