Mexico Gets Down to Business

In his five months in office, Mexico’s President Carlos Salinas de Gortari has taken some dramatic steps to restore confidence in his troubled nation, ordering the arrest of suspected drug lords and corrupt business and labor leaders. This week his new government announced regulatory changes that, while less dramatic, could prove every bit as important.

In an effort to revive a stagnant and shrinking economy, the Salinas administration Monday announced a sweeping liberalization of the rules governing foreign investment in Mexico. The most significant change will allow foreigners to own 100% of any Mexican corporation with assets up to $100 million. In the past, foreign investors have been limited to minority partnerships in Mexican business enterprises. Foreign investment also will be allowed in sectors that have previously been restricted to Mexican ownership, including the glass, cement, steel and petrochemical industries.

The government also announced that it will change rules that have limited foreign investment in tourism, an already profitable industry that Mexico is eager to promote even further. Foreigners also will be permitted to invest in the Mexican stock market through special trust funds.

Economic experts are in nearly unanimous agreement that the only way Mexico will get out of the financial hole it has lived in since 1982 is to work its way out. But that can happen only if more investment capital is available in Mexico. For now, banks are reluctant to lend Mexico any more than the $100 billion the nation already owes. And financial experts estimate that as much as $40 billion in capital has fled from Mexico since the economic crisis began. If Salinas’ foreign-investment incentives reverse those two negative trends, they will have proved a worthwhile gamble.

And they are a gamble. The proof lies in the fact that Salinas implemented his reforms through administrative rules changes rather than asking the Mexican Congress--where his party has only a slim voting majority--to enact new laws. Foreign investment is a politically sensitive issue in Mexico, especially to nationalist leaders who blame foreign banks for the debt crisis, among them the populist candidate Salinas defeated in last year’s presidential campaign, Cuahuatemoc Cardenas.

So Salinas can expect considerable criticism for trying to open up a largely closed and protected economy to outsiders. Leftists and labor leaders will fault him for letting foreign companies “exploit” Mexico’s workers and resources. Otherwise conservative Mexican business leaders won’t like giving up their protected status and having to compete on an equal footing with business people from the United States, Europe and Japan.

But, as difficult as they may be for many Mexicans to accept, the changes Salinas is trying to make in his nation’s economy are needed if Mexico is ever to be a full participant in the modern world economy.