President Asks Privatization of Mexico’s Banks
President Carlos Salinas de Gortari asked the Mexican Congress on Wednesday to repeal the 1982 nationalization of the country’s banks and end eight years of government domination of the banking industry.
The proposal also could open the way for foreign investment in Mexican banks. A number of foreign banks maintain offices in Mexico but generally are not allowed to offer full-service commercial banking or peso transactions.
Selling the government’s majority interest in the banks, which were seized by former President Jose Lopez Portillo, would bring about $3 billion into the Mexican treasury. Lopez Portillo nationalized the banks at the outset of Mexico’s economic crisis in September, 1982.
Privatization of the banks had been expected eventually, as part of Salinas’ program to sell off state-owned companies and reduce the government’s role in the economy. However, the denationalization proposal happened more quickly than expected--as have many of the free-enterprise initiatives of the 42-year-old Mexican president.
“Circumstances have changed,” Salinas said in a communique. “The development policies have been modified and transcendental transformations have been carried out in the economic structures.
“The country has made an enormous effort to overcome the crisis and, at the same time, to respond to the challenges of the last decade of the 20th Century: to respond with justice to the demands of society and confront with sovereignty a transformed, more competitive, technologically revolutionized world of still uncertain perspectives.”
Private banking would be a major move toward making Mexico more compatible with the international financial system, a critical step toward more participation in the world economy.
“It is a milepost on the return to economic sanity,” said Adrian LaJous, the former director of the central bank, who resigned when Lopez Portillo accused bankers of abetting capital flight and took over the banks.
The most likely buyers for the 18 commercial banks are major industrial groups, companies in the financial sector such as brokerage houses and insurance firms, and the families that controlled banks before the nationalization, said Timothy Heyman, a Mexico City financial analyst.
Over the past three years, the government has sold voteless shares in 15 banks, representing one-third of the capital in those banks. The market value of those banks is $5 billion to $5.4 billion.
Based on that, the government can expect to make about $3 billion if it sells its remaining interest in all the banks, Heyman said.
Details of the privatization are still not clear, in part because the proposal is expected to meet stiff opposition in the legislature. Key members of leftist parties have vowed to fight privatization, and even the conservative National Action Party, known as PAN, has expressed reservations about the proposal.
Salinas will need PAN support because constitutional amendments require a two-thirds majority, and his party, the Institutional Revolutionary Party, has barely a simple majority.
“In principle, we agree,” said Rep. Noe Aguilar, a PAN deputy and a member of the Treasury Committee, which will hold hearings on the proposal. However, in light of a recent scandal over the bankruptcy of one bank, PAN deputies will want to investigate further before granting their approval, he said.
Meanwhile, the Democratic Revolutionary Party, or PRD, plans to form a coalition to try to defeat the measure, said Rep. Ciro Mayen, also a committee member.
Foreign banks would be eager to participate in banking joint ventures or open branch offices, if that were permitted, predicted Steven Hess, First Interstate Bank’s Latin American economics specialist.
Currently, the only American bank with a branch office in Mexico is Citicorp, which continued lending to Mexico when other banks left the country after the oil industry was nationalized in 1983.
Salinas said that many of Mexico’s social needs can be met with money the government no longer will spend on banking and with money raised by the sale of bank stock.
Under the bill, “the state proposes that it not be the majority owner of each and every one of the banking institutions,” he said. “However, it will retain a participation in commercial banking and will strengthen those institutions oriented to development of specific priority activities.”