Mexico Central Bank May Gain Independence : Finance: The amendment proposed by President Salinas is clearly an attempt to reassure foreign and domestic investors about Mexico’s long-term economic stability.

Seeking to ensure the permanence of his economic reforms, President Carlos Salinas de Gortari on Monday proposed writing into the constitution autonomy for the nation’s central bank, making it more like the independent U.S. Federal Reserve or the German Bundesbank.

Amid uncertainty about passage of the North American Free Trade Agreement in the United States, the proposed amendment is clearly an attempt to reassure foreign and domestic investors about Mexico’s long-term economic stability.

“This answers the recurring question, ‘Is there life after Salinas?’ ” said Mauro Leos, a senior associate at Cimex-Wefa, the Philadelphia-based economic research center. Noting that Salinas’ term ends next year, Leos said: “It signals that the changes are definitive.”

The legislation, which must be approved by congress, would bring the Banco de Mexico in line with standards of the industrialized world that Mexico is trying to enter. The bank has been a part of the Treasury Ministry since 1982, when then-President Jose Lopez Portillo nationalized the banking system and removed the charter of the central bank to operate separately as a state-owned corporation. Under the control of the executive branch as part of Treasury, the bank has served as a powerful tool of the Mexican president to regulate the economy for political ends.

Past governments have freely printed money to cover federal deficits, leading to triple-digit inflation in the mid-1980s. They have also forced the central bank to loan the government money to finance populist development programs.

In a press release, Salinas said he was “taking one more step in reforming the state, with the effective transference of powers that have been in the hands of the Federal Executive.”

This marks the first time a Mexican president has proposed a constitutional amendment that would diminish the powers of the executive branch.

Central bank autonomy would “separate the function of creating money from other tasks of the state, which continually confronts demands to increase its expenses,” and would “eliminate the possibility of the government obliging the central bank to give it financing,” Salinas said.

Under the new proposal, which is virtually guaranteed passage by the ruling party-dominated legislature, Salinas would appoint the bank’s board for staggered terms, thus preventing his successor from replacing all members at once. For the first time, the president would be forced to negotiate government loans, interest rates and monetary policy with the bank board.

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“This is part of the president’s plan to have a more controlled economic policy with checks and balances,” said Carlos Ramirez, an editor at the daily newspaper El Financiero. “The president will have to negotiate with the central bank.”

While economists widely supported the reform, Ramirez said it remains to be seen whether a Mexican central bank governor would act independently.

“Hypothetically, he could set a policy contrary to the president’s (wishes), but we have yet to see a bank governor who was independent,” Ramirez said. “The president still will appoint him.”

A new president could have the constitutional reform overturned, although Salinas is expected to name a successor who would continue his policies after the 1994 election. Traditionally, the president chooses the candidate of the Institutional Revolutionary Party, which has ruled for more than six decades.