Mexico Central Bank to Get More Muscle : Finance: Salinas presents law giving it greater autonomy, similar to the Fed.

President Carlos Salinas de Gortari sent to the Mexican congress Wednesday a law granting greater autonomy to the nation’s central bank, increasing the probability that the current anti-inflationary monetary policies will continue.

The new law--whose approval by the congress is a mere formality and a foregone conclusion--spells out for the first time how the Bank of Mexico will be governed. It calls for a five-member governing board, presided over by a governor, similar to the U.S. Federal Reserve Board. The governor will be appointed by the president for a six-year term. The four sub-governors will be appointed for staggered, eight-year terms.

None of the five can be arbitrarily removed.

It also allows the Bank of Mexico to refuse to lend money to the government and forces the government to issue treasury bonds--in effect, taking money out of circulation--if the money supply grows too rapidly.

The law takes effect Jan. 1 and implements a constitutional amendment passed in August.

Greater autonomy for the central bank is seen by analysts as a way of assuring that fighting inflation will remain an economic priority of the Mexican government, even after Salinas leaves office next year.

Under Salinas, inflation has fallen from 159% in the mid-1980s to 8% so far this year. Next year’s target is 5%.

However, investors have worried that his successor will not be willing to continue the austerity--including sharp reductions in buying power of workers--that the current administration has relied on to cut inflation to single-digit levels.

The law is also historic because it reduces the power of the executive branch in a country where the president has virtually dictatorial powers.