Mexico May Allow Higher Foreign Stakes in Banks : Crisis: Government looks for ways to attract more capital. Officials deny reports that full ownership would be permitted.

Seeking to attract more stable international investment back to Mexico, the government is considering a plan that would raise the limits on foreign ownership in existing Mexican banks.

However, the Finance Ministry and the president of the Mexican Bankers Assn.--who was one of the negotiators of the emergency economic austerity plan announced earlier this week--denied reports that foreigners would be permitted to purchase 100% stakes in such banks.

Greater foreign ownership of existing banks--up from the 10% limit now--could help troubled financial institutions currently unable to meet stricter capital requirements under new regulations that took effect last year. More liberal foreign ownership could also provide another conduit for the foreign capital Mexico needs for economic growth amid the financial crisis brought on by the devaluation of the peso.

Seventeen foreign companies--including U.S. firms Citicorp and BankAmerica Corp.--have received permits to open subsidiaries in Mexico. But the foreign purchase of existing banks--some with extensive retail branch networks--is strictly controlled.

Allowing full foreign ownership was the most controversial issue contained in an English-language version of the emergency plan sent to U.S. investment firms Tuesday. That version differed substantially from the plan announced publicly by President Ernesto Zedillo, provoking an outcry and the denials.

The two versions of the plan appeared to contribute to confusion that sent both the Mexican stock market and the peso tumbling again Wednesday. The Bolsa index fell 130 points, or 5.7%, before rebounding for a loss of 8.6 points. The peso lost another 20 centavos and ended the day at 5.65 to the dollar--down 40% since Dec. 20, when the first devaluation was announced.

Mexican officials scrambled to explain why foreign investors seemingly had been given details that were not contained in Zedillo’s speech.

Points in the English-language version included plans to raise income taxes and public utility rates and limit the growth of the money supply to 21%, or $2.2 billion this year. Those details were not contained in the speech.

The Finance Ministry flatly denied that the English-language version is accurate. However, the nation’s central bank late Wednesday confirmed the money supply limit, which will limit growth but keep inflation under control. The central bank statement also said Mexico expects $14 billion in capital inflows this year--not including the previously announced $18 billion in stabilization funds from international lenders--and that inflation for last month may have reached 19%.

Jose Madariaga, president of the Mexican Bankers Assn., told reporters that talks are continuing on the subject of foreign investment in Mexican banks.

“What we agreed to yesterday was to analyze and modify the law aiming for a greater opening,” he said. “What was proposed was an initiative to allow foreign investors to participate more fully in the capital of financial institutions.”

He added that several alternatives are being considered, but he would not say what they are.

“The intention is to consolidate the Mexican financial system, not to turn it over to foreigners,” he said.

Analysts, who asked not to be identified, said they believed that the labor, business and government negotiators who drew up the emergency plan had considered eliminating the cap on foreign ownership of existing banks but had rejected it as too politically sensitive.

There is a risk that foreign investors might not be interested in Mexican banks. Those that most need foreign capital are probably not the most attractive investments, analysts said.

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