Mexico Bank Probe Is Crucial

Mexico’s national interests will be served only when all parties to a $60-billion bailout of the banking system agree on a fair solution. Unfortunately, that does not seem probable, for the affair has become a hot potato that none of the political players seem willing to resolve.

The scandal involves the Mexican equivalent of the Resolution Trust Corp., which sorted out the U.S. savings and loan scandal of the 1980s. The problem is not likely to end before the presidential election of 2000, and it promises to cause plenty of anguish along the road to that decisive vote. The time to investigate this scandal from top to bottom is now. If Mexican politics cannot handle the revelations that surely will arise, then the nation’s new democracy is in dire straits.

The debacle began back in 1992 when a handful of entrepreneurs with little banking experience bought some government banks that the administration of President Carlos Salinas had put up for privatization. Some of the bank purchasers proved not only to be inefficient managers but voraciously corrupt. They used depositors’ money for speculative adventures, made sizable loans to themselves, their friends and their relatives and, it seems, financed political campaigns.

Then, with the peso devaluation of 1994, the fortunes of many Mexicans were devastated. Interest rates on mortgages skyrocketed. Many homeowners lost their properties.

Some of the private banks were seized, but the damage had been done. Negligence on the part of treasury officials, either by commission or omission, was a factor.

Loaded with huge uncollectable debts, the banks sought rescue from the banking agency. The Zedillo administration bought debt from the banks and announced its intention to turn it into public debt, in effect placing the wrongs of a few on the heads of the many. Opposition parties demanded explanations.

The left-wing Party of the Democratic Revolution, for instance, has played for advantage with loaded referendums in which citizens are asked whether they are willing to help corrupt bankers. A more balanced approach has been put on the table by Mexico’s two other major parties. An independent audit should be made to show who misused the debt rescue plan, and those found guilty should be punished. Assistance should go to small debtors who had to default and those who kept making their mortgage payments at grossly inflated interest rates.

If Mexico wants a brighter future, the government must clean up and strengthen the banking system. Nothing less can resolve this issue and erase the stain of rapacious politics.