Privatization of Mexican Banks Only Boon To Foreign Investors

In the past three years, the administration of President Ernesto Zedillo has spent around $32.5 billion bailing out the country's banking system, $20.5 billion more than what the sales of the banks brought state coffers.

The funds invested to snatch the banks from the brink of collapse -- according to estimates by the credit-rating agency Standard & Poor, released September 3 -- were equivalent to 13.5 percent of Mexico's Gross Domestic Product (GDP).

The amount -- which included the purchase of the banks' overdue portfolio, programs of support for debtors and direct administration of banks in crisis -- outdid the U.S. government's bail out of its savings and loan institutions in 1991, which accounted for 3.5 percent of that country's GDP.

During the financial crisis triggered by Mexico's late 1994 currency collapse, interest rates shot up from 15 to more than 110 percent in 1995, millions of dollars in foreign capital fled the country, and hundreds of people who had taken out credit were declared in default.

The banking system was on the verge of collapse, and everyone lost: bankers, shareholders and clients, according to the Association of Bankers of Mexico.

Today, thanks to the government bail-out, mounting foreign investment and the overall recovery of the economy, the banks are finally starting to pull out of the crisis, says Standard & Poor.

The outlook for Mexico's financial institutions went from "stable" to "positive" in the past few months, the international credit-rating agency adds.

Less than six years ago, the government of former president Carlos Salinas (1988-94) celebrated the privatization of more than a dozen banks at a cost three times higher than their book value.

With title deeds in hand, and encouraged by the Salinas administration's opening of trade and international prestige, the buyers -- mainly wealthy local industrialists and tradespeople -- went into debt to upgrade computer systems and open new branches.

Most of them now claim to be victims of the former president's deceit, some openly recognize their errors, while others are in prison or fugitives from justice, accused of large-scale fraud.

Seven of the 18 privatized banks are currently under the control of the governmental Bank Fund for Protection of Savings, which administers close to one-fourth of the system's portfolio.

"There is not one person who invested in purchasing a bank who has not lost. Those who did not lose 100 percent saw the value of their investment diminish by up to 70 percent," says the president of the Association of Bankers of Mexico (ABM), Antonio del Valle.

According to the ABM, not only state funds went into rescuing the system, but bankers themselves had to shell out around $11 billion.

"The winners are the foreigners who bought shares and banking assets at costs much lower than those we paid during the process of privatization," says Del Valle.

Government figures indicate that 18 percent of Mexico's banking system is now foreign-owned. Banks from Canada, Spain, the United States and Portugal spied a profitable business, and bought up shares and acquired assets during the crisis.

"The foreign banking system will go as far in Mexico as the market allows it to, and we hope that will be very far," said the president of the Spanish Bilbao-Vizcaya bank, Emilio de Ybarra.

As well as the new foreign partners of local institutions, U.S., French and Japanese banks operate in Mexico, financing large-scale operations by export and import firms.