Volume 5, Number 8, Page 4

MEXICO

Congressional Highlights

compiled by Alfonso Trujillo

Tax — The Treasury Commission received an initiative which supplements Article 119-M, paragraph two of the current Income Tax Law and has the objective of simplifying the calculation of taxes for small retail business owners and operators. Boletín 583, 3/24/98.

Banking — The Treasury Commission received from the Executive Branch several decree initiatives related to banking operations in Mexico, including proposals to dissolve the National Bank of Interior Commerce (BNCI) and reform the Bank of Mexico (BM). Boletín 594, 3/26/98.

Commerce — The Congress called upon the heads of the Department of Labor & Social Sciences and the Department of the Treasury to initiate an education program regarding the rights of employees to share profits with business owners. Boletín 612, 3/31/98.

Environment — A PRI-sponsored proposal was presented to the Congress to reform Article 13, paragraph two and add a third paragraph to the Fishing Law in order to establish a commercial fishing ban on all species corresponding to sport and recreational fishing, including elephant fish, marlin, sailfish, shad and swordfish. Boletín 617, 4/2/98.

Social Security — The Social Security Commission received a proposal calling for expansive reform of the Social Security Law. The proposal is aimed at allowing the disabled to selectively insure for illness, maternity, disability, retirement, nursery care and other social services by recognizing these insurance needs within the current scheme. Boletín 617, 4/2/98.

Banking — A question-and-answer session was held April 2 in Congress with Department of the Treasury Secretary José Angel Gurría Treviño. The session focused in the Executive package of initiatives regarding long-range economic policy and the participation of foreign capital in the Bank of Mexico. Among the specific issues discussed were the following: debts and expenses currently associated with the Savings Protection Banking Fund (Fobaproa), as well as its future role; increased autonomy of the Bank of Mexico; efficacy of proposed measures aimed at preventing future economic crises; access to credit for Mexican businesses; and the consequences of dissolving the National Bank of Interior Commerce. Gurría Treviño emphasized to Congress that increased foreign investment in the Bank of Mexico is necessary to allow the bank to function as it was intended. He reminded them that all of Mexico’s current and future trading partners maintain national banks and economies open to foreign investment, and stated that these initiatives would assure favorable macroeconomic conditions for Mexico. Boletín 616, 4/2/98.

FROM THE EDITOR

Banking reform in Mexico is currently a hot topic in major news publications. After Mexican banks were privatized during the administration of President Carlos Salinas de Gortari, banking regulations have been subject to constant reforms.

Recently President Ernesto Zedillo sent Congress a package of reforms that would dramatically change Mexico’s banking system. The reforms include changes allowing greater foreign investment in banks as well as giving Mexico’s Central Bank greater authority to control currency.

The proposed reforms face a bumpy road in Mexico’s Congress. Congress, where the opposition has a majority, signaled that the proposed reforms will be closely examined before being approved.

Currently several foreign banks, such as Bank of America and Banco Santander which operate in Mexico, will be allowed to make greater investments in the banking industry under the reforms. James McCabe, president of Bank of America in Mexico, was quoted in the Wall Street Journal as saying, "This legislation is critical to the modernization of the banking system."

Mr. McCabe is correct as are the vast majority of Mexican bankers. Allowing foreign banks to inject more capital into Mexican banks will allow new lines of credit for Mexican companies.

But this is only one of the changes that the banking industry in Mexico needs to undergo in order to compete world-wide and to become an active player in the development of Mexico’s economy.

Another area needing reform in Mexico's financial system is in secured financing. The current regulatory system in Mexico uses real estate property as the base of secured lending. Asset based lending is not widely used for a number of reasons, including the lack of security provided to the lender. Thousands of small and medium size businesses cannot obtain necessary lines of credit because of this problem.

Billions of dollars in foreign investment have been made in Mexico in the past few years. A secured financing system based on personal property will allow for larger amounts of foreign investment and make Mexican industries more competitive.

The National Law Center for Inter-American Free Trade (NLCIFT) has several studies explaining in detail this problem. Copies are available by contacting NLCIFT.

—José Felipe García