Date: Mon, 24 Aug 1998 17:03:04 -0700 (PDT) Message-Id: <2.2.16.19980824170504.21df0dce at pop.igc.org> X-Sender: meisenscher at pop.igc.org X-Mailer: Windows Eudora Pro Version 2.2 (16) Mime-Version: 1.0 Content-Type: text/plain; charset="iso-8859-1" To: (Recipient list suppressed) From: FConde4411 at aol.com (by way of Michael Eisenscher <meisenscher at igc.apc.org>) Subject: The Conde Report On U.S.-Mexico Relations Content-Transfer-Encoding: 8bit X-MIME-Autoconverted: from quoted-printable to 8bit by dont.panix.com id UAA06581
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THE CONDE REPORT ON U.S.-MEXICO RELATIONS
Volume 2, Issue 32, Monday, August 24, 1998
"AND THE WALLS FELL"
NEWS ITEMS OF SIGNIFICANCE IN U.S.-MEXICO RELATIONS
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EDITOR: Francisco J. Conde, CONDE CONSULTING GROUP, INC.,
An International Business, Marketing & Advanced Communications
Consultancy, 14500 Dallas Pkwy, Ste. 146,
Dallas, Texas 75240-8315, TELEPHONE: (214) 426-3316, FAX: (214) 426-
6217, INTERNET E-MAIL ADDRESS: FConde1046 at aol.com and
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INDEX:
1.) MEXICO STOCKS PLUNGE; PESO HITS NEW LOW
2.) MEXICO'S PRI, PAN PARTIES NEAR DEBT ACCORD
3.) FINANCE LEADERS SCHEDULED PESO MEETING
4.) RAIN COMES TO NORTH MEXICO BUT TOO LATE FOR CROPS
5.) MEXICO SAID READY TO SEND BANK SUSPECTS TO U.S.
6.) MEXICO 2ND QTR 1998 GDP GREW 5.3% OVER 1997
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MEXICO STOCKS PLUNGE; PESO HITS NEW LOW
MEXICO CITY -(TCR)-- The Mexico Stock Exchange fell to a 20-month low Friday amid worldwide concerns over emerging market currency devaluations in Russia and Venezuela and signs Mexico's own economy may slow in coming months, traders said.
The leadig IPC Index of 35 top Mexican blue chip stocks closed down 2.45% to 3,413.15 points, much higher than Friday's worst point of minus 7.78% to an intraday low of 3,226.7 points.
The sharp early downturn turned around during the day as bargain hunters stepped in to pick up the bluest of the blue chips at 20-month lows, traders said. The Mexican stock market came under pressure due to foreign investors seeking to protect themselves from further worldwide stock and bond losses by selling Mexican stocks and bonds.
Among related foreign news that undermined Mexico' stocks was continued speculation that Venezuela would devalue its bolivar currency. Mexico's central bank also sold $200 million in dollars and bought pesos to slow a drop of 3.5% plunge in the Mexican peso, pressured by fears of possible Venezuela and Brazil currency devaluations, traders said.
Meanwhile, New York-based Merrill Lynch, the U.S. No. 1 stock brokerage and its top Latin American analyst Rodrigo Quintanilla downgraded its rating of Latin American banking stocks due to what it termed "deteriorating macroeconomic indicators,"according to a statement obtained by The TCR.
"Our outlook for the banking sector in Latin America has turned more negative in light of the probable deterioration in macroeconomic indicators as well as continued weakness in global capital markets," Quintanilla said in his report. He also cited "more pessimism toward emerging markets. The analyst said Mexican and other top Latin banks faced higher interest rates, potential currency weakness, slowing loan growth opportunities, and a potential drop in the value of their fixed-income and equity portfolios."
As a result, the premier Mexico banks and their stocks dropped sharply Friday, traders said. Among the chief losers came Grupo Financiero Banamex Accival SA de CV (Banacci), Grupo Financiero Bancomer, Grupo Financiero Banorte SA, and Grupo Financiero Serfin SA de CV.
Friday's Mexico's stock market decline sent its benchmark down 34.73% in peso terms since Jan. 1, 1998 and down 831.81 points, or 24.37% in pesos, for just the month of August, the declines in value have been even worse when valued in U.S. dollars since the Mexican peso is down 17% against the U.S. dollar since Jan. 1, traders noted. (TCR)
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MEXICO'S PRI, PAN PARTIES NEAR DEBT ACCORD
MEXICO CITY -(TCR)-- Mexico's ruling party issued a legislative compromise Sunday to resolve a tough, bitter dispute in Congress over a U.S. $57 billion bank debt assumption left over from the 1995 peso and banking crisis in an effort to reach consensus with the conservative National Action Party (PAN).
The Institutional Revolutionary Party (PRI) led by President Ernesto Zedillo hashed out a compromise plan it hoped could become a "lasting solution, with direction and sense of progress," to turn the huge banking debt from the 1994-1995 peso devaluation and economic crisis into Mexican long-term public debt.
"In the face of the external (financial) risks, we must not prolong the debate unnecessarily. We must take decisions, with seriousness and transparency, with responsibility and dignity," the PRI said in a statement, referring to the damage done to foreign and domestic investor confidence from Congressional wrangling over the debt.
The PRI legislative proposal matched in large part the serious proposal tabled Thursday by the conservative opposition National Action Party (PAN), which has sought to bring an end to the serious impasse in Congress over the issue.
The PRI plan recommended a 30% cut in the bad loans piled up in the government's Fobaproa (Federal Deposit Insurance Fund) since the peso crash wrecked the soundness of Mexico's private banks, nationalized in 1982 during a foreign debt crisis and privatized under President Carlos Salinas before 1988.
The PRI lost its majority in the Chamber of Deputies (Lower House) of Congress in July 1997 elections, has been forced to barter with the PAN Representatives and the left-wing Party of the Democratic Revolution (PRD) to arrive at a bank debt resolution. Many smaller businessmen and investors have lost everything to the banks, without being assisted by the government, while many of the richest Mexicans would be assisted by previously disclosed bank bailout plans. The resulting public anger over the issue has forced the PRI to overhaul its original proposal.
The PAN governor of Guanajuato state, presidential hopeful Vicente Fox, described the PRI proposal Sunday as "very close" to the PAN party plan. "It seems to me it won't take 15 minutes to come to an agreement," Fox told the offical Mexican news agency Notimex.
Zedillo's original PRI party plan enclosed in a Fobaproa overhaul bill met with a rebellious response from Congress when issued in March as for months opposition leaders alleged the PRI plan would foist the burden of negligence or white-collar crime efforts of bankers and billionaires on to normal taxpayers.
In the new proposal, the ruling party said: "The PRI demands that the law and the full force of the state be brought to bear on those who abused, be they officials, bankers or debtors. They must pay back what they have illegally or illegitimately obtained."
The PRI proposal was an attempt by Mexico's ruling party to regain the initiative in the heated Fobaproa debate while at the same time backing the main principal of Zedillo's bill, which involves recognizing Fobaproa as federal debt.
PAN leader Felipe Calderon Hinojosa and PRD head Andres Manuel Lopez Obrador are scheduled to meet today to "finalize points of agreement" between the two opposition parties. (TCR)
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FINANCE LEADERS SCHEDULED PESO MEETING
MEXICO CITY -(TCR)-- Mexican Government finance officials and members of Congress met Monday to discuss the sharp decline in the value of the Mexican peso vs. the U.S. dollar and potential ways to reduce further plunges.
The peso, which fell Friday to a new historic low of 9.78 per U.S. dollar , was being quoted as high as just below 10.0 pesos to the U.S. dollar at foreign exchange shops in the Mexico City airport over the weekend, indicating the potential for further sharp weakness.
Last week, Mexico's peso succumbed to worldwide fears stemming from Russia's ruble devaluation and delays in foreign bond interest as well as fears Venezuela, hurt by sharply lower oil prices, may be forced down Russia's path to devalution. The huge move by foreign investors out of Mexico stock and bond securities, thus converting peso-denominated securities into U.S. dollars reached levels unseen since March 1995, the height of panic after the December 1994 devalution of the peso by 50%, analysts said.
On Sunday, Russian President Boris Yeltsin, in a surprise move, fired his entire Cabinet and named former prime minister Viktor Chernomyrdrin as Acting Prime Minister, a stunning move not expected to soothe the nerves of investors made nervous by volatile markets.
Mexico's leading financial daily, El Financiero, Sunday said rulng Institutional Revolutionary Party (PRI) Senators planned to argue Monday to Government finance officials that they should not burn up Mexico's $30 billion in foreign hard currency reserves in attempting to support the peso.
The economic dangers associated with a sharply falling peso include an abrupt increase in domestic inflation since a weaker peso makes the price of U.S. and international imports costlier to Mexican consumers and companies. Mexican Finance Minister Jose Angel Gurria, a seasoned hand who renogiated Mexico's foreign debt in the troubled mid-1980s, maintains Mexico's official, full-year 1998 inflation target of 12%, while most private economists and analysts expect full-year 1998 inflation of 15% or higher.
Labor Minister Jose Antonio Gonzalez Fernandez Friday said the Monday meeting with Congressional leaders aimed at finding ways to lessen the hurt of the financial markets and peso slide on ordinary Mexicans.
On Friday, President Ernesto Zedillo expressed confidence in the strength and stability of the Mexican economy and its major, leading indicators and called for calm among investors during this time of financial panic selling. The President recently has repeated that Mexico's budget is all but balanced, economic growth came in at 5.3% for second quarter 1998 over 1997 and that the nation's foreign currency reserves are at all time highs and that it is capable of supporting its foreign debt payments for the next two years with little need to borrow in foreign markets.
But Zedillo's Government has slashed U.S. $4 billion in spending from its 1998 budget to offset the sharp decline in tax revenues from crude oil exports due to a 10-year low in world oil prices, a move expected to eventually slow Mexican economic growth. Since the Paris-based International Energy Administration recently reported there will be little change in crude oil prices through 1999, no relief for Mexican government finances is expected from oil.
Last week, Santiago Levy, undersecretary for revenue in the Finance Ministry, said the 1999 Mexican Government budget was likely to remain "austere." (TCR)
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RAIN COMES TO NORTH MEXICO BUT TOO LATE FOR CROPS
MONTERREY -(TCR)-- A tropical depression across Southeast Texas, South Texas and northern Mexico finally dropped much needed rainfall last week on northern Mexico, according to Mexican government officials. But a review of the agricultural industry across northern Mexico indicates that the rain was way too late to prevent severe crop and cattle losses in most of Mexico's border states, officials told news media.
In a statement obtained by The TCR, the Mexican Treasury Department reported Gross Domestic Product (GDP) data for the first half of 1998 and it indicated the agriculture, fishing and forestry sector declined by a very sharp 5.3% from the same period in 1997, while the rest of the economy expanded at that same rate.
The report blamed the contraction in economic growth in agriculture, which is responsible for about 25% of the nation's GDP, or economic output, on "bad weather."
A severe drought, one of the worst ever, has caused major damage to Mexico, particularly in the northern country, the Department reported. In the northern state of Nuevo Leon, which Monterrey serves as capital, the state government described this year's drought -- seen by weather experts as part of the worldwide "El Nino effect" -- as the worst in 42 years.
Beans, wheat, corn and sorghum crop plantings were down 60% and, like in neighboring Chihuahua state, Nuevo Leon head of cattle dropped by 50%, according to state official data.
Nuevo Leon state, a center of the nation's citrus producers, is expected to post output just 40 percent of normal. Sonora state, farther to the West, posted rainfall below average for the past 30 years.
Coahuila state suffered far less from lower rainfall compared to other states, officials reported last week. Coahuila ranks as one of the top Mexican cattle breeding states with a total of more than 1.3 million head. Cattle losses, however, totaled a modest 2,500 head, the state reported. (TCR)
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MEXICO SAID READY TO SEND BANK SUSPECTS TO U.S.
MEXICO CITY --(TCR)-- Mexican officials are considering cooperating with the U.S. and undertaking the extraditition of five Mexican bankers accused by the U.S. of involvement in money laundering for Mexican and Colombian drug barons, Mexican newspapers reported Saturday.
Mexico's top financial newspaper, El Financiero, reported Saturday that the Mexican Attorney General's Office (PGR) had not filed charges in Mexico against the five bank managers despite earlier vows to prosecute in Mexico rather than hand them over to Washington. The Mexican Attorney General's Office remained mum on the question over the weekend.
El Financiero said the bankers were being held in jail in Mexico City as a judge reviewed the formal U.S. requests for their extradition to face charges in U.S. federal court.
The bankers ran Mexican bank branches in the states of Jalisco, Baja California and Michoacan. The U.S. Attorney's Office in Los Angeles implicated these and numerous other Mexican banking officials in money laundering following a three-year sting operation conducted by the U.S. Customs Service of the U.S. Treasury Department.
In the biggest string operation of its kind in U.S. history, "Operation Casablanca" resulted in the arrest of some 150 people, including 26 Mexican bankers lured to the U.S., and $50 million in alleged illicit drug profits seized from Mexican and Colombian cartels.
The operation caught the Mexican government by surprise when it was revealed in May and strained bilateral relations. Washington called it a major blow against drug trafficking.
The Mexican Constitution bars extradition of Mexican nationals. In recent years, however, Mexican authorities have turned over some suspects as U.S.-Mexico cooperation in the fight against drugs has grown closer. The final decision on extradition of the Mexican suspects will rest with the Foreign Ministry. (TCR)
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MEXICO 2ND QTR 1998 GDP GREW 5.3% OVER 1997
MEXICO CITY -(TCR)-- The Mexican Treasury Department reported last week that Mexico's economy, on a seasonally adjusted basis, grew at a 5.3% rate in the April-June period compared with a year ago, the 10th consecutive quarterly rise, according to information obtained by The TCR.
On an unadjusted basis the economy grew 4.3% in the second-quarter, below economists' expectations of 4.6% for the period. The Mexican economy had grown at a 6.6% annualized pace in first quarter 1998 and at 7% for full year 1997. In 1996, Mexico's economy grew 5.1% for the year, compared to the 6.2% contraction in GDP in 1995, which was the result of the economic crisis that followed from the December 1994 Mexican peso devaluation and ensuing financial crisis.
Private economists, warned this week, however, that they foresee a gradual slowdown in Mexican economic growth in the second half of 1998. The slowdown is seen resulting from the three 1998 Federal Budget cuts totaling U.S. $4 billion to offset sharply lower world oil prices, from somewhat higher interest rates and from growing turmoil in Asia, Russia and Latin America.
Part of Mexico's robust second-quarter performance comes from its manufacturers. Industrial output on an unadjusted basis rose 5.3 percent in the April-June period.
The drive of such expansion comes not only from growing domestic demand of textiles, equipment or sugar, but also from manufacturers' capabilities to continue exporting. That comes at a time when a flurry of currency devaluations in Asia have given producers from that region a competitive edge over Mexican exporters.
In the first half of 1998, Mexican exports jumped 11%, added to the 15% growth rate in 1997. The industry, though, that best reflects Mexico's strong consumer demand might be the service industry, which encompasses restaurant, hotel and commerce sales. That industry registered 4.8% growth 2nd Qtr 1998.
Financial services sparked up 5.6% in the 1998 first half, while professional services climbed 3.3% in the same period. National GDP growth would have been even more impressive but for the sharp downturn in the agricultural sector of the economy, which contracted by 4.5% from the "El Nino" related drought. (TCR) +++++++++++++++++++++++++++++++
THE CONDE REPORT ON U.S.-MEXICO RELATIONS strongly encourages its current 997 subscribers to pass on its contents to others who may have an interest in U.S.-Mexico relations. The publication welcomes requests for subscriptions, which (for now) are free of charge. The Conde Report actively seeks comments and contributions by its readers in the form of News Items and E-Mail Letters to the Editor at fconde1046 at aol.com or fconde4411 at aol.com .
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