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THE CONDE REPORT ON U.S.-MEXICO RELATIONS
Volume 3, Issue 27, Monday, July 12, 1999
"AND THE WALLS FELL"
NEWS ITEMS OF SIGNIFICANCE IN U.S.-MEXICO RELATIONS
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INDEX:
1.) MEXICO TAXPAYERS TO PAY BAD BANK DEBT FOR YEARS
2.) TELMEX WINS U.S. OK TO OFFER LONG-DISTANCE IN USA
3.) MEXICO INTEREST RATES AT YEAR-LOW ON OIL PRICE RISE
4.) MEXICO JAN-MAY '99 TRADE DEFICIT DOWN 28% FROM '98
5.) U.S. OIL FIRMS SEEK U.S. ITC DUMPING RULING ON MEXICAN OIL
6.) MEXICAN STOCKS DIP ON FRIDAY AFTER HISTORIC RISE WEEK
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EDITOR: Francisco J. Conde
CONDE CONSULTING GROUP, INC.
An International Business, Marketing & Advanced
CommunicationsConsultancy
14500 Dallas Pkwy, Ste. 146,
Dallas, Texas 75240-8315,
OFFICE PHONE NO.: (214) 428-6999
Fax: (214) 426-6217
E-Mail: FConde4411@aol.com and Condef97@bigplanet.com
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MEXICO TAXPAYERS TO PAY BAD BANK DEBT FOR YEARS
MEXICO CITY -(TCR)-- Taxpayers in Mexico will make annual payments to
cover the national debt run up in the Federal bailout of Mexico's weak
banking sector for years to come, an indication clearly underscored by last
week's Federal bailout of Banco Serfin, Mexico's third-largest bank, top
experts said last week.
Almost five years after the December 1994 peso devaluation led to a
crushing setback to the Mexico banking system, experts and the Mexican
Government conservatively estimate the cost to taxpayers of the banking
debacle may rise past $90 billion U.S.
Last week, Phil Guarco, a banking analyst at Moody's Investors
Service in New York, estimated the total cost of cleaning up Mexico's
rickety financial sector could surpass $90 billion U.S., including $65
billion the government already has spoken for in absorbing the system's
piled up bad loans since 1995.
That estimate also includes the recently added costs of supporting the bad
loan portfolios of banks Atlantico and Promex, respectively, which have been
sold to Bital (Banco Internacional SA) and Bancomer (Banco Comercial de
Mexico SA), Mexico's No. 2 bank, respectively.
Most worrying are signs that Government bank bailout efforts actually
helped undermine the banking sector. Last Thursday, banking regulators
acknowledged that the century-old Banco Serfin got hurt by the government's
own botched devaluation of the Mexican peso.
Serfin Chief Executive Adolfo Lagos said promissory notes issued to Serfin
by the now defunct Federal Bank Deposit Insurance Fund known as Fobaproa in
exchange for its $6.2 billion U.S. in bad debts helped undermine the bank.
The medicine ended up killing the patient, according to Lagos, who spoke to
reporters last week after the new agency that replaced Fobaproa, IPAB, the
Bank Deposit Guarantee Agency nationalized the 560-branch commercial banking
group and provided it with a fresh $1.4 billion U.S. in capital.
Serfin's capital was all committed in the promissory notes, which could not
be traded or used as working capital, under banking rules. When the August
1998 Russian bond default and currency devaluation came, the financially
strained Serfin bank group could not raise funds to cover its losses.
Experts on Mexico's financial system said last week they expect a major
overhaul of the banking system as weaker banks get absorbed by larger
financial groups and as top international banking organizations seek to buy
their way into the Mexican marketplace, which is seen as very, very
attractive over the next two decades. Mexico's economy is expected to
continue to expand strongly in future years, with little inflation,
declining interest rates, sharp domestic growth and exports to a robust U.S.
economy and with a Mexican population expected to grow to 130 million from
the current 100 million within three decades.
Leading candidates to buy Serfin from the Government over the next six to
eight months include Britain's largest banking firm, London-based Hong Kong
and Shanghai Banking Corp. plc, which already holds a 19.9% equiity stake in
Serfin, and the booming Spain's top two banking groups, Banco Santander
Central Hispano SA and and Banco Bilbao Vizcaya, both of which have already
made extremely aggressive, multi-billion-dollar investments across Latin
America. (TCR)
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TELMEX WINS U.S. OK TO OFFER LONG-DISTANCE IN USA
MEXICO CITY -(TCR)-- Telefonos de Mexico SA (TELMEX), the former state
monopoly and now dominant Mexican telecoms powerhouse, Tuesday reported it
obtained approval from the U.S. Government to run its own long-distance
service in the U.S., which it now has bought from Kansas-based Sprint Corp.
Telmex's announcement, made in a statement obtained by The TCR, came two
months after Telmex and Sprint ended their 50-50 venture, known as
Telmex/Sprint Communications LLC, to permit each company to better focus on
their desired portion of the highly lucrative U.S. long-distance
marketplace, the world's largest at $80 billion in sales a year.
By transferring control of Telmex/Sprint to a new company, Telmex
International Ventures Inc., the Telmex parent obtained the approval from
the Federal Communications Commission to provide international long distance
services in the U.S.
The three most important binational long-distance telecom markets in the
world are the U.S.-Canada market, the U.S.-United Kingdom market and the
U.S.-Mexico long-distance market. The latter is the fastest-growing and most
lucrative of the three and has permitted Telmex since 1991 to make capital
investments to bring Mexico's domestic telecom network up to 98% digital
status.
The decline in the cost of U.S.-Mexico long-distance calls is
stimulating powerful increases in long-distance minute volumes between the
fast-growing Mexican-American community within the U.S. and the
100-million-strong Mexican mother country population, as well as between
the ever-growing and more sophisticated business partners on both sides of
the explosively growing U.S.-Mexico trade partnership, telecom experts noted
last week.
U.S.-Mexico trade, which has averaged 17% a year growth since the 1994
passage of the North American Free Trade Agreement, now accounts for 80%
percent of Mexico's total trade with the world, which in 1999 is forecast at
$110 billion. Mexico now ranks as the world's 10th most important exporting
nation.
Mexico is now the U.S.' second most important trading partner, having
supplanted Japan in that role first in 1997 and then permanently in 1998 and
trailing only Canada, a nation of 27 million people.
Telmex's new U.S. long-distance business will permit the company to
"continue bringing competitive telecommunications products and services to
the U.S. Hispanic market,'' the company said in its statement. (TCR)
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MEXICO INTEREST RATES AT YEAR-LOW ON OIL PRICE RISE
MEXICO CITY -(TCR)-- Mexican benchmark interest rates Wednesday dipped to
their lowest level in a year in the weekly primary government bond auction,
in part helped by a stronger peso currency, powerfully surging average
prices for Mexican crude oil exports and the recent modest uptick in U.S.
interest rates, traders said last week.
At Tuesday's Banco de Mexico central bank auction, the interest rate on
Mexico's benchmark 28-day Treasury Certifications known as 'Cetes,' declined
77 basis points to 19.65%, the lowest mark since July 25 1998, when the
rates stood at 19.5%.
Economists said the drop in the key interest rates below 20% resulted from
improving Mexican economic growth fundamentals, declining inflation, the
improvement in Mexican public and private finances from rising Mexican oil
prices and the peso's recovery against the U.S. dollar so far this year.
The peso's 6% gain in value vs. the U.S. dollar since January is one of the
most powerful surges against a powerful U.S. dollar by any national currency
anywhere in the world this year, experts said, and helped to reduce foreign
investors' fears of exchange rate losses in their Mexican Government bond
investments, traders said.
The average prices paid for Mexico's mix of crude oils last week rose above
$15 a barrel, exceeding the consensus of oil analysts for average June oil
prices of $13.80 a barrel. About 1/3 of Mexico's Federal Budget results from
income from the sale of Mexican state-owned crude oil, so the recently
surging world prices for crude oil is improving Mexico's public finances,
analysts said.
The U.S. Federal Reserve Bank's move to slightly increase interest rates by
only 0.25% to 5% and to move to a 'neutral' status on further interest rate
hikes also reduced pressure on Mexico to hike interest rates to keep foreign
investment in government bonds in Mexico. (TCR)
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MEXICO JAN-MAY '99 TRADE DEFICIT DOWN 28% FROM '98
MEXICO CITY -(TCR)-- Mexico's trade deficit for the
January-through-May period declined to $1.728 billion U.S., down 28% from
the same period in 1998, Mexico's Department of the Treasury said Wednesday.
The department said Mexico's revised trade deficit for the month of May
stood at $219 million U.S., notably below the preliminary deficit estimate
of $245 million U.S.
In a department statement obtained by The TCR, the government said the
trade deficit in the month of May was revised downward from the preliminary
figure due to increased auto industry exports and lower imports in the auto
sector as well as higher agriculture exports.
Mexico's crude oil exports reached $726 million U.S. in May, the highest
level since January 1998. Crude oil exports accounted for 6.5% of the total
exports of $11.102 billion U.S. registered in May.
World crude oil prices have gained about 50% since the Organization of
Petroleum Exporting Countries (OPEC) agreed to a reduction of member
nations' production at a key meeting held last March in the Hague, the
Netherlands.
Mexican manufacturing exports accounted for 89.4% of Mexico's total
exports, petroleum 6.5%, agriculture 3.8% and mining 0.3%.
Non-oil exports in May reached $10.376 billion, up 13.5% above May 1998,
and farm exports in May reached $420 million, up 8.3% from May 1998, the
department noted.
Mexican imports totaled $11.321 billion U.S. in May, up 12.2% over May
1998. Of the imports, 78% came from intermediate goods, the department said.
(TCR)
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U.S. OIL FIRMS SEEK U.S. ITC 'DUMPING' RULING ON MEXICAN OIL
WASHINGTON -(TCR)-- The U.S. International Trade Commission Thursday made
public the oil dumping petition filed by U.S. independent oil producers
against four foreign suppliers of crude oil to the U.S., including Mexico,
and scheduled a meeting in two weeks for the parties to argue their cases.
Oklahoma-based Save Domestic Oil Inc., an independent group of U.S. oil
producers last week formally accused Saudi Arabia, Mexico, Venezuela and
Iraq of selling state owned and subsidized crude oil into the U.S. at below
its "fair value," or minimum cost of production, a practice termed
"dumping."
The four nations formally rejected the accusations, with Mexican Energy
Minister Luis Tellez indicating he is to meet with U.S. Energy Department
officials in Washington this week to address the complaints.
Some U.S. trade lawyers and oil industry experts have speculated that the
ITC and the Commerce Department may vote against the dumping charges on the
grounds that oil is a commodity traded around the world at prices determined
in the free market.
A summary of the oil producer group's more than 1,000-page petition was
published in the official government publication, The Federal Register, by
the ITC panel, which said it will issue a preliminary decision by Aug. 13 on
whether U.S. producers were "materially" injured by the crude imports.
To help the ITC in its deliberations, the agency's economists and analysts
will hold a public meeting on July 20 with the complaining U.S. oil
producers and representatives of the national oil companies accused of
dumping crude.
Each side will have one hour to present its position.
Other interested parties, including oil industry groups, consumer
organizations and government officials from the targeted countries, may also
give a short statement at the conference.
The ITC's decision will then be sent to the Commerce Department, which is
responsible for setting any dumping and countervailing duties, by Aug. 20.
The allegations are a blow for Mexico just as the nation began to recover
from the severe two-year slump in prices in crude oil, which accounts for
about 33% of the revenues funding the Mexican Federal budget every year,
even if crude oil exports amount to only 6.5% of Mexican total exports, when
a decade ago they represented 90% of Mexican exports.
The ITC matter could potentially block Mexican crude oil sales to the U.S.,
Mexico's single, largest crude oil and general export market.
Publicly, Mexican energy and trade officials expressed confidence last week
that the country could put an end to the threat of potential heavy
anti-dumping duties on Mexican crude exports. Some analysts, however, say
the stakes are so high Mexico has a good reason for worrying.
The U.S. independent oil producers are requesting the U.S. impose a 33%
tariff on Mexican crude oil to bring Mexican crude oil prices to what the
group argues is fair value, and an extra $6.18 a barrel to offset what it
alleges are Mexican government crude oil production subsidies.
Mexico says the independent producers have no case because the open market
fixes its crude prices and that, instead of subsidizing Petroleos Mexicanos
(Pemex) SA, the government actually forces the state-owned oil and gas
monopoly to provide it with up to one-third of its Federal budget revenue.
Analysts note that the ITC panel in Washington D.C. has traditionally
favored U.S. plaintiffs in anti-dumping cases and that, if the Aug. 13
ruling goes against Mexico, it may have to pay a preliminary anti-dumping
charge as a lengthy investigation drags on.
ITC process exports last week said the burden of proof rests with Mexico
and the other target countries, which would have to make public for the
first time what their real production costs are and compare them with
calculations made by Save Domestic Oil, the Oklahoma-based oil producers
group.
The complaining U.S. producers seek anti-dumping duties against the
targeted countries' oil exports ranging from 177% on Venezuelan crude oil to
33% for Mexican crude.
If the retaliatory duties were imposed, U.S. oil importers/refiners such as
BP Amoco Inc., Exxon Corp. and Mobil Oil Corp. could end up paying up to $10
billion in duties if the firms continued to purchase crude from the four
nations at previous levels.
The U.S. independent producers claim oil was dumped from April 1998 to
March 1999. During this period the targeted countries exported 1.66 billion
barrels of crude to the U.S., or 52% of U.S. crude oil imports.
A glutted world market depressed crude prices throughout 1998, which forced
the Mexican government to ax some $3.6 billion from public pending and
propose a tight Federal budget for 1999, which caused public dismay.
The ITC has first to determine whether the case has merit before proceeding
to a full investigation. (TCR)
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MEXICAN STOCKS DIP ON FRIDAY AFTER HISTORIC RISE WEEK
MEXICO CITY -(TCR)-- Mexican stocks dipped modestly in light,
directionless trading Friday, with the Mexican Stock Exchange's main index
of leading blue-chip stocks barely maintaining the 5900-point level, traders
said.
The main IPC index of 35 leading shares dipped 3.88 points or 0.07% to
5886.6 points Friday. Among 43 shares traded, 15 stocks fell in value, 14
rose and 14 remained unchanged.
Trading volume was an unusually low 20 million shares, compared to a 50-day
moving average trading volume of 100 million shares. Of that volume, some 14
million shares came from heavy activity in Grupo Financiero Bancomer, one of
Mexico's most traded stocks and No. 2 financial group, which fell 0.06 pesos
to 3.10 pesos a share.
Leading Mexican stock in trading volume and market capitalization (value of
100% of the company's stock), Telefonos de Mexico SA (Telmex) slipped 0.35
pesos to 37.9 pesos an L share and its American Depositary Receipt shares on
Wall Street in New York Stock Exchange trade gave up a slight $1/16 a share
to close at $81 3/8 a share.
Top Mexican retail store chain operator Cifra SA gave up 0.02 peso to 18.10
pesos a share, while bullish telecom and communications group, Carso Global
Telecom SA, rose 0.20 peso to 59.30 pesos a share.
Internatation investors and major institutional investors have been
upgrading Mexico as an investment market in comparison to recession and
politics-wracked Brazil and Argentina.
On last Thursday, the Mexican Stock Exchange's leading IPC stock index
broke above the strategic and psychological resistance point of 6,000 in an
early Thursday rally -- the second time it broke above the unprecedented
gain mark in the week, propelled by bullish Mexican international trade
deficit data and a bullish support report on Mexican stocks by Spain's
Santander Investment brokerage house, traders said.
The IPC index Thursday climbed 96 points, or 1.61%, to 6,026 points
Thursday.
With investors confident about Mexico, they have been more willing to take
positions in pesos, bidding the peso to 9.34 pesos a dollar, the strongest
peso performance vs the U.S. dollar in six months, and more than a 6%
improvement versus the dollar so far in 1999.
Mexico's Government Thursday reported that June month inflation stood at
0.66%, or matching economists' expectations of a 0.68 percent increase,
according to a major news agency survey of Mexican economists. The figure is
viewed as strongly helping a decline in interest rates in coming weeks,
which could add spur economic growth.
The Mexican stock exchange index has soared 11% since
May's inflation rate was reported on June 9. Domestic and international
stock investors remain optimistic that lower inflation and falling interest
rates will bolster expected 3% GDP economic growth forecast for for 1999,
more than all major Latin American economies, most of which are fighting
recession, from Chile to Brazil and Argentina.
Mexico's short-term, benchmark interest rates are at their lowest
level in more than a year, sliding earlier this week below 20% as domestic
inflation slows at a quicker than expected rate in 1999. With a strong and
stable peso currency, investors have pushed the stock market to record highs
on optimism stronger economic growth will boost company earnings this year.
Traders said Mexico's May revised trade figures bolstered the stock
exchange. On Wednesday, the Treasury Department reported a revised May trade
deficit of $219 million, down from the first estimate of $245 million.
Before the market open on Thursday morning, Spain's Santander
Investment brokerage based in Mexico recommended investors' overweight their
investment positions in both Mexico and Brazil. It said it expects
"considerable upside" in the next six months.
Santander's favorite stock was telecom bellwether Telefonos de Mexico SA,
which is also the No. 1 Internet Service Provider in Mexico with about
500,000 subscribers or more than 50% of Internet users in one of the
fastest-growing Internet usage markets in the world. (TCR)
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THE CONDE REPORT ON U.S.-MEXICO RELATIONS strongly encourages its
current 998 subscribers to pass on its contents to others who may have an
interest in U.S.-Mexico relations.
The publication welcomes requests for subscriptions. As of Jan. 1, 1999,
The Conde Report subcription price is $250 a year for 52 issues.
The Conde Report encourages readers to provide comments and
contributions in the form of News Items and E-Mail Letters to the Editor at
fconde1046@aol.com or fconde4411@aol.com.
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Copyright © July 1999, THE CONDE REPORT ON U.S.-MEXICO RELATIONS. All
rights reserved. All the news provided by the TCR is copyrighted. Any forms
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