Download Chapter 26: Mexico: Part V

CHAPTER 5: THE PERIOD OF REFORM UNDER SALINAS -- 1988-1994
(Written 1996)
While the policies of the Mexican government had shifted toward neoliberalism under President de la Madrid, a much greater shift was to occur in the
administration of Carlos Salinas de Gortari (1988 to 1994). Salinas was an
economist, trained at Harvard. As he left office in December of 1994, many
considered Salinas' term as one of the most revolutionary and successful in
Mexico's history. In six years, the economy had been greatly transformed. By
1994, the economy seemed to be performing extremely well. Salinas was hailed as
a hero by the American government and by many American and Mexican business
leaders. The American government even considered nominating him as the first
President of the new World Trade Organization. Yet, 1994 was an auspicious year
in Mexican history. It began with the uprisings in Chiapas, ending 25 years of
relative internal peace. It included the assassination of the PRI candidate for the
Presidency and the murder of the head of the PRI party. And it ended in economic
crisis with Salinas in hiding outside of Mexico to avoid prosecution as a criminal.
The Pact for Economic Solidarity
While best know as a period of neo-liberalism, the period of pronounced reform
began with a reversal of philosophy away from the neo-liberal position. The cause
of this reversal was the extreme inflation that had reached 159.2% in 1987. To
reduce this extreme inflation, the Pact for Economic Solidarity was signed by
representatives of the labor, agriculture, and business sectors in December, 1987.
(Review the Corporatist nature of the Mexican government from the Appendix to
Chapter 1.) The Pact went through fifteen phases, or renegotiations, by 1994.
Some aspects of the Pact were thoroughly consistent with neo-liberalism.
Spending by the central government was to be reduced. The government's
budget deficit was to be reduced considerably while tax rates were to be
lowered. The money supply was to be decreased, causing higher real interest
rates, in order to reduce spending by Mexican consumers and businesses.
This reduced spending would lower inflation rates. Many parastatals were to
be privatized as were the nationalized commercial banks. Trade was to be
liberalized, with a reduction in tariff rates and in the number of products that
would require an import license. See the following sections of this chapter for
details.
The reversal of philosophy away from neo-liberalism was the agreement to
control prices and wages. At the beginning (1988), the Government agreed to
keep the exchange rate and the prices of government-provided goods fixed. The
unions agreed that the minimum wage would rise 3% and then be fixed. The
business sector, representing only the largest corporations, agreed not to raise
prices (at the end of 1988, business actually agreed to lower prices). In subsequent
years, the minimum wage was allowed to rise at a controlled rate to maintain its
purchasing power and prices were allowed to rise on a case by case basis. The fact
that the central government has so much power in Mexico and that unions and
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large businesses are so dominated by their federations makes it possible to enforce
this kind of agreement.
There has been much debate over many years about wage and price controls.
The United States tried them from 1971 to 1973 and they had been considered a
dismal failure. Shortages of all kinds of goods were rampant. But there were two
differences between the American and Mexican experience with wage and price
controls. First, the United States had created and enforced its controls by law.
There was great resistance by both businesses and unions. In Mexico, the
business and union federations had agreed to the Pact, generating less
resistance. Second, the United States had combined its wage and price controls
with an increase in its money supply and with high budget deficits. This is
analogous to an overweight person deciding to solve a weight problem by
wrapping a very tight corset around himself or herself and then, since the
overweight problem is hidden, continuing to eat excessively. Sooner or later, pain
will be felt. In contrast, Mexico combined its wage and price controls with a
decrease in its money supply and with a reduction in its budget deficits. With
spending being reduced in Mexico, inflation was occurring only because people
were expecting inflation to continue. Expecting high inflation, buyers were
rushing to buy and wage earners were demanding high wage increases. If people
would only come to expect less inflation, they would be less inclined to rush to
buy and less inclined to demand such high wage increases. As a result,
inflation rates would fall. The wage and price controls in Mexico served this
function of convincing people to expect less inflation. Inflation, which had
reached 159.2% in 1987, had fallen to 18.5% by 1991. Yet, production grew and
unemployment fell. The wage and price controls have been considered a major
reason for this success by several analysts.
Governmental Reforms in Spending, Taxation, and Finance
As noted above, a major aspect to all neo-liberal proposals for Mexico was to
decrease government spending and to decrease the budget deficit of the central
government. High government spending of the Populist period, financed by the
creation of new money, had been the cause of the extremely high inflation rates.
Spending by the Mexican government fell quickly from 34.9% of GDP in 1987
to 25.9% of GDP in 1989. Much of this resulted from the reduction in interest
payments due to the restructuring of the debt. But there were also reductions in the
number of employees. In 1988 alone, a program was put in place to reduce the
workforce of the central government by 63,000 people. Several subsidies were
reduced as was spending on government investment. Finally, there was a
reduction in social spending, largely resulting from reducing wages and salaries of
those who worked in these areas. The number of teachers, doctors, nurses, etc. did
not fall greatly. The government's deficit fell from nearly 15% of GDP in 1987
to virtually zero. Inflation rates fell accordingly.
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The Salinas administration was also the first to undertake a major reform of the
tax system. The Mexican tax system had had quite high taxes on individuals along
with widespread tax evasion. Between 1989 and 1991, the maximum tax rate
on individuals was lowered from 50% to 35%, approximately the same as it was
in the United States. The value-added tax, a form of sales tax, was lowered
from 20% to 10% (where it stayed until 1994). The corporate profits tax rate
was lowered from 42% to 35%, approximately the same as the 34% rate found in
the United States. A tax of 2% of assets was placed on those companies that had
managed to avoid paying taxes in the past. But, despite the lower tax rates, tax
revenues rose considerably. (See the data below) One reason for this increase is
the increase in incomes of individuals and businesses. But the main reason for
the increase in tax revenues was a major increase in enforcement of the tax
laws. The percent of taxpayers subject to a random audit was doubled. And the
penalties for tax evasion were raised. The number of taxpayers grew from 1.9
million in 1989 to 2.9 million by 1991.
Year
1988
1989
1990
1991
1992
1993
Tax Revenues (New Pesos)
48.1 Billion
64.4 Billion
83.2 Billion
104.9 Billion
132.0 Billion
152.8 Billion
Percent of GDP
12.3%
12.7%
12.1%
12.1%
13.0%
13.6%
Besides reform of the tax system, there was also significant reform of the
financial system. Unlike the United States, Mexico traditionally had a three-tier
financial system. First, there were the commercial banks. These received
short-term savings deposits and gave short-term loans to businesses and loans
to the government. The 58 banks had been nationalized in 1982. Second, there
were Financieras, and other similar institutions. These received long-term
savings deposits and provided long-term loans to businesses and individuals.
(In the United States, commercial banks provide both of these functions.) Third,
there were the Development Banks. These gained funds from the government
or the central bank (the Bank of Mexico) and made loans mainly to the
parastatals and large private sector corporations (called grupos). The
financial institutions were regulated by the Ministry of Finance (similar to the
American Treasury Department) and by the Bank of Mexico (similar to the
American Federal Reserve System). The main form of regulation was the
compulsory reserve requirement (an instrument also used by the U.S. Federal
Reserve). These reserves are forced lending by the banks to the government at
zero interest. The compulsory reserve requirement was much higher in
Mexico than in the United States. Unlike the United States, Mexico also had
"selective credit quotas", forcing the institutions to give a certain portion of
their loans to areas of priority to the government, and controls over interest
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rates, which remained fixed for very long time periods. The stock market was of
limited importance in Mexico at that time.
Government budget deficits had been financed by having the government
borrow directly from the Bank of Mexico, with the Bank of Mexico creating new
money to lend. This new money had caused inflation. In 1978, the government
tried to shift to financing its deficit by borrowing directly from the public, as
is done in the United States. It issued Certificates of the Treasury (CETES) as
a form of short-term borrowing (similar to an American Treasury Bill). But it
was not until the 1980s that a primary market (to be able to sell these securities)
and a secondary market (for a person to re-sell these securities to another person)
began to develop. By the early 1990s, the Mexican government was relying
exclusively on borrowing from individuals to finance its deficits, with no
further reliance on the banking system. Securities markets in Mexico expanded
rapidly. Companies of brokers and dealers developed rapidly. Today the
Mexican stock market plays a major role in the financing on Mexican
companies and is of interest to many Americans.
With the coming to power of the Salinas administration, a series of major
reforms of the financial sector were undertaken. First, beginning in 1988, the
amount of deposits that had to be channeled into "high priority areas" was
significantly reduced as was the amount that had to be held in legal reserves.
By 1989, these controls had been virtually eliminated. Second, a large number of
savings alternatives were created. See Appendix I for a list of some of these.
Most significant were the tesobonos, which are government borrowing with the
returns indexed to the market exchange rate against the dollar. These were
attractive investments for Americans in Mexico. Third, the commercial banks
were re-privatized between 1990 and 1992. The 58 banks that had been
nationalized in 1982 had been consolidated into 18 banks by 1990. These 18
banks were sold by 1992, with the proceeds going to reduce the government's debt.
The 18 banks (plus an additional two) did not provide effective competition.
Profits rates were much higher than are found in the United States despite the
fact that the Mexican banks were less efficient. But high profit rates and
inefficiency soon breed new competition. By 1994, the number of Mexican
banks had risen to 35. Many American banks saw Mexico as an opportunity for
potential profits. Until the passage of the North American Free Trade Agreement
(NAFTA), foreigners were allowed to participate in Mexican banking, but up to a
limit of 30% ownership (also 30% for stock brokerage companies but 49% for
insurance companies). They could also set up bank office representatives, but not
create actual banks. Until 1994, only Citibank was able to operate as a full
deposit-taking and lending commercial bank in Mexico. Fourth, development
banking was changed completely. Instead of financing the large, inefficient
parastatals, funding was shifted to private businesses, especially smaller
businesses. Despite these changes, the Mexican financial system of 1994 would
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still seem inefficient by the standards of the United States. (The problems of these
institutions in 1994 and 1995 will be considered in the next chapter.)
Reforms of Foreign Economic Policy
Reform of Mexico's foreign economic relations, especially with the United
States, was perhaps the most important change initiated by the Salinas
administration. There were several aspects to this reform. First, there was the
re-negotiation of the external debt. This was discussed in the last chapter. Total
government debt as a percent of GDP fell from 80.5% in 1987 to 46% by 1991.
And interest payments, which took 43.6% of export earnings in 1982, were taking
only 18.5% by 1991.
Second, there was the trade liberalization. This will be discussed more fully
in Part II. In 1986, Mexico had joined the General Agreement on Tariffs and
Trade (GATT). As a result, the proportion of Mexican imports subject to import
permits fell dramatically.
Year
1983
1984
1985
1986
1987
1988
1989
1990
1991
Percent Of Imports Subject to Permits
100.0%
83.0%
35.1%
27.8%
26.8%
21.2%
18.4%
13.7%
9.1%
The average tariff fell from 27% in 1982 to 13.1% by 1991, with the
maximum tariff falling from 100% to 20% over the same period. In 1990,
President Salinas requested discussions to lead to the formation of a North
American Free Trade Agreement (NAFTA). This was completed in 1992 and
passed in 1993 (to go into effect January 1, 1994). NAFTA will be discussed
extensively in Part II.
Third, this trade liberalization was part of the shift away from importsubstitution industrialization and toward greater reliance on exports. Mexico
had two great problems concerning exports. First, it was heavily dependent on the
United States; in 1990, nearly 70% of the value of Mexican exports went to the
United States. As of 1996, this has changed very little. Second, it was heavily
dependent on exports of oil. At its peak, oil earned 78% of Mexican export
earnings in 1982. This declined to about one-third by 1988 and further to
about 20% by 1994. In 1994, manufactured goods comprised about 80% of
Mexican exports. About 40% of these are intra-firm, meaning that a subsidiary in
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Mexico is shipping to an American parent company. Mexican trade policy will be
discussed in Part II.
Fourth, there was a considerable effort by the Salinas administration to
increase foreign direct investment in Mexico (ownership and control of
companies). Again, the details of Mexican policy concerning foreign direct
investment will be discussed in Part II. In general, until NAFTA went into effect,
foreigners were given the right to up to 100% ownership of companies in
unrestricted activities, representing about 2/3 of GDP. In the 1989 law, 12
activities were reserved for the Mexican government and 34 activities were
reserved exclusively for Mexican nationals. There were 37 activities in which
Mexican nationals had to have majority ownership. (See Appendix I)
Finally, the trade liberalization, the openness to foreign direct investment, and
the control of inflation had as a main purpose the reversal of the capital flight.
In this, the policies succeeded very well. During the six year term of Salinas, the
foreign capital inflow was over $60 billion. One fifth of this was direct investment
(owning and controlling companies) and the rest was portfolio investment (lending
money and buying stocks as investments). This inflow is more than four times the
capital inflow during the period 1982 to 1988. The capital inflow allowed
Mexico to finance a trade deficit that reached $30 billion by 1994. This trade
deficit resulted from the surge in Mexican imports from $19 billion in 1988 to $80
billion in 1994 that followed the trade liberalization.
Privatization
Another major reform under Salinas was the changed role of the government in
the economy. The most noticed aspect of this was privatization. In 1982, the
1,155 parastatals accounted for 18.5% of GDP and nearly 10% of all employment
(nearly one million people), Between 1982 and 1994, 940 of the 1,155 parastatal
companies were sold to become private businesses. Among the businesses sold
were the 18 commercial banks, airlines (such as AeroMexico and Mexicana
Airlines), iron and steel works including SIDERMEX (the main steel producer in
Mexico), sugar mills, Telmex (the communications company), and a major part of
CONASUPO (the food distributor). Parastatal companies had been notoriously
inefficient.
Parastatal firms were eligible for privatization only if they were not considered
"strategic". The value of the firms to be privatized were determined by appraisal
from outside consultants. Then, the companies were put out to bid. In most cases,
the bids were greater than the appraised value. Payment was made in cash. Take
the case of Telefonos de Mexico (TelMex). In March, 1990, it was decided to
privatize this company. The Minister of Finance first underwent comprehensive
restructuring, including a new labor agreement with the 51,000 employees, debt
reduction, and a new price structure. To try to create a competitive industry,
cellular communications and local telephone service were immediately opened to
competition. It was agreed that, after privatization, TelMex would retain its
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monopoly over long-distance telephone service for only five years. During this
five year period, installed capacity was to grow at an annual rate of 20%. The first
shares were auctioned in December 1990, with the sales completed in December of
1991. These shares were bought by a syndicate of Grupo Carso of Mexico, France
Radio and Cable, and Southwestern Bell (SBC) at $2.03 per share (a total of $1.7
billion). These buyers have enough shares to control the new company. The rest
of the shares were sold in financial markets in Mexico, the United States, Canada,
Europe, and Asia. In December, 1988, an estimate of the value of TelMex was
about $1.5 billion; by 1991, this had risen to more than $13 billion. Privatization
and the restructuring had improved the company's expected performance this
much.
The importance of state-owned production has fallen greatly so that the
proportion of total production done by parastatal companies is less than half
of what it was before privatization began. By 1992, the number of workers in
parastatal companies was about 250,000, down from the 1,000,000 that worked in
these companies in 1983. Subsidies to parastatal companies fell from about 12%
of GDP in 1982 to less than 2% of GDP.
The National Solidarity Program (PRONASOL)
Privatization was one of the most important elements in the reform of the role
of the Mexican government in the economy. But it was not the only element. The
National Solidarity Program, based on President Salinas' own doctoral
dissertation at Harvard, was a series of programs designed to provide health,
education, infrastructure, and productive projects for people below the
poverty line (especially the 19 million Mexican people labeled "extremely
poor", meaning that they suffered from some degree of malnutrition). Other
than the Populist policies of 1970 to 1982, this has been the only attempt of the
Mexican government to address the problems of poverty and inequality. As of the
early 1980s, 50% of Mexicans had no access to running water, 32% had to sleep in
the kitchen, and 25% had no electricity. Yet, social spending had been
significantly reduced as part of the reductions in government spending throughout
the 1980s.
The Solidarity programs were to offset some of the reduction in social
spending. Specifically targeted projects would replace programs that provided
general increases in incomes of poor people. The Solidarity programs were to be
initiated by local groups. By the end of 1993, more than 150,000 such local
Solidarity Committees had been established. The projects were to be designed,
executed, and supervised by these local committees according to their own
priorities. The members of the committees were also expected to contribute either
labor or some other input. Much of the spending on these programs came from the
central government. The total government spending on Solidarity programs rose
from $680 million in 1988 to over $2.5 billion in 1993 --- and totaled $12 billion
cumulatively over these years. This amount of spending is quite low ---
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representing only about 1% of GDP. Mostly, these programs involve investment
projects designed to expand or improve the infrastructure available for providing
basic services to the poor. These include health clinics, hospitals, schools and
scholarship programs, water supply systems, sewerage systems, electrification,
roads, and food stores. They were special Solidarity Funds for local development
projects in indigenous communities and other funds for credits for women to begin
small workshops. Over 40% of the spending went for water and sewerage alone.
As a result, from 1980 to 1990, the proportion of people without running water
fell from 50% to 21%; the proportion without electricity fell from 30% to
13%. The small amount spent on the Solidarity programs, in the face of the large
reductions in government social spending, assured that there would be only a small
effect in alleviating poverty or reducing inequality. In 1992, the top 10% of all
income earners earned 38% of all income, up from 33% in 1984, despite the
Solidarity programs.
The political impact of the National Solidarity Program was perhaps more
significant than the economic impact. The program was promoted strongly by
President Salinas, who made frequent trips to local communities to highlight
Solidarity projects. This helped make President Salinas very popular. It also
increased the political approval of the PRI, which had fallen greatly in the 1988
election, and certainly contributed to the PRI victory in the 1994 election. It
allowed the government to conduct a major austerity program without political
protests until 1994. For example, the government commonly justified
privatizations by saying that the money previously spent on inefficient parastatals
could be better spent on the poor. But it did mark the first decentralization of
decision-making in Mexico. Since 1988, states, municipalities, and local
community groups have had much more influence in decision-making than ever
before.
Agricultural Reforms
Those who worked in Mexican agriculture were especially hurt by the
depression of the 1980s. Trade liberalization opened Mexico to imports of cheaper
food products. The reduction in government spending included a decline in
guaranteed prices paid by the government to agricultural producers. Inflation
affected agricultural producers by increasing the costs of raw materials used in
agriculture. Between 1980 and 1988, the costs of these raw materials had risen
nearly twice as fast as the guaranteed prices paid by the government. After 1988,
the provision of agricultural credit through BANRURAL was reduced. As a result,
many agricultural producers, especially in the North and West of Mexico, had
major problems of indebtedness. Productivity in Mexican agriculture has been too
low; an average hectare of land (2.4 acres) in Mexico produces about one-fourth
the corn and one-third the beans as is found on a similar hectare of land in the
United States.
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The main response of the Mexican government to the plight of Mexican
agriculture was a major reform of land tenure, which went into effect in
February, 1992. This reform has been controversial at the least, being cited by the
Zapatista Army of National Liberation as a major reason for their decision to stage
an armed insurrection in Chiapas in January, 1994. The new "Agrarian Law" had
four main provisions. First, those working the ejidos were given the right to
buy, sell, rent, or use as collateral the individual plots and communal lands of
the ejido. (You might wish to review the ejido organization from Chapter 2.)
Second, private companies were allowed to purchase the land up to certain
limits. Private companies of at least 25 people could now own farms up to 2,500
hectares of irrigated land, farms up to 5,000 hectares of rain fed land, 10,000
hectares of good quality pasture land, and 20,000 hectares of forest land. Third,
associations were allowed between those who work on ejidos and the private
companies. Fourth, the section of the Constitution that allowed peasants to
petition for land redistribution was deleted.
The critics of this new Agrarian Law focused on several points. First, there
was a fear that land would become concentrated, meaning that there would be
relatively few landowners with each owning large areas of land. While the
concentration would never approach the level of the haciendas in nineteenth
century Mexico (see Chapter 1), it could present the same types of problems.
Second, the use of land as collateral meant the risk of farm foreclosures. And
associations with private companies meant the possible loss of land rights.
Women were especially put at risk because the men could unilaterally decide how
to dispose of what was considered family patrimony. Third, there was the belief
that no more land would be redistributed. This would especially affect the
landless Indians in Chiapas where about one-third of the unresolved petitions for
land redistribution was located. In the United States, there also has been concern
that many peasants, forced to sell their lands, would end up as migrants to the
United States. As of 1995, the reforms had proceeded very slowly. There had not
yet been a rapid concentration of ownership. However, it is too early to judge the
effects of this significant change in Mexican agriculture.
In the 1990s, the Salinas administration established a new agricultural
subsidy policy known as PROCAMPO. This was designed to offset the
reduction in the guaranteed prices that the government paid for beans and corn.
Over 3.3 million producers became eligible for payments. During 1993 - 1994,
these payments came to about $100 per hectare. Despite this, there was a
continual decline in investment in agriculture. Infrastructure and machinery
have deteriorated badly. As of the end of the Salinas term, the rural economy
was in serious recession. With the phasing-in of NAFTA, the future of Mexico's
rural economy is especially precarious. This will be considered in Part II.
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Performance of the Mexican Economy Under Salinas
In the period 1988 to 1994, Mexico had undergone one of the most radical
transformations any country has experienced. Government spending had been
reduced considerably. The tax system had been reformed. The budget, which had
been greatly in deficit, had actually realized a surplus in 1992 and 1993 before
experiencing a small deficit in 1994. The financial system had been greatly
reformed and liberalized. Trade had also been liberalized. The North American
Free Trade Agreement (NAFTA) had gone into effect. Not only was there a
considerable shift in the direction of free trade but also the reliance on exports of
oil had been greatly reduced. The debt crisis seemed to be resolved. All but 215
of the 1,155 parastatal corporations that existed in 1982 had been privatized. The
approach to reducing poverty had shifted away from spending on general subsidy
and social programs for the poor to a program of specific projects designed by
members of poor communities (the National Solidarity Program). And finally,
land tenure rules had been greatly changed, reducing the role of the ejido and
increasing the role of private ownership.
As of the end of 1994, it was widely held that these reforms had been a major
success. As the following tables shows, production was higher and inflation
was much lower than they had been in 1988. Inflation, remarkably, was in
single digits. Unemployment, as measured by open unemployment, was low.
Interest rates were falling and the Mexican stock market was booming.
Year Growth of GDP Per Capita
1988
1.65%
1989
4.06%
1990
4.69%
1991
3.28%
1992
3.90%
1993
-1.38%
1994
1.25%
Year
1988
1989
1990
1991
1992
1993
CETES Rate
69.15%
44.99%
34.76%
19.28%
15.62%
14.90%
Inflation Rate
51.66%
19.70%
29.93%
18.80%
11.94%
8.01%
7.00%
Open Unemployment Rate
3.5%
2.9%
2.7%
2.7%
2.8%
3.4%
3.8%
Growth of Mexican Stock Market Prices
100.18%
98.05%
50.09%
124.67%
24.45%
48.03%
There were other significant changes in Mexico as well. The methods of
operation of many companies had changed. And the ability of labor unions to
influence working conditions had been reduced. (These topics will be covered in
Part II.) Birth rates had fallen from 40 per thousand population in 1976 to 26
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per thousand by 1994. This was largely the result of government programs to
promote birth control. The percent of married women using artificial
contraceptive means rose from 30% in 1976 to 63% by 1992. The growth rate
of the population had fallen from 4.4% in 1981 to 3% by 1994. Due to health care
improvements, the infant mortality rate had fallen from 61 per 1,000 live
births in 1977 to 33 per thousand live births by 1994. Among women over age
12, the percent who were in the labor force rose from 16% in 1970 to 31% by
1991. The Mexico of 1994 was definitely a different country than the Mexico of
the late 1970s.
Despite the belief that Mexico was a great success story, there were some signs
of future problems. Notice in the above table how the growth of per capita
production decelerated in 1993 and 1994. The armed insurrection in Chiapas,
beginning in January of 1994, was a sign that the growth had not reached all
sections of the population. The two political assassinations in 1994 were further
signs of instability. From an economic point of view, the most ominous sign was
the current account deficit.
Year
1988
1989
1990
1991
1992
1993
Current Account Deficit
$2.92 Billion Dollars
$6.09
$7.11
$13.79
$22.81
$23.39
The current account deficit did not seem to be a problem at the time because
Mexico was receiving large amounts of capital inflows, as noted above. Most of
this was portfolio investment (lending plus buying of Mexican stocks without
control over the Mexican companies) from the United States. Mexico's
international reserves had actually risen greatly, from $6.6 billion in 1988 to
$23.3 billion in 1993. But in 1994, this problem of the trade deficit was to grow
greatly and lead to a major collapse of the Mexican economy. The collapse
appeared very shortly after the election of President Zedillo. From December of
1994 to the present (1996), Mexico has experienced another Depression. This is
the topic of the next chapter.
APPENDIX: FINANCIAL INSTRUMENTS IN MEXICO
Banks:
Cuentra Maestra
Preestablecidos
Non-negotiable CDs
Promissory Notes
Similar to a checking account with funds earning interest
Deposits which may be withdrawn only on specific days
of the week or month
Issued for a certain number of days with fixed interest
rates -- denominated in pesos or in dollars
Issued for one, three, or six months with fixed interest
rates -- tradable in the stock market
Government Securities:
Treasury Certificates
Treasury Bills with maturities of 28, 91, 182, & 364
days.
Pagafes
Dollar-denominated Treasury Bills
Bondes
Development bonds, maturities of 1 to 2 years
Ceplatas
Certificates of participation in a trust fund that holds
silver bars. Each is equivalent to 100 ounces. Traded
on the stock market.
Tesobonos
Treasury borrowing with one to three month maturity -returns indexed to the market exchange rate with the $
Ajustabono
Borrowing with 3 to 5 year maturities; returns indexed t
to the consumer price index
Private Sector Securities:
Commercial Paper
Negotiable note with a maturity up to 180 days
Obligaciones
Bonds with maturities of three or more years
Foreign Investment in the Stock Market:
Free Subscription Shares "Series B" shares of firms listed in the Mexican stock
exchange which can be bought by foreign investors
Neutral Funds
Trust Funds whose assets are Series A shares of listed
companies (companies reserved exclusively for
Mexican nationals). Owners received a right to
income but no decision-making rights.