Mexico's bank bailout probe seen as risky business
By Caroline Brothers
MEXICO CITY, July 28 (Reuters) - Mexico's government is being dragged across the coals by opposition politicians over its handling of a 1995 bank bail-out in a sign of greater openness in public life, analysts said on Tuesday.
But the price of vigorous parliamentary debate of the so-called Fobaproa affair is that badly needed modernisation of the banking industry and of the way banks are supervised is being held up, analysts say.
The ruling Institutional Revolutionary Party (PRI), which lost its majority last year in the lower house of Congress for the first time in 68 years, wants lawmakers to approve plans to convert $65 billion of bad bank loans into public debt.
The loans were taken off the banks' books by government trust fund Fobaproa after the 1994 peso crash to save the financial system from collapse.
Opposition parties have insisted on a full investigation of the affair and are using the stand-off in parliament to extract maximum political advantage in the run-up to presidential elections in 2000, analysts said.
They are fishing for proof of irregularities in the handling of the Fobaproa rescue, which they say benefitted a privileged circle of bankers and may also have involved fraud.
While many Mexicans applaud the probe for bringing greater democratic accountability to public life -- a development made possible by the opposition's newly-won control of Congress -- others are disenchanted.
''What we are seeing is a very poor example of democracy,'' said Luis Rubio, head of independent policy think tank CIDAC.
''It's an attempt to blame and to exploit (the issue) for political purposes.''
Independent economist Enrique Quintana was also critical.
''The tone of the discussion has progressively distorted the debate,'' he said. ''They have lost sight of the idea of minimising the effect of Fobaproa on the whole economy, and of how to consolidate a more efficient banking system.''
With Mexico's banking system not yet restored to full health, some fear Congress is dragging its feet. Rubio for one said failure to approve the Fobaproa reform by December would be disastrous.
''If it is not approved this year it will have a terrible effect on the liquidity of the banks,'' he said.
A third of the loans in Mexico's entire banking system are tied up in the Fobaproa trust. Of 18 banks remaining after the 1994 crisis shakeout, some analysts say only two are well and truly on the road to recovery.
Three of the biggest, Serfin (SFN - news), Bancomer (GFBB.MX) and Banamex (BANACCIB.MX), are all in need of fresh capital.
With most bank loans tied up in the Fobaproa trust after they swapped them for non-tradeable government paper, the banks and the economy at large badly need a resumption of credit that can only come about if the government bill is passed.
The probe is also distracting attention from other much-needed reforms, ranging from tax to rights of the indigenous Inian population.
The uncertainty is starting to weigh on banking stocks. Brokerage Banorte on Monday downgraded Banamex partly on Fobaproa concerns.
''As long as Fobaproa remains front page news, bank stock price weakness is likely to continue,'' said Morgan Stanley Dean Witter in a recent research report.
Most commentators believe political horse-trading between government and opposition will see the bill passed by year's end, even though the debate could prove stormy.
Meanwhile the left-wing Party of the Democratic Revolution (PRD) is seizing the initiative, making life tough for a government dominated by technocrats who are often criticised for lacking political acumen.
The PRD is holding a ''plebiscite'' on the issue in every village square on August 30 -- the eve of Congress' return.
''(The government) just can't put themselves in the shoes of the other side,'' said Rubio.
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