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Mexico Legislators Endorse Bank Rescue Plan Amid Jeers

Finance: Contentious bailout measure is expected to provide economic boost to nation.

December 13, 1998|MARY BETH SHERIDAN | TIMES STAFF WRITER

MEXICO CITY — Congress resolved the biggest legislative battle of Mexico's young democracy, approving a massive bank bailout plan Saturday that many had feared could send the country into political gridlock.

As opposing legislators shouted "Traitor!" and "Mexico! Mexico!" Congress voted, 325 to 159, to approve the bailout, which could cost $60 billion.

Two parties agreed late Friday to support the bailout, virtually assuring its passage by Congress.

However, opponents were not going down without a fight.

As legislators entered Congress on Saturday to debate the bill, they were pelted with rotten tomatoes by demonstrators. Protesters then burst into the legislature and showered lawmakers with flour, delaying the proceedings for at least an hour.

Approval of the bank rescue plan is expected to alleviate uncertainty among investors and provide an economic boost to Mexico, the No. 2 trading partner of the United States. Such help could not come at a more opportune time: The country's healthy economic growth is threatened by plunging oil prices and the ripples of the Asian economic crisis.

The bill will "potentially resolve the most difficult economic problem in the history of Mexico," declared a relieved Angel Aceves Saucedo, president of the Finance Ministry Commission in the lower house of Congress.

It was certainly the most fiercely contested legislation in recent Mexican history.

In the past, the president's bills were rubber-stamped by the legislature, which was controlled by the Institutional Revolutionary Party, or PRI. But the PRI lost control of the lower house of Congress last year for the first time in seven decades. The party still controls the Senate, which is expected to approve the bailout.

When the government introduced the bill to Congress in April, it was stunned by a firestorm of protest.

The opposition assailed the bill as a rescue of wealthy businessmen--some of them generous contributors to the PRI. Since then, the fund to rescue the banks, known by its Spanish acronym Fobaproa, has dominated the political agenda.

Finally, however, the PRI managed to reach agreement late Friday with the center-right National Action Party, or PAN.

"The future of the Mexican people depends, in many respects, on the correct resolution" of the banking problem, said PAN's leader, Felipe Calderon. "Not resolving this now would cause irreversible damage to many generations in our country."

The opposition, however, demanded unprecedented concessions from the government.

The opponents insisted on congressional audits of bad loans. PAN members also forced the PRI to restructure the bailout to provide more favorable treatment for small debtors.

After weeks of squabbling, the PAN and PRI reached what appeared to be a face-saving solution to the PAN's top demand: the ouster of Central Bank President Guillermo Ortiz.

As finance minister, Ortiz had salvaged the collapsing banking system during the 1994-95 economic crisis.

Ortiz, one of the Mexican officials most respected on Wall Street, was allowed to keep his job. However, he was barred from a board created by the bill to govern the new bank rescue fund, which will be called the Savings Protection Institute.

Analysts and officials said that Ortiz will probably step down in coming months because his authority had been curtailed.

"Ortiz can't continue," political analyst Primitivo Rodriguez said.

"Whatever he does, people will jump on him. You need a president of the central bank who is not politicized. He can be criticized, but he can't be the center of criticism."

PAN officials accused Ortiz of mismanaging the 1995 bailout, when the crisis sent interest rates soaring, prompting thousands of Mexicans to default on loans.

To save the struggling banks, the government bought portfolios of past-due loans in exchange for recapitalizing the banks with long-term bonds.

Those loans, many virtually worthless, went to Fobaproa, which is similar to the Resolution Trust Corp. created to handle the U.S. savings and loan crisis.

The fight over the bailout began when authorities tried to convert the bad loans into general government debt--raising Mexico's debt to more than 40% of the country's annual economic output.

Rodriguez called the agreement a victory for the young democracy.

"The system worked," he said. "This is very good for the country, knowing that on such a divisive question . . . a negotiated solution was possible."

Not everyone agreed. The center-left Democratic Revolution Party, or PRD, accused PAN of selling out. The PRD has been the driving force in turning the highly technical bank issue into a matter of street protests.

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