SourceMex - Economic News & Analysis on Mexico
October 16, 1996
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L A T I N A M E R I C A D A T A B A S E
SourceMex - Economic News & Analysis on Mexico
ISSN 1054-8890 Volume 7, Number 39 October 16, 1996
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Copyright 1996, Latin America Data Base (LADB), Latin
American Institute, University of New Mexico
Director: Rebecca Reynolds Bannister
Managing editor: Kevin Robinson
Staff writers:
Patricia Hynds, Carlos Navarro, Robert Sandels
In This Issue:
GOVERNMENT BEGINS PRIVATIZATION OF PENSION PROGRAM
CENTRAL BANK REPORTS ACCUMULATED INFLATION
FOR JANUARY-SEPTEMBER AT 20.4 PERCENT
U.S. & MEXICO ANNOUNCE COMPROMISE AGREEMENT ON TOMATO IMPORTS
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Public-sector finance & planning
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GOVERNMENT BEGINS PRIVATIZATION OF PENSION PROGRAM
In early October, the government officially launched its
program to privatize Mexico's system of pension funds by
opening the bidding process to private companies. Under the
plan, approved by the Mexican Congress in mid-April,
retirement funds will no longer be managed exclusively by the
social security institute (Instituto Mexicano del Seguro
Social, IMSS) but instead will be turned over to private
companies that will be known as Administradoras de Fondos de
Retiros (AFORES). Workers will be given the choice of placing
their funds in one of the privately managed plans.
In a press conference marking the start of the
privatization program, Fernando Solis Soberon, who heads the
commission in charge of the privatization (Comision Nacional
del Sistema de Ahorro, CONSAR), said potential participants in
the program would have until Oct. 18 to submit their
applications.
According to Solis, the list of companies whose bids are
accepted will be announced at the beginning of December.
Those companies will then be eligible to begin operating their
pension-management program during the first quarter of 1997.
To start an AFORE, companies will be required a minimum
of 48 million pesos (US$6.2 million) in start-up capital.
Those same companies will also have the choice to begin a
specialized retirement program (Sociedades de Inversion
Especializada, SIEFORES), which requires only 4 million pesos
(US$518,000) in start-up funds.
Solis Soberon said the relatively low capital
requirements are intended to provide the opportunity for small
companies to offer AFORES.
The AFORES and SIEFORES participation rules were
published on Oct. 10 in the federal government's daily
register (Diario Oficial). According to the register, the
rules were designed with several objectives in mind:
* to offer clear investment choices through the
"transparent, accurate, and accessible" dissemination of
information to workers, employers, and the general public
regarding their operations and investments;
* to provide workers with the right to join the AFORE of
their choice, with the option to change administrators once
per year;
* to protect workers from discrimination by prohibiting
AFORES from turning away any worker unless the group is
"saturated;" and
* to promote free competition among AFORES by
establishing transparent and evenly applied regulations.
Solis Soberon said legislation prohibits large entities,
such as labor unions, from creating an AFORE. He said this
move is intended to ensure that workers truly have a choice of
programs in which to place their money.
The legislation approved by the Senate and Chamber of
Deputies in April also sets strict limits on foreign
participation. Companies based in Canada, the US, and Chile
will only be allowed to offer AFORES if they form a joint
venture with a Mexican company. And, even in those cases, the
participation from the foreign partners is limited to a 49%
share (see SourceMex, 05/15/96).
By opening participation in the AFORES and SIEFORES
programs to companies from those three countries, the Mexican
government is complying with terms of the North American Free
Trade Agreement (NAFTA) and the Mexico-Chile bilateral free-
trade agreement.
The legislation approved by the Senate and Chamber of
Deputies prohibits direct participation from companies based
in countries other than the US, Canada, and Chile. However,
companies such as Spanish-based Banco Santander have submitted
bids through their Mexican subsidiaries.
According to Ernesto O'Farrill Santoscoy, director of the
economic analysis company Bursametrica, the privatization of
Mexico's pension program is expected to eventually create
30,000 to 50,000 direct jobs in the financial-services field.
More importantly, O'Farrill estimated that the program
could double the pool of savings in Mexico, which currently
stands at only about 31 billion pesos (US$4 billion).
For his part, Roberto Gonzalez Barrera, president of
Grupo Industrial Maseca, projected that workers will place the
equivalent of US$400 million into the pension program each
month, thus enhancing the country's savings pool.
"By the beginning of the next century, the savings pool
in Mexico will increase to an unprecedented level of between
US$22 billion and US$25 billion," said Barrera. "By building
up our domestic savings program, we will become less dependent
on foreign investment to support our economy."
Some private analysts expressed concern about some
elements of the AFORE regulations published in the Diario
Oficial.
For example, Humberto Allendes of Grupo Financiero
Santander questioned whether the government should have
allowed workers the flexibility of four years to choose an
AFORE. He expressed concern that many workers would delay
making their choice until the last minute, in effect reducing
the effectiveness and benefits of the pension privatization.
According to the daily newspaper El Universal, Santander
is anxious to establish its pension management program, having
already succeeded with similar ventures in Chile, Argentina,
Peru, Uruguay, and Spain.
Bursametrica's O'Farrill urged the Zedillo administration
to approve the creation of at least 15 AFORES, in the first
phase of the program, to provide the greatest coverage for the
estimated 8.8 million workers who currently have their
retirement funds in the IMSS.
In addition to Santander, the companies or partnerships
expected to submit bids to operate an AFORES include
Bancomer-Aetna, Banacci-Aegon, Grupo Nacional Provincial-
Provida-BBV, Banorte-Bankers Trust, Serfin, Inverlat, Inbusa-
Citicorp, GBM-Promex, Invermexico, Bital-Cuprum, Seguros
Genesis-Metropolitan, CNIC-Empresas, Bancrecer, Seguros
Territoral y Asociadas, Alianza-Magister, and Vector.
The IMSS will also be offering its own AFORE. In fact,
according to O'Farrill, the AFORES offered by the IMSS and
Bancomer-Aetna together are expected to attract as much as 25%
of the new pension market. [Note: Peso-dollar conversions in
this article are based on the Interbank rate in effect on Oct.
16, reported at 7.72 pesos per US$1.00] (Sources: Novedades,
08/28/96, 09/17/96; The News, 08/30/96, 10/11/96; El
Economista, 10/03/96, 10/11/96; El Financiero, 10/11/96;
Excelsior, 08/29/96, 10/12/96; El Universal, 08/22/96,
08/29/96, 08/30/96, 09/05/96, 10/11/96, 10/16/96)
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Macroeconomic indicators & projections
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CENTRAL BANK REPORTS ACCUMULATED INFLATION
FOR JANUARY-SEPTEMBER AT 20.4 PERCENT
In mid-October, the Banco de Mexico (central bank)
announced accumulated inflation for January-September at
20.4%, thus surpassing the original 20% annual inflation
target set by President Ernesto Zedillo's administration for
1996. Most economists now agree that, by year-end, Mexico's
annual inflation rate will range from 25% to 30%.
The central bank reported the consumer price index
(Indice Nacional de Precios al Consumidor, INPC) at 1.6% for
September, which was only slightly higher than the 1.3% to
1.5% rate projected by many private economists.
The report said the increase in September was due in part
to higher tuition charged by most private schools in the new
school year. Without the tuition increases, the report said,
the September INPC would have reached only 1.2%.
The central bank said higher prices for other school-
related items--such as textbooks, supplies, and uniforms--also
contributed to the increase in the INPC during September.
Other high costs during the month included rent, clothing,
heating fuel, and gasoline.
Among foodstuffs, prices increased most for such basic
items as milk, tortillas, bread, and beans. Still, the rate
for the basic basket of consumer goods was only 1.3%. In
recent months, the basic basket of goods has been consistently
higher than the INPC.
The report, which was based on a survey of 46 cities,
found fairly consistent statistics around the country. For
example, the lowest inflation rate was 1.43% in Tampico,
Tamaulipas state, while Huatabampo, Sonora state, reported the
highest rate at 1.92%.
The Zedillo administration, aware that this year's
original inflation target has now been surpassed, has already
issued forecasts for 1997. During his recent visit to
Washington for the annual meeting of the International
Monetary Fund and the World Bank, Finance Secretary Guillermo
Ortiz projected the annual rate for next year at 15% to 16%.
The administration's forecasts, however, assume that
negotiations on an annual anti-inflation agreement will
succeed. The agreement has been negotiated annually since the
late 1980s among representatives of the government, labor, and
business.
The negotiations on a new anti-inflation agreement are
expected to conclude in late October or early November.
However, labor leaders have threatened to withdraw from the
process unless the agreement contains measures to help
workers, who have been hit hard by the country's economic
crisis.
The workers confederation (Confederacion de Trabajadores
de Mexico, CTM) has already informed the Zedillo
administration that labor negotiators will be seeking a salary
increase of at least 23% in this agreement. The salary
increase is higher than in other recent agreements.
The Zedillo administration has already announced its
opposition to the CTM's demand.
"Labor has the right to place whatever percentage it
wants on the table," said Basilio Gonzalez Nunez, president of
the national minimum wage commission (Comision Nacional de los
Salarios Minimos, CNSM). "But a percentage that high would be
harmful to our fight against inflation."
The business community is divided on the CTM's stance.
Some members of the business sector, such as the Mexican
employers confederation (Confederacion Patronal de la
Republica Mexicana, COMPARMEX), feel the Mexican economy
cannot recover from its current slump unless the purchasing
power of workers improves. COPARMEX has proposed that the
minimum wage be higher than the inflation rate forecast for
the coming year. (Sources: La Jornada, The News, 10/10/96;
Novedades, Excelsior, El Economista, 10/10/96, 10/11/96)
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Foreign trade
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U.S. & MEXICO ANNOUNCE COMPROMISE AGREEMENT ON TOMATO IMPORTS
In early October, the US Commerce Department and the
Mexican government reached an agreement on a longstanding and
contentious dispute over Mexican tomato exports to the US.
According to news reports, Mexican producers basically
agreed to sell their tomatoes at prices comparable to those
sold by producers in Florida, which is about US$5.17 per 25-
pound box, or about US$0.21 cents per pound.
In exchange for this concession, the US International
Trade Commission (ITC) agreed to discontinue its investigation
of complaints filed by tomato producers in Florida. The
complaint alleged that Mexican growers were selling their
produce in the US at less-than-fair market value. The Florida
growers argued that their counterparts in western Mexico were
able to sell their product in the US at reduced prices because
of lower production costs, including cheap labor.
On the other hand, producers in Sinaloa and other western
states have consistently argued that the high quality of their
tomatoes, and not necessarily price, attracted strong demand
from US consumers for their product. Indeed, a warmer climate
allows Mexican tomatoes to remain ripe even after picking,
resulting in a tastier product. In stark contrast, Florida
producers generally harvest their tomatoes before they are
fully ripe. The green and hard tomatoes are then treated with
a dose of ethylene gas to enhance their red color.
In fact, the ITC rulings on Mexican tomatoes appear
riddled with inconsistencies. For example, in a preliminary
ruling issued in mid-May the ITC said there was sufficient
evidence to conduct an investigation on imports of Mexican
tomatoes (see SourceMex, 06/05/96). The ITC ruling was based
on statistics regarding US production, consumption, and
imports of tomatoes for 1995.
Ironically, the ITC in July handed down a totally
separate decision that suggested there was no evidence to show
that imports of Mexican tomatoes were causing irreparable
damage to the US industry (see SourceMex, 07/10/96).
The ITC had been scheduled to hand down a final decision
on Oct. 7, as a follow-up on the May ruling. However, this
decision was postponed until the end of the month. According
to Commerce Department sources, the postponement allowed the
US and Mexican governments to negotiate a face-saving
compromise that would settle the issue and be agreeable to all
parties.
The agreement between the Commerce Department and the
Mexican government was announced on Oct. 10, a few days after
the ITC postponed its ruling on the complaint filed by the
Florida producers.
"The agreement will provide strong relief to the tomato
growers in Florida and other states, and help preserve jobs in
the industry," Commerce Secretary Mickey Kantor told
reporters. "Mexican growers will have continued access to the
US market, but only on fair terms."
The move by US President Bill Clinton to seek a
compromise was widely seen as a political maneuver during an
election year. Before the compromise was announced, political
observers expected the administration to side with the Florida
tomato producers, since that state is considered key for
Clinton's re-election in November.
"The math was pretty simple," an administration official
told The New York Times. "Florida has 25 electoral votes,
Mexico doesn't."
On the other hand, the compromise is said to be even more
advantageous for Clinton's re-election chances than a ruling
favoring the US tomato producers.
In the case of a ruling against Mexico, the Commerce
Department would have been forced to impose quotas or tariffs
on Mexican tomato imports, which would run counter to the
Clinton administration's commitment to promote free trade.
According to the daily business newspaper El Economista,
the bottom line for the Clinton administration was that the
maximum countervailing duty on imports of Mexican tomatoes
would have been at most between 7% and 8%.
"This percentage would have been too small to stop the
Mexican imports, and could have potentially created greater
political problems for Bill Clinton's government," the
newspaper said.
In addition, the administration was also facing strong
pressure from consumer groups and grocery-store associations,
which were concerned about the possibility that any
restrictions would severely limit the supply of Mexican
tomatoes in the US. In fact, after the compromise with Mexico
was announced, the US consumer organization Public Voice
issued a press statement praising the move.
"We're pleased if this (agreement) means that Mexican
tomatoes will come into the United States without
restrictions," said John Schnittker, an agricultural economist
with Public Voice. "Consumers have shown a preference for
this product."
Nevertheless, economists have suggested that the deal is
not as good for consumers, who will still have to pay high
tomato prices during the winter months.
Similarly, other agricultural interests expressed concern
that Mexico would retaliate against the US tomato restrictions
by restricting access for other agricultural products to the
Mexican market.
Mexico had already drafted a list of high-value,
high-volume US agricultural imports that would be affected if
the administration proceeded with restrictions on Mexican
tomato imports. According to some estimates, US exports of
grain and other commodities to Mexico were expected to reach
several billion dollars this year alone.
According to The New York Times, the compromise on the
tomato dispute was less advantageous for the Mexican
government, which had the choice of negotiating with the
Clinton administration or facing restrictions that could
severely damage the tomato industry in Sinaloa.
In a press statement, Mexican Agriculture Secretary
Francisco Labastida said the agreement was acceptable to the
Zedillo administration, since the compromise "prevented
greater social and political damage."
The administration agreed to the compromise after
consulting with a large producer organization in Sinaloa
(Confederacion de Asociaciones de Agricultores del Estado de
Sinaloa, CAADES), which had expressed strong concerns that a
negative ITC decision would shut off access for its products
to the US market.
On the other hand, a statement issued by the Trade
Secretariat (SECOFI) expressed concern over the manner in
which the US government conducted the anti-dumping
investigation.
"We reserve the right to continue using the legal
instruments available to us under World Trade Organization and
NAFTA to defend the interests of our exporters," the SECOFI
statement said.
According to The New York Times, the Mexican government
may have felt obligated to negotiate a compromise with the US
government to return a favor to the Clinton administration,
which helped negotiate the US$50 billion bailout to help
Mexico deal with the financial crisis that followed the
devaluation of the peso in late 1994 (see SourceMex,
02/01/95).
"This was Mexico's moment to pay back for the bailout,"
a senior Clinton administration official bluntly told The New
York Times.
For their part, Florida tomato producers acknowledged
that the compromise failed to remove the competition from
Mexican tomatoes in the US market, which could end up hurting
some growers.
"This is a deal that's going to challenge some of our
producers who are less efficient," said Ray Gilmer, spokesman
for the Florida Fruit & Vegetable Association. "But everybody
concerned feels this agreement is better than the
alternative."
On a related matter, the US Commerce Department is
expected to lift restrictions on imports of Mexican avocadoes
on a limited basis. According to Ricardo Salgado, director of
the avocado exporters association (Asociacion de Exportadores
de Aguacate Mexicano), the US will allow Mexico to export
avocadoes to 19 US states, mostly in the northeastern areas of
the country.
Salgado said these imports will be allowed for a limited
period between November and February.
The two sides concluded negotiations on a compromise in
October 1995, but failed to reach a definitive agreement until
late this year.
"We had actually expected a decision on the avocado
question in February of this year," said Salgado. "The
decision was delayed because this is an election year in the
US, and growers in California are pushing for measures to
ensure they do not lose their market share."
The US has maintained the embargo on Mexican avocados
since 1914, arguing that the restrictions are necessary to
ensure that harmful pests are not introduced to California and
other avocado-growing states.
For their part, the Mexican avocado industry argues that
these harmful pests have been eradicated, and that the US
restrictions run counter to global rules of fair trade.
"We have exported avocadoes around the world over the
past 10 years, and we have not received any complaints," said
Enrique Bautista Villegas, president of the avocado industry
commission (Comision del Aguacate) in Michoacan state.
Bautista Villegas said US producers are worried that
competition from Mexican imports could devastate the US
industry.
"US producers need to receive US$1 per kg in order to
remain profitable," he said. "On the other hand, if we get
more than US$0.50 cents per kg, we would be doing marvelous
business." (Sources: El Economista, 10/07/96, 10/15/96;
Reuter, 10/02/96, 10/08/96; El Universal, 10/09/96; Excelsior,
10/09/96, 10/12/96, 10/15/96; The News, 10/10/96; Associated
