Mexico's New Super-Billionaires

by John Summa

MEXICO CITY - Mexico's vaunted experiment with neoliberal economic policies has transformed this country of 86 million profoundly. From automated bank machines to the newly privatized TV Azteca, a joint venture with NBC, Mexico is not the country it was just six years ago, when outgoing President Carlos Salinas de Gortari began turning Mexico inside-out as head of the autocratic ruling Institutional Revolutionary Party (PRI).

 "The opening of the Mexican economy has turned the country into one of the main destinations for investment around the world, one of the best [U.S.] commercial partners and one of the most appreciated stock issuers within the international value markets," boasts a September 30, 17-page, we-are-open-for-business advertisement paid for by the Mexican government in USA Today. But like other countries in Latin America forced to swallow the bitter pill of structural adjustment and privatization, the prophesized free- market miracles have not materialized. With slow economic growth, falling real wages and growing inequality, the vendors of invisible hand tonic have some answering to do.

 Even while touting its economic achievements, the Mexican government acknowledges the contradiction. The "benefits are yet to be distributed evenly across Mexican society," the USA Today advertisement admits. "The number of citizens living below the poverty line has increased from 13 million in 1990 to 24 million in 1994."

 Although the average real minimum wage has continued to fall - having dropped 58.9 percent in the last 12 years - Mexico's free market plunge is stuffing the pockets of a new super-rich class of Mexican capitalists. Forbes magazine listed 24 Mexicans in its 1994 annual report on the "swelling roster of global billionaires." Mexico boasted only one billionaire in 1987, when the magazine began compiling the list. The total reached 13 in 1993, and nearly doubled over the next year. Together, Mexico's new super-rich today possess a fortune worth approximately $44 billion, according to Forbes.

 Where is all this increase in wealth coming from? Part of the answer lies in redistribution of income via reduced wages; the rest in sweetheart privatization deals and other benefits conferred on a select group of private investors with close ties to the PRI.

 The new billionaires owe a giant debt to the structural adjustment program implemented by the government following the Mexico debt crisis of 1982, and particularly the wage controls imposed by the government. Over the past decade, wages have consistently failed to keep up with price increases, eroding real income. As a result, the ranks of the poor have swelled, while businesses, particularly large employers, benefited from depressed workers' wages. Between 1989 and 1992, says Carlos Salas, a Mexican economist at the National University of Mexico in Mexico City, "The mean income of families within the lowest levels of income fell by almost 7 percent, while the income of the families at the top of the income pyramid grew by 11.3 percent." Today, nearly half of the Mexican population lives at poverty income levels, Salas points out, with 54 percent of the families struggling on a monthly income lower than the minimum wage for a single worker (about $135).

 The main source of the rapid rise in the number of billionaires has been Mexico's privatization scheme, which so far has reduced the number of state enterprises from 1,155 to 200. Privatization, in general, has occurred on very generous terms for investors, who have seen the value of their total equity skyrocket in Mexico's stock-market boom of the 1990s. This is where Mexican business leaders are making their huge fortunes.

 According to research done by Edur Velasco Arregui of the National Autonomous University of Azcapotzalco in Mexico City, Mexico experienced a strong capital influx in the early 1990s. In 1990 and 1991 alone, the Bank of Mexico estimates that $21 billion was invested in the country, with a large share ending up in the stock market and other financial investments. This speculative capital from Wall Street "generated a frightening rise in asset values," says Arregui.

 Some of Mexico's billionaires started with plenty in the bank, notes Salas. For example, Emilio Azcárraga, the TV mogul who owns Televisa, a national network with more programming hours than ABC, NBC and CBS combined, and the Monterrey-based Sadas family, which controls the second largest industrial group in Mexico, the giant conglomerate known as Alfa, have long been known to be super rich. But most of the rest are the "nouveau riche," says Salas.

 Even some of capitalism's most ardent defenders find the sudden accumulation of wealth a bit extreme. Economist David Barkin, professor of economics at the Metropolitan Autonomous University in Mexico City and author of the 1991 Distorted Development: Mexico in the World Economy, notes that Forbes "itself laments the creation of so many multibillionaires so rapidly [because it] reflects badly on the capitalist process." It is unlikely that so many could become so rich so quickly with legitimate capitalist enterprises, says Barkin, and that may make some a little concerned. He says, "The privatization of Mexico's government holdings was systematically channeled to President Salinas' ęcronies,' to use Business Week's expression, in a cynical abuse of the process in which it is rumored that the President himself is a major participant enjoying enormous wealth as a result of his private holdings." Unfortunately, the tremendous inflow of foreign capital has not gone into productive investments. According to Barkin, investments "go into short-term speculative holdings rather than into directly productive investments, which hurts the prospects for long-term economic growth."

Speculation and government giveaways

 In case after case, billionaires rode to fortune on the same government- and speculation- fed racehorse. One common bond among the billionaires, for instance, is owning shares in Banacci, which was formerly the Bank of Mexico. The privatization of banks in 1992 led to a sharp rise in the value of bank stocks and a corresponding rise in the personal valuation of Banacci's large shareholders.

 A newcomer to this scramble for profits, with an estimated worth of $6.6 billion, is Carlos Slim Helú. Slim purchased the cob-webbed Mexican state-run telephone company, Teléfonos de Mexico (Telmex) in 1990 and ambitiously sought to bring it into the new world of fiber optics and reliable service. (It is still difficult to find working payphones in Mexico City.) Faced with an explosion of cellular phone use, and with unhappy customers who filed 114,000 complaints with Mexico's consumer protection agency last year, Slim is not completely out of the woods. But Telmex has seen its profits soar, topping all telecommunications firms worldwide. With its astounding 44 percent operating margins, and a 7.5 percent per-year real earnings growth projected through the year 2000, Slim's Telmex has justly been labeled "a gold mine" by the liberal Mexican weekly Processo. The company is reportedly responsible for over one-quarter of the total stock market value of the Mexican Stock Exchange, accounting for 23 percent of daily stock exchange volume, according to conservative monthly magazine Mexico Business. And according to the Bank of New York, the company has placed stock issues on the New York Stock Exchange totaling 78.6 percent of all Mexican firm offerings.

 The speculative stock market boom of the 1990s combined with privatizations to produce a nice sum for Moises and Antonio Cosió Ariño. The two brothers began acquiring shares in Mexico's newly privatized Telmex and the Bank of Mexico and watched their fortunes steadily rise. They bought 5 percent of preferred stock (voting shares worth $50 million) in Mexico's privatized phone company in 1991. Today, that stock is worth $400 million, according to Forbes. Married into aristocratic and elite banking families, the two have diversified into leading Mexican firms (and subsidiaries of such multinationals as Kimberly Clark and John Deere).

 Like most of Mexico's super-rich, Jorge Larrea Ortega is a big backer of the ruling Institutional Revolutionary Party. Ortega parlayed a small fortune made in construction into one of Mexico's largest mining companies (including joint ventures with U.S.-based Asarco and Belgium's Union Minière) which extracts 90 percent of the country's copper, gold, silver and zinc. Like many of the superwealthy, Ortega secured his fortune by buying government property at giveaway prices. His purchase of government-owned mines, in fact, kicked off President Salinas' privatization scheme. Worth about $1.1 billion, Ortega is also one of the Mexican investors who got a piece of the action in Bank of Mexico in 1992.

 Privatized television has been a bonanza as well. Household appliance magnate Ricardo Salinas Pliego (no relation to the departing PRI president), owner of the Elektra chain of retail stores, purchased the formerly state-run Television Azteca, with its two national networks, for $645 million. Salinas Pliego's undercapitalized bid for part of the national airwaves, and lucrative advertising market, is being aided by a joint venture announced in June with General Electric's NBC. NBC will supply TV Azteca with a steady supply of programming, which "gives the Mexican network access to news, sports, made-for-TV movies, teen-programming, miniseries and other NBC offerings, including the network's cable business channel, CNBC," according to Mexican Business. Salinas Pliego's family worth is estimated at $1.2 billion.

 In what may be just the tip of the iceberg, a recent scandal involving a major banking group is shedding light on the PRI's cozy relationship with the very rich. In September 1994, Mexico's Finance Minister Pedro Aspe announced the government takeover of the Cremi-Union financial conglomerate, owned by super-billionaire Carlos Cabal Peniche, and the fifth largest financial group in Mexico. "Cabal Peniche had used the banks' deposits as his piggy bank. He had borrowed from Banco Union [one of the two banks in the conglomerate] in a huge way, often through paper companies, to assemble a business empire," according to London-based Latin American Weekly Report. Cabal reportedly saw his wealth increase from near zero to $2 billion between 1980 and 1994. Aspe declared Cabal's actions illegal and a warrant has been issued for Cabal's arrest.

 Even though he had been named in several previous criminal investigations, including the BCCI scandal, in Mexico, there seemed no cause for concern on his part. This is perhaps due to Cabal's excellent connections. According to Mexican press accounts, Cabal's partners at Cremi-Union include Federico de la Madrid, son of former president Miguel de la Madrid, Carlos Hank Gonzales, the political head of the Zedillo campaign and Salinas' Secretary of Agriculture, among other PRI officials.

 Salinas' selective favoritism will have a long-term structural effect on the Mexican economy, says Denise Dresser, a visiting fellow at the Washington, D.C.-based Inter- American Dialogue. "Salinas' decision to gamble on a select group of entrepreneurs has fostered a kind of business Darwinism," she says. This policy, which was geared toward modernizing key sectors of the economy, has "led to an enormous concentration of wealth in assets in the hands of a few conglomerates," says Dresser. Mexico's leading business magazine, Expansion, reported recently that 10 conglomerates now account for 55 percent of all sales in Mexico and 56 percent of business credit.

Shaky ground

 With the outcome of Mexico's August 21 presidential elections assuring a continuation of the same neoliberal model now in place (the PRI took 51 percent of the vote in elections marred by charges of fraud), this orgy of privatization and fortune "building" is sure to continue. And Mexico's super-rich couldn't have a better person to guarantee business as usual when the PRI baton will be passed for another six years in December. President- elect Zedillo showed his commitment to the status quo following the 1982 bank crisis as one of the key PRI men responsible for the government-led rescue of debt-saddled companies.

 There exists only one apparent potential check on further entrenchment of the neoliberal project: the social discontent simmering in both cities and the countryside. If it reaches boiling point, the entire Mexican political and economic situation could change. Already, the stock market boom of the early 1990s has turned into a rollercoaster ride driven by fear of renewed fighting between Zapatista rebels and the Mexican army. With Mexico's experiment in neoliberalism built on the shaky ground of speculative finance capital, the months ahead may witness a rupture in this model, and with it the PRI itself.

The PRI Soldier

 Imagine if CBS, NBC and ABC were all controlled by one man. Worse, a man who used his media muscle to advance the interests of a single political party.

 This is roughly the media power controlled by Mexican businessman Emilio Azcárraga Milmo, billionaire owner of media giant Televisa and Latin America's richest man, according to Forbes magazine.

 Grupo Televisa, larger than the three U.S.-based television networks combined, runs three national networks, owns 200 affiliates and airs 42,000 hours of programming a year.

 When the chips were down for the ruling Institutional Revolutionary Party (PRI) in the months leading up to the elections, Televisa played fast and loose with the truth in helping to restore public confidence in the PRI through unabashedly one-sided coverage.

 "Televisa cameras [favorably] follow Zedillo's campaign in minute detail," observed the conservative monthly magazine Mexico Business during the campaign, while "those of Cárdenas and Fernandez rarely see coverage, unless it's a political blunder showing them in a less than positive light." Cuauhtémoc Cárdenas heads the left-of-center Democratic Revolutionary Party (PRD) and Diego Fernandez de Cevallos the conservative National Action Party (PAN).

 Throughout Latin America, Emilio Azcárraga has earned the title "PRI soldier." His media empire, which functions as an unofficial PR arm of the PRI, controls an astounding 90 percent of the Mexican advertising market and has a viewing audience estimated at 80 million. His power, however, extends well beyond national hegemony on the airwaves. He is also the largest publisher of Spanish-language periodicals worldwide. And with Televisa's joint ventures, including a deal with the QVC shopping channel, Azcárraga is without a doubt a major player in the global telecommunications market.

 The experience of the San Francisco-based Global Exchange, which sent observer teams to Mexico for the national elections, is instructive. Televisa's news program "24 Hours" covered Global Exchange's post-election press conference, but aired only the group's discussion of what went well on election day. When Global Exchange's representatives turned to their criticisms of the election process, Televisa cut away.

 Global Exchange held a demonstration on August 23 in front of Televisa's offices to demand a correction of the record. Televisa officials finally relented, agreeing to take a statement from the group and to air it on a subsequent broadcast. But, according Global Exchange, the criticisms never appeared.

 David Brooks, New York correspondent with Mexico's independent daily La Jornada, says, "Televisa has provoked a pubic reaction so strong, there are always demonstrations in front of its offices in Mexico City. It is seen as one of the villains."

 Azcárraga's power may be curbed by a new kid on the block, a sort of Mexican Ted Turner, who has launched TV Azteca, a private network associated with NBC. TV Azteca is owned by another of Mexico's billionaires, Ricardo Salinas Pliego. Pliego, who also heads the retail chain Grupo Elektra, entered the television business after purchasing two national networks from the Mexican government in 1993 for $645 million. With NBC supplying TV Azteca with high-quality programming - news, sports, made-for-television movies, and even CNBC - Pliego might force Televisa to be less heavy handed. Few Mexicans, though, are holding their breath.

 - J.S.