Proceso 909
July 5, 2000
ISSN 0259–9864
 
 
 

INDEX

Editorial Elections in México
Politics On national sovereignty
Economy The financial system: bank debts and bank concentration
 
 
 

EDITORIAL

    On Sunday, July 2, general elections were held in México. Just as the press reported, the candidate for the Authentic National Party (PAN), Vicente Fox, was presented as the winner, leaving behind Francisco Labastida of the Institutional Revolutionary Party (PRI) and Cuauhtemoc Cárdenas of the Democratic Revolution Party (PRD). For many reasons, what happened in México takes on special importance not only for the Mexican people, but also for all of Central and Latin America.

    Examined from a vantagepoint inside México, the electoral defeat of the PRI is nothing to be taken lightly. Since 1946 the PRI —which was previously called the National Revolutionary Party (PNR) and then the Party of the Mexican Revolution (PRM)— as heir to one of the tendencies of the 1910 revolution, exercised uninterrupted domination of the whole of Mexican life. The PRI came to symbolize what the Peruvian novelist Mario Vargas Llosa called a “perfect dictatorship”. There were two centers of PRI power. First, there was the creation of an unconditional state bureaucracy of the party, which made of the state a niche for its interests and rivalries. In this context there arose a bureaucracy of the party to such an extent that it permitted not only the continued exercise of state power, but also of the articulation between the party and the state which had characterized the Mexican model since 1946. Secondly, state control over the trade union movement was achieved as much by identification of the state (and the PRI) with the revolution and this with the interests of the workers to such an extent that a state of affairs existed in which trade union entities were subordinated to the state.

    The networks of economic and political power are impressive for their breadth and efficiency and for their subordination of the Mexican workers to the state. The most important unions —under the umbrella of the Central Organization of the Mexican Workers (CTM)— support for the project encouraged by the PRI, in exchange for protection and material benefits. A third network is the result of the rise, with the support of the state, of an intellectual elite committed to the maintenance of the established order during the post-revolutionary phase. As opposed to the rest of the Latin American countries, in México, the intellectuals who declare themselves to be the most progressive, even the most radical —except for a few notable exceptions which can be counted on the fingers of one hand— did not succeed in opening the way for the “arm of criticism” to arrive at the “criticism of the arms”. Even so, the arm of criticism always had limits, at least during the last decade: there were those limits which many intellectuals imposed upon themselves in their desire to have accede to the benefits which the regime had established for those who, belonging to the intellectual current and the appropriate ideology would not insist on the sensitive points of the power of the PRI party. Membership in the National Council of Researchers (CNI, for its initials in Spanish), is, among other things, one of the mechanisms which permit Mexican intellectuals to receive state benefits in exchange for being good intellectuals. Fourth: state intervention in the economy, which allowed for a situation in which important economic categories might be subject to state control. Likewise, Mexican businessmen were supported by the state, but without being allowed the capacity for influence and initiative.

    These four aspects, as mentioned above, were the centers upon which the PRI based its power. The model of domination was apparently perfect, without any fissures in the wall. But near the end of the decade of the 1960’s, with the massacre of Tlatelolco in 1968, the rigidity of the regime was brought to light publicly. And not only this: it was also made evident to broad sectors of Mexican society against which the regime did not hesitate to use repression when basic structures were questioned. During the last two decades —those of the 1970’s and 1980’s— with the crisis of petroleum, the debt crisis and the drastic changes which began to take place in the world economy, it became clear that Mexican industry, born with the help of state protectionism, was not competitive and that a change of direction was, therefore, urgently needed because, if such a change were not undertaken, the country would founder into a serious economic crisis and stagnation. Businessmen demanded a greater leadership role in the state (and in the PRI), neither of which were willing to tolerate such a role by business, given that it would undermine one of the centers of the established model. To these demands by the business sector were added the demands by workers who called for subsidies and benefits which a state in the situation of deficit in which it found itself could not continue giving as it had up until now. During these same decades the problem of corruption that wracked almost all state bodies began to be more visible —until it reached alarming levels during the 1980’s. Corruption seeped in from the police forces up to the presidency of the republic. Finally, at the beginning of the 1990’s, in southern México, sectors which had been forgotten by the revolution began to make themselves felt: these were the campesinos [peasantry]. Among other things, those involved with the Zapatistas succeeded in delegitimizing the PRI as the heir to the revolution of 1910. This implied a serious political step backward for the PRI.

    During the decade of the 1990’s, as never before, the power of the PRI was placed on the agenda for discussion. But not only that: the state model which had put down roots under the aegis of the PRI was also called progressively into question. Given the rate of economic change in the world context and the fact that neo-liberal models came into fashion, in México criticisms of the PRI together with those of the state were identified, including the necessity for getting rid of the PRI with the disarticulation of the state. This became the case to the extent that this discourse began to permeate Mexican society; an alternative to the PRI had to be the opposite of what the PRI represented and to the same extent. And so the alternative of “state populism” represented by Cuauhtemoc Cárdenas, who had in mind to take over the democratic revolutionary heritage betrayed by the PRI, his old party, began to lose ground. The alternative which offered up the disarticulation of the party-state gave way to the restitution of market exemptions and the profundization of democracy. That is Vicente Fox’s banner.

    The success of democratic consolidation, economic success and overcoming the state model forged by the PRI will depend on how the PAN project can succeed in consolidating itself in time. At any rate, the successes and failures of México on this question will serve Central Americans, as they have in the past, as a reflection, or mirror, in which they might see and project themselves. The road traveled by México is perhaps a road that Central Americans will have to travel and it behooves them to learn the lessons which that experience might offer.

POLITICS

    On March 31 of this year the governments of El Salvador and the United States signed a treaty which would permit the establishment of a U.S. monitoring center against narcotics trafficking in Salvadoran national territory. The approval of the agreement for cooperation between the two governments is the source of a new confrontation between the two most important political tendencies that make up the Legislative Assembly in the country. There are two different positions. The unconditional defenders of the establishment of the monitoring center —PCN, PDC and ARENA— believe that U.S. aid is indispensable in the fight against narcotics trafficking given the lack of equipment and limited preparation of the local police on the question of narcotics trafficking. On the other hand, in the judgment of the FMLN leaders, if it is necessary to fight drug trafficking and the National Civilian Police do not have sufficient human and material resources, that is a responsibility which cannot be delegated to other nations. The strengthening and preparation of the police on these questions ought to be posed.

    In this sense, the solution to the problem of the lack of effectiveness in combating narcotics trafficking —for the deputies of the left— does not lie in the establishment of a base, disguised as a monitoring center, which permits the U.S. to establish itself in the region after losing control of the Panama Canal. The FMLN, thus presents itself as the defender of “national sovereignty” while those who defend the written accord accuse those who reject it of “having links with drug traffickers”.

    If both sides recognize the imperious need to fight drug activity and, at the same time, underline the limitations of the PNC in dealing with this scourge, there is no agreement about the terms under which direct intervention of the armed forces of the U.S. ought to be permitted on the ground in the national territory of El Salvador. On the other hand, with noteworthy affability, ex military personal and tried and true defenders of the armed forces —pointing to their capacity as defenders of the national territory— state that they are satisfied with the explanations given them by U.S. authorities. This position does not only contradict their traditional defense of the need for Salvadoran armed forces, but demonstrates their lack of concern with legal issues. For defenders of the treaty, its contradiction with the Constitution of the Republic, as the as highest law of the land, does not represent any large difficulty.

    The FMLN, on the contrary, fights to resolve doubts by putting in writing the number of U.S. personnel who will arrive in the country, in not attributing diplomatic status to support personnel and in limiting their radius of action, as opposed to what was agreed to between the governments and what was set down in the document which the Legislative Assembly has to ratify. Spokespersons for the FMLN underscore the contradiction between the content of the document and national law, which recognizes the PNC as the only body authorized to operate on questions of citizen security. Moreover, they point out that the terms of the treaty violate national sovereignty.

    But can one continue to speak of national sovereignty in the same terms used several decades ago? The current structure of the worldwide situation in terms of human ties presents serious difficulties for those who defend the sovereignty of states, limited, as they are, by land and sea limits and borders. States, today, under the influence of globalization are little more than local structures for controlling their citizens, but they are impotent when it comes to global structures in terms of economies and information. The complicated international network and the sophisticated organization of the big drug cartels are a clear example of this new reality. And this is the case to such an extent that the national states cannot control narcotics trafficking alone. And for this mutual assistance programs are necessary.

    Nevertheless, the solution does not necessarily imply U.S. monitoring centers in all countries throughout the world. Moreover, strengthening local institutions in their fight against drug trafficking is an imperious necessity to be able to count on collaboration and exchange of information between the countries involved. Seen in this light it is not a sure thing to read mutual cooperation between the governments of El Salvador and the U.S. under the same schema obtaining during the Cold War. Such a reading no longer fits in today’s world. True it is that the Latin American left has a natural lack of confidence towards everything, which the presence of the U.S. implies. But one must ask the question of up to what point can one continue speaking of national sovereignty when dependency upon that North American power is increasing.

    On the other hand, necessary external support in fighting narcotics trafficking does not absolve local authorities of their responsibility. For this very reason, one can read the full throttle defense of these proposals of the necessity for setting up the said monitoring centers in Salvadoran national territory as evidencing a certain amount of hypocrisy when at bottom there is no indication of an unequivocal commitment to strengthen and empower internal structures for the task of fighting drug trafficking. An example of this is the news of involvement by a high level governmental official in the case of a small airplane loaded with drugs which was intercepted in the international airport of El Salvador. Not only has this piece of news been suppressed, but authorities have also denied the existence of any link between any governmental official and the discovery of the aircraft with narcotics.

    In the same sense, it is a curious state of affairs which exists in the sense that in the local struggle against drug trafficking, not one of the big shots involved in narcotics trafficking has been caught —as the Attorney General of El Salvador himself recognizes. The effectiveness of the local police on the question of drugs amounts to nothing more than the public show of some criminals who do not in any way represent the highest spheres of leadership in the drug cartels. To the contrary, the director of the PNC himself does not believe that El Salvador could be an important center for drug operations, and in his declarations to this effect he contradicts himself in the tenacity with which he advocates for the setting up of U.S. anti-drug operations in the country. The need to attack the highest levels of drug trafficking in the country reveals not only the urgency for equipping the police and training them in their capacity for investigation and action on these issues, but demands more than anything else the need for the unequivocal commitment of local authorities for prosecuting criminals regardless of their rank or social category.

    Only after the assumption of a commitment of this nature can the promotion of internal support or the discussion of establishing an international anti-drug operation center in the country be spoken of. So then, there should be no great problem in establishing an entity of this kind on national soil —after dealing with the legal problems involved, of course. The argument in defense of national sovereignty has relative weight in this matter. But, along with this argument, the corresponding authorities must sign an agreement to strengthen and empower local entities charged with this task. And, moreover, a clear and firm resolution to combat drug traffickers without regard to who they are or where they come from must be demonstrated.

ECONOMY

    President Francisco Flores, in his speech at the end of his first year in office as president, recognized as the first obstacle to economic growth “the consequences of indebtedness in which we have fallen during the year 1996 and 1997, as much for the excessive use of credit as for investments... based on unrealistic projections”. According to Flores, this indebtedness has provoked greater fragility in the financial sector and insolvency for business investors.

    This evaluation is noteworthy, once again, of the role which the financial system is performing in the encouragement of economic growth because it appears that instead of encouraging it is obstructing it and this the president of the Republic himself recognizes when he says that credit for investment has been oriented in a way which is “not very realistic”.

    As a result of the growth in the delinquent portfolio [banks], the financial sector has taken up a series of increases in reserves bankruptcies, amalgamations, fusions and restructuring of credits which are modifying the structure of property in the financial system in a marked way, which is giving way to an even greater concentration than previously existed and, at the same time, is generating restrictions for the issuing of new credits. This last is dangerous because it strangles the financing of new investments which could contribute to overcoming the current stage of slow economic growth.

    The growth in bank indebtedness is a problem that has become more evident since the beginning of 1999 when tendencies indicating a fall in profits began to be noted along with an increase in delinquent credits. Near the end of 1999, data available indicated that between September 1998 and December 1999, the delinquent bank portfolio had gone from 2,154 and 3,466 million colones while the profitability of the banking system went from positive levels close to 6% to negative levels of —3.69% during the same period. This implies that the system as a whole was experiencing losses. Nevertheless, it should be clarified that in practice the majority of banks still obtained profits and only some banks, such as CREDISA —now defunct— and the Banco de Fomento Agropecuario were those which experienced negative profit rates. The same might be said for the delinquent portfolio of the banks: a good part of which belongs to the banks mentioned above, to judge by the official evaluations.
 
    For the first trimester of 2000, the figures appear to suggest that an improvement in the situation has been documented for the financial sector: reduction in delinquent bank balances and increases in the banks rates of production. The portfolio became delinquent when it registered an index of 7.3% to 5.95% between the months of December, 1999 and March, 2000, with which it returned, practically speaking, to the level of March, 1999 when the delinquent bank index was 5.86%. While the rate of production also went from —3.69% in December, 1999 to 6.58% in March, 2000.

    According to the Superintendent of the Financial System, Guillermo Argumedo, the influence of the CREDISA bank would explain the behavior of the variables mentioned above, given that the most recent statistics do not include it because it was in process of closing down and no longer extended new credits. Because of the foregoing, Argumedo recognizes that the 5.9% debt index, although it reflects a reduction, does not permit “a tendency to turn back the topic of the delinquent portfolio”.

    This is to say that the banks which still remain within the system continue to confront the serious problem of increases in bank delinquency which requires an increase in reserves and/or a restructuring of credits. Moreover, it is in this context that since the end of 1998 a strong tendency towards amalgamations, or fusions, of banks has been documented: at the end of 1998 the fusion of Bancorp with Banco Promérica took place; then that of Banco Atlacatl with the Banco de Comercio, followed by Banco Agrícola Comercial with the Banco de Desarrollo and, recently, of Banco Salvadoreño with Bancasa. At the end of 1999, the Economics Department of the UCA pointed out that, should the fusion of the Banco Agrícola Comercial with he Banco de Desarrollo, the indices of concentration would increase strongly, as an increase in the rates of participation of the four biggest bank show when it went from 66% to 74.3%. The foregoing implied that four banks of the system concentrated three fourths of the bank market —these being: Banco Cuscatlán, Banco Agrícola, Banco de Comercio and Banco Salvadoreño.

    To the foregoing must be now added the fusion of Banco Salvadoreño with Bancasa which will inevitably provoke another sensitive increase in the participation rate —the same which rose to levels close to 79%.

    In summing up the indicators reviewed, we would then have to note the permanence of an elevated level of delinquency on the part of the bank and a deepening of the tendencies towards concentration of the banking system. These indicators have joined with a reduction of two percentage points in the rates of active interest which, nevertheless, do not compensate for the strong increases in real active interest rates. It should be noted that, in spite of the great concentration in the banking system, interest rates are tending to go down; this would suggest that the bankers seem to be taking note that their policies of fixed interest rates have constituted an obstacle to increasing production growth rates.

    A rapid solution to the problem of bank delinquency is not foreseen for the near future, principally because low economic growth rates are still in place and, moreover, because the policies announced by President Flores for the agricultural and livestock sector could come to cause greater pressures on the bank portfolio. In relation with this last, it should be remembered that the already announced credit program for the coffee-producing sector takes place at a point in time in which this sector is already involved in problems of lack of solvency and the reduction of international coffee prices.

    In good measure, increasing banking delinquency and lowering bank profitability have been provoked by the same tendency of the banks to finance “unrealistic” investments, to use President Flores’ terms. CREDISA, as well as other banks, dedicated itself to financing housing construction projects without any effective demand, which, in the end, led the bank to fall into a situation of arrears or lack of liquidity which provoked its dissolution. This practice led the bank to promote a “boom” in the construction sector that, together with business and services, became the principal recipients of credit.

    The foregoing might lead one to believe that the relative failure of investments and the fall in growth rates is owing in part to the fact that the strategic growth poles have not been defined —not to mention the fact that economic policies for stimulating growth have not yet been implemented. The bank has used its own criteria for assigning credit, given that an economic policy which might orient policies for the extension of credits does not exist, owing to the ultra liberal conception assumed by the ARENA party government administrations. In this context, it is imperative that the government design its economic policy in such a way that it could orient or direct investment towards sectors with greater potential for economic growth. Should the contrary be the case, the vicious cycle of growth in bank delinquency and restriction of credits together with falling growth rates can be overcome only with difficulty.