Bancomext: Creation, Boom, Survival and, Revival?

Francisco Suárez Dávila

Bancomext: Creation, Boom, Survival and, Revival?
If Bancomext has managed to endure and is now at a stage of clear expansion, it is because from inside but also from other platforms, various institutions and individuals have been watching over it. Here is a first-hand testimony on the history of the bank, undoubtedly marked by vicissitudes but also filled with evidence of a real capacity for reinvention.

 

I am very honored to contribute with some ideas to this commemorative edition of the 80th anniversary of the founding of Bancomext, a very prestigious institution that, as a development bank, contributed effectively to our economic evolution. It had various stages with ups and downs that corresponded to the policies and the modes of thought that supported them. In my view, the bank’s history can be analyzed in five stages: its creation and consolidation (1937-1970); the first amputation and decline (1970-1982); boom and expansion (1982-2000); survival (2000-2012) and rebirth (from 2013 to date).

 

Four Episodes

 

I am going to refer to four fundamental episodes within the stages of the bank’s history that are almost autobiographical testimonies. First: the creation of the bank in 1937, whose responsibility as founder was in the hands of the Secretary of Finance, Eduardo Suárez, my father. Second: the structural transformation of the institution —when the Bank of Mexico transferred to it the Mexican Fund for Export Promotion (Fomex) and the advertising functions are reinstated after the disappearance of the Mexican Institute of Foreign Trade (imce)— and the participation I had in these episodes as Undersecretary of Finance. Thirdly: the struggle for the survival of the bank that I supported as federal deputy. Fourth: from these experiences and within the current stage of its “rebirth”, I will propose some ideas for its future.

 

The Creation of Bancomext (1937)

 

As part of President Cárdenas’s extensive program to create comprehensive support institutions for rural Mexico, Bancomext was born in 1937. The creation of this new national bank was consistent with the policies of the Secretary of Finance at that time, whose main objective was the growth of the country's economy, supported by a set of development banks (Nafinsa, Cooperative Credit, Rural Credit and Banobras), as innovative instruments of economic policy. It was the time referred to as “developmentalism”, an economic strategy that allowed us to grow at an annual rate of six percent.

The task of creating the bank was the responsibility of the Secretary of Finance, Eduardo Suárez, and the director of the Bank of Mexico, Luis Montes de Oca. Suárez relates in his memoirs:

The Secretariat of Finance thought it advisable to have a bank to finance foreign trade operations, mainly the exportation of Mexican products (agricultural). For this reason, the Bank of Foreign Trade was constituted, which began operating on July 1, 1937, and Mr. Roberto López, who had an extensive background as a public official of the Secretariat of Finance, was appointed managing director […]. The selection could not have been more appropriate; Mr. López acted as managing director from its foundation to 1950.1

 

The other fundamental player, Mr. Luis Montes de Oca, was in charge of the Constitutive Deed and Articles of Association Project of the National Bank of Foreign Trade. The bank claimed to be the “coordinating center for exportation activities”, with original aspects. They wanted to give the new entity some characteristics of a private institution; that is why no special law was created, but simply a constitutive deed. It would, however, be a “national institution”: the federal government and the Bank of Mexico would provide the majority of the capital, which “should be substantial”. In order to confirm its mixed character, there were shareholders from the National Bank of Mexico, the Trade Bank and the Mexican Bank, among others. Its main role was to contribute to the strengthening of the balance of payments and, in particular, to support the exportation of agricultural products.

The bank was looking for its niche and was consolidating. It was oriented towards supporting production, organizing producers, consolidating exportation, looking for markets and avoiding the intermediaries that exploited the peasants. The main products supported were some of the chief traditional export goods: cotton, henequen, yarn, chickpea, coffee, banana. It began with good auspices and was soon able to obtain credit from foreign banks, such as the Chemical Bank in New York and the Hibernia National Bank in New Orleans, despite the fact that government debt was still in default. The bank was gradually increasing its presence and adjusting to the changes in the international environment and in national policies.2

In 1971, it suffers its first amputation, which meant the separation of the financing function of the promotion function. It entered a period of ambiguity and decline. When the government of Echeverría was initiated, they realized that the model of “stabilizing development” and the process of import substitution had been exhausted. A major effort in export promotion was required. This is why the government decided to create a new institution. On December 31, 1971, the imce was created, which would be responsible for “the implementation of a program to reorder export policy”. Most importantly, the imce was constituted with personnel and resources that were passed down from the bank. It was focused on the tasks of promoting and coordinating efforts between the public and private sectors, as well as on programs to increase sales abroad. That is, the bank’s field of action was considerably reduced. The director, Mr. Francisco Alcalá, aimed it primarily towards the granting and management of loans. He focused on dealing with the export of traditional agricultural products.3

 

The great structural transformation (1982-1988)

 

The nationalization of banking in September 1982 was a major shock to the country’s economy and financial sector. President De la Madrid, with vast experience in this field, focused on finding effective solutions. In the weeks preceding the change of government, the President-elect summoned me to a meeting. He indicated that he wanted me to work on the design of a new financial system within certain guidelines. He gave me a card on which, in his own handwriting, it said: “Nationalizing is not statizing”. He wanted the system to move, as much as possible, towards being one of mixed banks, such as when the Mexican Bank and the International Bank had been nationalized because of serious financial problems. In those cases, the property was public, but there were private sector consultants, and it was a matter of operating as commercial banks and competing. He indicated to me that to carry out this task I should hold interviews with the best in the financial public sector: Jesús Silva Herzog, Miguel Mancera, Ernesto Fernández Hurtado, Mario Ramón Beteta, Alfredo Luengas, Francisco Vizcaya and Carlos Salinas, among others. After a while, I presented a report at a meeting, chaired by the President of the Republic, with the interviewees present. Among other items, it addressed the strengthening and streamlining of development banking. To this end, a start was to consolidate the funds or development trusts in the bank of the sector to which they belonged. Thus, I made the proposal, which was approved by all, to integrate Fomex into Bancomext.

President De la Madrid appointed me Undersecretary of Finance. As such, I was the substitute for the President of the Council of Bancomext, Secretary Silva Herzog. On many occasions, I presided over the Council and the very important Credit Committee. Alfredo Phillips was appointed director of the bank. There was a great friendship between us from the time we worked together at the Bank of Mexico. We collaborated in order to give the bank a new impetus. We used to joke that at that time it was better known in Latin America for its prestigious magazine Comercio Exterior (Foreign Trade) than for its role as a bank.

Fomex was integrated into the bank on August 1st, 1984. Likewise, the so-called 1.6% line was also transferred to it, which was operated by the Bank of Mexico to finance primary export products. Subsequently, in 1986, the imce was liquidated and with this the bank was able to fully assume promotion functions again. It had been shown that, to be effective, the promotion function should be associated with financing; otherwise, it meant support for “economic tourism”!

Very important legal support and institutional tasks were carried out, which well defined the functions of the development bank responsible for foreign trade. In 1985, Bancomext was constituted as a National Credit Society and Development Bank. In January 1986, for the first time, a very comprehensive and well-integrated organic law was issued. I had the privilege of signing the document as Undersecretary of Finance, running the office on behalf of Silva Herzog. Its basic definition, in article 3, was that Bancomext would “aim to finance the country’s foreign trade, as well as participate in the promotion of such activity”. Whereas, article 6 contained an exhaustive list of objectives and operations that allowed the bank to fulfill its vocation:

It included pre-exportation, exportation, importation, import substitution, granting of financial support, credit guarantees, participating in the social capital of foreign trade companies and exportation consortia, financial support to indirect exporters in order to optimize the production chain of exportable goods or services; promoting joint finance ventures with other credit institutions; being a financial agent of the federal government in the negotiation and contracting of foreign credits; a federal government consultation body; providing information and technical assistance to producers, traders and exporters; participating in the activities inherent in the promotion of foreign trade and participating in the promotion of the export offer.4

 

The Bank, under the management of Alfredo Phillips, focused enthusiastically on this range of activities. It is worth highlighting some notable aspects. The bank’s activities took place amid the foreign debt crisis, which detonated in 1982. The bank, through its activity, which generated foreign exchange, was one of the few institutions that could contract foreign credit lines to support production plants. It was argued that not only could it operate on the second floor so it wouldn’t “compete with private banking” but that it could also continue acting on the first floor.

In 1985, Bancomext was the fourth banking institution thanks to the volume of credit it channeled. It generated sufficient profits to finance promotion, which had previously been done by imce, without requiring fiscal resources. It never had to receive financial support, like other public and private banking institutions. By then (with the integration of Fomex), it financed the exportation of manufacturing products, public company equipment and the importation of commodities, like newsprint, fertilizers and chemical products. It developed great creativity by promoting the use of new financial instruments, such as the Program of Integral Promotion of Exportation (Profiex), the letter of domestic credit, the Program of Fixed Investment Financing (fife), with resources from the World Bank, and credit insurance. It also developed a wide and effective network of commercial consultants. It was an important agent in debt renegotiation, including the Paris Club negotiations, which were foreign trade loans. The bank also emerged unscathed from the banking crisis of 1994 and continued to be an institution that could support the production plant and exportation.

 

The fight for survival (2000-2013)

 

Since 2000, the neo-liberal intellectual trend inspired by international organizations that wanted development banking to disappear or at least shrink was at its peak. An imf recommendation from October 2006 stated: “Subject to a clear definition of objectives, a development agency should replace Nafin and Bancomext”.5 The Secretariat of Finance decided, at the beginning of President Fox’s administration, that Bancomext should disappear by means of its integration into National Financial. At that time, I served as a federal deputy and was pri coordinator for the Finance Committee. We launched a major campaign to oppose this decision, which crystallized at a point of agreement presented by Senator Scherman at the Standing Committee on August 11, 2004, with wide legislative support, which said: “The Standing Committee of the Congress of the Union rejects the initiative announced by the federal government to merge or liquidate the National Bank of Foreign Trade with National Financial, because it is an inadequate solution and further injures the capacity of the Mexican state and the financial system to support the sustained and equitable development of the country”.6

This position is considered to have saved the bank. Then, the merger was attempted in the “back room”, through various “illegal or bordering on illegal” subterfuges. A director was appointed for the two institutions: first, Mario Laborín, then Héctor Rangel, operating from Nafin. The institution was reduced to its minimal expression. Common support areas, such as the legal, or elements necessary for its operation, such as commercial representations and the information bank, were removed. Once again they “amputated”, illegally, the promotion functions consecrated in its Organic Law, transferring them to what is now ProMéxico. The biggest absurdity was that Bancomext was financing the promotion with its profits. The new institution required a new budget line to finance its bureaucracy.

We carried out a broad campaign in the legislature, in discussion forums and in the media, to expose and oppose illegalities. This campaign had the enthusiastic participation of the legislators Ángeles Moreno and Yeidckol Polevnsky, as well as David Ibarra, Alfredo Phillips, Enrique Vilatela, Sinudet and others.

In January 2007 I gave a speech that essentially established 10 reasons for questioning the merger of Nafin and Bancomext, and the disintegration of promotion and credit:

The de facto merger violated two laws issued by the Congress of the Union; it partially contravened a point of agreement of that Congress; the formula responded to an interference by the imf; the great industrial development bank, Nafin, the merger, had become a limited “National Factor”, guarantor of commercial banks; Bancomext had consolidated an effective financing and promotion structure that should go together; the promotion did not require fiscal resources, the bank was financing it; they didn’t learn from the failure of imce; Bancomext was dismembered, including its commercial representatives; Mexico was swimming against the tide of history, all advanced countries have an Exim Bank.7

 

Bancomext’s rebirth and its future: some reflections

 

President Peña Nieto’s government took the decision to relaunch Bancomext and strengthen its development work. He named in charge Enrique de la Madrid, who knew well the importance of the bank and the role it could play. It strengthened the areas that had been cut. He played a key role in the substantial task of backing the economic arrangements that were made on international presidential tours. The bank’s prestigious magazine was revived. The new director, Alejandro Díaz de León, continued down that institutional route. At the end of 2016, its total credit portfolio exceeded 200 billion pesos; it is the country’s ninth bank and it practically caught up with the diminished Nafin. But it needs more resources.

For the future and with the happy coincidence that its current director was also director of ProMéxico, and that he knows the bank well, this revival must be concluded by reinstating the promotional function that should never have been lost. At the new nafta stage, renegotiated, and even more so if it collapses, it must have more resources to contribute to the diversification of exports and imports and to again reintegrate value chains within the country. Its network of commercial representatives must be recovered —in the United States it had eight— to handle promotion and credit. In this way, it would play a very important role in the negotiations of the trade agreement and the possible nafta 2.

We hope that Bancomext, moving towards its 90 years, retakes a vigorous role as a development bank and contributes to the transformation of the country as in its finest periods.

 

Translated by Aidan O'Mahony

 

 Francisco Suárez Dávila was Mexico’s representative at the oecd and the imf and Undersecretary of Finance and Public Credit.