Fobaproa
Encyclopedia
FOBAPROA is a contingencies fund
created in Mexico
in 1990 to attempt to resolve liquidity problems of the banking system in that country. The Fobaproa was applied in 1995 during the economic crisis to protect all Mexican banks from going bankrupt, and thus destroying the Mexican Economy. However, a number of corruption cases involved in the action have been discovered and since then, it has become an object of criticism by members of the opposition.
(December 1976–December 1982) the government found itself unable to meet demands for United States dollar
s and devaluated the peso
from a value of 26 to 47 pesos per dollar. A consequence was an extremely high default debt. The López Portillo administration then decided to nationalize the banking system on September 1 of the same year, paying 3 trillion pesos (approximately 63 billion dollars at 47 pesos/dollar exchange rate) to acquire public and private credit institutions who had an accumulated debt of 25 billion dollars. The following year, in the middle of an economic crisis, president Miguel de la Madrid
(December 1982–December 1988) created the FICORCA (Fideicomiso de Cobertura de Riesgo Cambiario or "Exchange risk coverage fund") financed by a loan that would also finance the fiscal deficit, the external debt and the economic activity of the country. This fund saved twenty of the largest companies of the country from bankruptcy; these companies owed 12 billion dollars through notes with the Banco de México
. On November 10, 1986 the FONAPRE (Fondo de Apoyo Preventivo a las Institiciones de Banca Múltiple or "Fund of preventive support to banking institutions") was founded to preserve the financial stability of banks, with the government having banks as trustees. By 1987, a parallel finance industry had been created with brokering firms, investment societies etc. To continue attracting investors, interest rate
s increased at the Bolsa Mexicana de Valores
, and with the crash in the New York Stock Exchange
, the national banking system was deeply affected and another devaluation came as a result.
, in an attempt to reduce government expenses and to liberalize the economy. Eighteen banks were sold at 37.8 billion pesos for a total of 61.6 billion pesos for all 409 companies.
(December 1994–December 2000), after 6 years of battling with inflation, an overvalued peso, the reduction of international dollar reserves, political scandals in 1994 in Mexico
and other factors caused one of the worst economic crisis in the recent history
of Mexico (only surpassed by the present one). Skyrocketing interest rates caused that many companies were unable to meet payments while others withdrew massive amounts of capital. With the risk of another financial collapse the Fobaproa was applied in 1995.
The Fobaproa assumed debt for 552 billion pesos. Not applying the Fobaproa would have likely caused an interruption of credit and withdrawal from saving accounts for millions of families and thousands of companies. In January 1995 the Procapte (Programa de Capitalización Temporal or "Temporary capitalization program") was created while the Fobaproa was assuming outstanding debt to banks. The Procapte allowed faster access to a higher volume of foreign capital and the solvency of banks. A condition for Fobaproa to assume the debt was that stockholders of these financial institutions would re-invest their capital.
In 1996 the Ucabe (Unidad Coordinadora para el Acuerdo Bancario Empresarial or "Coordinating unit for the Bank-Entrepreneur Agreement") was created so that debt could be re-structured through it. 54 companies took advantage of the Ucabe to re-structure 9.7 billion dollars and avoid defaults.
four initiatives to create a legal framework to reduce the risk of another banking crisis and to create more efficient mechanisms to supervise the credit activity and to ensure bank capitalization. This package would demand more discipline in the administration of the banking system and propose the Fogade (Fondo de Garantía de Depósito or "Deposit guarantee fund") to protect the capital of small and medium savings holders. Another initiative was the creation of the
Comisión para la Recuperación de Bienes ("Commission for the recovery of assets") to recover and administer assets that the Fobaproa and the Fameval (Fondo de Apoyo al Mercado de Valores or "Support fund for the Stock Market") acquired after the crisis.
("Partido de la Revolución Democrática" or PRD) published a document titled Fobaproa: El gran atentado contra la economía. Alternativas para impedirlo (Fobaproa: The great attack against the economy. Alternatives to prevent it) and opposed the conversion of private debt to public debt. The PRD also demanded punishment to government officers and businesspeople that mismanaged the funds, and to restrict support to small and medium-size investors. On August 4 of the same year the PRD made public a list of those who benefited from the Fobaproa amidst accusations by the SHCP, the Ministry of the Interior of violations to the law of banking secrecy. The president of the PRD, Andrés Manuel López Obrador
declared that it would be "unconstitutional" to convert the funds owed by investors and bankers in public debt.
("Partido Acción Nacional" or PAN) published the document Propuestas de solución integral a la crisis bancaria ("Proposals for an integral solution to the banking crisis") and declared that not only external factors were involved in the economic crisis but also the inefficiency and corruption in the administration of banks. One of the proposals was the creation of a Instituto para el Seguro de Depósitos Bancarios ("Institute of the Insurance of Bank Deposits") supervised by Congress and to protect funds of saving-holders.
("Partido Revolucionario Institucional" or PRI) proposed the reduction of 30% of the debt assumed by the Fobaproa and that banks assumed the risk they had agreed to when the debt was acquired by the government: 45% for mortgage loans and 60% for fishing and agricultural groups. They also demanded denying bail to white collar
employees involved with corruption and a stricter supervision of banks.
Definition of Priista (a member of PRI)
Contingencies fund
A contingencies fund or contingency fund is a fund for emergencies or unexpected outflows, mainly economic crises.- History :In the early part of the nineteenth Century the Civil Contingencies Fund was created in the United Kingdom. It is held by the Treasury, and its use is regulated by the...
created in Mexico
Mexico
The United Mexican States , commonly known as Mexico , is a federal constitutional republic in North America. It is bordered on the north by the United States; on the south and west by the Pacific Ocean; on the southeast by Guatemala, Belize, and the Caribbean Sea; and on the east by the Gulf of...
in 1990 to attempt to resolve liquidity problems of the banking system in that country. The Fobaproa was applied in 1995 during the economic crisis to protect all Mexican banks from going bankrupt, and thus destroying the Mexican Economy. However, a number of corruption cases involved in the action have been discovered and since then, it has become an object of criticism by members of the opposition.
Background
In 1982, at the end of the presidency of José López PortilloJosé López Portillo
José López Portillo y Pacheco was the President of Mexico from 1976 to 1982.Born in Mexico City, López Portillo studied Law at the National Autonomous University of Mexico before beginning his political career with the Institutional Revolutionary Party in 1959.He held several positions in the...
(December 1976–December 1982) the government found itself unable to meet demands for United States dollar
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....
s and devaluated the peso
Mexican peso
The peso is the currency of Mexico. Modern peso and dollar currencies have a common origin in the 15th–19th century Spanish dollar, most continuing to use its sign, "$". The Mexican peso is the 12th most traded currency in the world, the third most traded in the Americas, and by far the most...
from a value of 26 to 47 pesos per dollar. A consequence was an extremely high default debt. The López Portillo administration then decided to nationalize the banking system on September 1 of the same year, paying 3 trillion pesos (approximately 63 billion dollars at 47 pesos/dollar exchange rate) to acquire public and private credit institutions who had an accumulated debt of 25 billion dollars. The following year, in the middle of an economic crisis, president Miguel de la Madrid
Miguel de la Madrid
Miguel de la Madrid Hurtado is a Mexican politician affiliated to the Institutional Revolutionary Party who served as President of Mexico from 1982 to 1988.-Biography:...
(December 1982–December 1988) created the FICORCA (Fideicomiso de Cobertura de Riesgo Cambiario or "Exchange risk coverage fund") financed by a loan that would also finance the fiscal deficit, the external debt and the economic activity of the country. This fund saved twenty of the largest companies of the country from bankruptcy; these companies owed 12 billion dollars through notes with the Banco de México
Banco de México
The Bank of Mexico , abbreviated BdeM or Banxico, is Mexico's central bank and lender of last resort. The Bank of Mexico is autonomous in exercising its functions, and its main objective is to achieve stability in the purchasing power of the national currency.On December 15, 2009, Agustín Carstens...
. On November 10, 1986 the FONAPRE (Fondo de Apoyo Preventivo a las Institiciones de Banca Múltiple or "Fund of preventive support to banking institutions") was founded to preserve the financial stability of banks, with the government having banks as trustees. By 1987, a parallel finance industry had been created with brokering firms, investment societies etc. To continue attracting investors, interest rate
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
s increased at the Bolsa Mexicana de Valores
Bolsa Mexicana de Valores
The Mexican Stock Exchange is Mexico's only stock exchange. It is situated on Paseo de la Reforma, a prestigious avenue in central Mexico City...
, and with the crash in the New York Stock Exchange
New York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
, the national banking system was deeply affected and another devaluation came as a result.
Fobaproa is created
In 1990, in an attempt to prevent situations similar to those of the previous two administrations, the government of Carlos Salinas de Gortari instituted the Fobaproa, a contingency fund for extraordinary financial problems. The Fobaproa would assume outstanding debt and would capitalize banks in the advent of economic crises that would present liquidity problems for these institutions. The following year hundreds of companies the government owned were privatizedPrivatization
Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...
, in an attempt to reduce government expenses and to liberalize the economy. Eighteen banks were sold at 37.8 billion pesos for a total of 61.6 billion pesos for all 409 companies.
1994 economic crisis
In December 1994 during the government of priista Ernesto ZedilloErnesto Zedillo
Ernesto Zedillo Ponce de León is a Mexican economist and politician. He served as President of Mexico from December 1, 1994 to November 30, 2000, as the last of the uninterrupted seventy year line of Mexican presidents from the Institutional Revolutionary Party...
(December 1994–December 2000), after 6 years of battling with inflation, an overvalued peso, the reduction of international dollar reserves, political scandals in 1994 in Mexico
1994 in Mexico
Events in the year 1994 in Mexico.- Incumbents :* President - Carlos Salinas de Gortari until November 30, Ernesto Zedillo- Events :* January 1 – The North American Free Trade Agreement between Mexico, Canada and the United States goes into effect* January 1 – The Zapatista Army of National...
and other factors caused one of the worst economic crisis in the recent history
1994 economic crisis in Mexico
The 1994 Economic Crisis in Mexico, widely known as the Mexican peso crisis, was caused by the sudden devaluation of the Mexican peso in December 1994....
of Mexico (only surpassed by the present one). Skyrocketing interest rates caused that many companies were unable to meet payments while others withdrew massive amounts of capital. With the risk of another financial collapse the Fobaproa was applied in 1995.
The Fobaproa assumed debt for 552 billion pesos. Not applying the Fobaproa would have likely caused an interruption of credit and withdrawal from saving accounts for millions of families and thousands of companies. In January 1995 the Procapte (Programa de Capitalización Temporal or "Temporary capitalization program") was created while the Fobaproa was assuming outstanding debt to banks. The Procapte allowed faster access to a higher volume of foreign capital and the solvency of banks. A condition for Fobaproa to assume the debt was that stockholders of these financial institutions would re-invest their capital.
In 1996 the Ucabe (Unidad Coordinadora para el Acuerdo Bancario Empresarial or "Coordinating unit for the Bank-Entrepreneur Agreement") was created so that debt could be re-structured through it. 54 companies took advantage of the Ucabe to re-structure 9.7 billion dollars and avoid defaults.
Preventive measures
In March 1998, the Zedillo cabinet presented to the Congress of MexicoCongress of Mexico
The Congress of the Union is the legislative branch of the Mexican government...
four initiatives to create a legal framework to reduce the risk of another banking crisis and to create more efficient mechanisms to supervise the credit activity and to ensure bank capitalization. This package would demand more discipline in the administration of the banking system and propose the Fogade (Fondo de Garantía de Depósito or "Deposit guarantee fund") to protect the capital of small and medium savings holders. Another initiative was the creation of the
Comisión para la Recuperación de Bienes ("Commission for the recovery of assets") to recover and administer assets that the Fobaproa and the Fameval (Fondo de Apoyo al Mercado de Valores or "Support fund for the Stock Market") acquired after the crisis.
Controversy
The last initiative was to convert to public debt the amount of 552 billion pesos the Fobaproa assumed. This caused Congress to order an audit and to freeze the initiatives until the completion of such audit. In July 1998, the Secretaría de Hacienda y Crédito Público (SHCP, the Mexican Office of Revenue) approved Congress to analyze all operations associated with the Fobaproa. Congress also held hearings with several officers and ex-officers, entrepreneurs and bankers to discover any fraud that might had taken place during the Fobaproa. Much of the payable debt was also classified as unpayable, and no investigations were made to know if there was any amount that could be recovered.PRD
The Party of the Democratic RevolutionParty of the Democratic Revolution
The Party of the Democratic Revolution is a democratic socialist party in Mexico and one of 2 Mexican affiliates of the Socialist International...
("Partido de la Revolución Democrática" or PRD) published a document titled Fobaproa: El gran atentado contra la economía. Alternativas para impedirlo (Fobaproa: The great attack against the economy. Alternatives to prevent it) and opposed the conversion of private debt to public debt. The PRD also demanded punishment to government officers and businesspeople that mismanaged the funds, and to restrict support to small and medium-size investors. On August 4 of the same year the PRD made public a list of those who benefited from the Fobaproa amidst accusations by the SHCP, the Ministry of the Interior of violations to the law of banking secrecy. The president of the PRD, Andrés Manuel López Obrador
Andrés Manuel López Obrador
Andrés Manuel López Obrador , also known as AMLO or El Peje, is a Mexican politician who held the position of Head of Government of the Federal District from 2000 to 2005, before resigning in July 2005 to contend the 2006 presidential election, representing the unsuccessful Coalition for the Good...
declared that it would be "unconstitutional" to convert the funds owed by investors and bankers in public debt.
PAN initiatives
On August 20 of the same year the National Action PartyNational Action Party (Mexico)
The National Action Party , is one of the three main political parties in Mexico. The party's political platform is generally considered Centre-Right in the Mexican political spectrum. Since 2000, the President of Mexico has been a member of this party; both houses have PAN pluralities, but the...
("Partido Acción Nacional" or PAN) published the document Propuestas de solución integral a la crisis bancaria ("Proposals for an integral solution to the banking crisis") and declared that not only external factors were involved in the economic crisis but also the inefficiency and corruption in the administration of banks. One of the proposals was the creation of a Instituto para el Seguro de Depósitos Bancarios ("Institute of the Insurance of Bank Deposits") supervised by Congress and to protect funds of saving-holders.
PRI initiatives
A week later, on August 28 the Institutional Revolutionary PartyInstitutional Revolutionary Party
The Institutional Revolutionary Party is a Mexican political party that held power in the country—under a succession of names—for more than 70 years. The PRI is a member of the Socialist International, as is the rival Party of the Democratic Revolution , making Mexico one of the few...
("Partido Revolucionario Institucional" or PRI) proposed the reduction of 30% of the debt assumed by the Fobaproa and that banks assumed the risk they had agreed to when the debt was acquired by the government: 45% for mortgage loans and 60% for fishing and agricultural groups. They also demanded denying bail to white collar
White-collar worker
The term white-collar worker refers to a person who performs professional, managerial, or administrative work, in contrast with a blue-collar worker, whose job requires manual labor...
employees involved with corruption and a stricter supervision of banks.
Executive and Legislative Branch agreements
On September 1998, the government of Ernesto Zedillo and the groups of the PAN, PRD, PRI, PT and PVEM in Congress agreed on establishing a framework of agreements to approve the presidential initiatives. The agreements contemplated the creation of supervision mechanisms to oversee credit activities, to study the legality of financial operations associated with the Fobaproa, to establish legal frameworks to prevent new financial crises, to punish those who illegally benefited from or permitted unlawful operations and to support small and medium-sized entrepreneurs and a more equitable distribution of the costs of the Fobaproa.External links
IPAB Instituto para la Protección al Ahorro Bancario Mexico's deposit insurance agency- The Mexican Economy at the Banco de MéxicoBanco de MéxicoThe Bank of Mexico , abbreviated BdeM or Banxico, is Mexico's central bank and lender of last resort. The Bank of Mexico is autonomous in exercising its functions, and its main objective is to achieve stability in the purchasing power of the national currency.On December 15, 2009, Agustín Carstens...
site Si nadie entiende, paguen ahora ("If nobody understands, then pay now"), article by Carlos MonsiváisCarlos MonsiváisCarlos Monsiváis Aceves was a Mexican writer, critic, political activist, and journalist. of French decent He also wrote political opinion columns in leading newspapers and was considered to be an opinion leader within the country's progressive sectors. His generation of writers includes Elena...
Black list at El BarzónEl BarzónEl Barzón is a movement of low and low-middle class private business and farming interests in Mexico.A Barzón, in terms of agriculture, is the yoke-ring to which a rope or chain is attached to pull a farm plow; a hitch-ring, connecting-ring, a pull-ring. The name comes from a Mexican revolutionary...
's site Expediente Fobaproa ("The Fobaproa file") at La JornadaLa JornadaLa Jornada is one of Mexico City's leading daily newspapers. It was established in 1984 by Carlos Payán Velver. The current editor is Carmen Lira Saade...
Fobaproa–IPAB El rescate bancario salvó al país ("The banking rescue saved the country"), article on todito.comTodito.comtodito.com was a Mexican web portal owned by Grupo Salinas, created in 1999 and shut down in 2007. Its Chief Executive Officer was Tim Parsa....
Definition of Priista (a member of PRI)