Credit Crunch: The Banking Disaster In Mexico Whipsaws An Ailing Economy --- Loans Are Impossible to Get, And at 50% Interest Rates, Who Would Want One? --- A Corpse in the Bank Lobby
MEXICO CITY -- The catalog of repossessed properties could come straight from the pages of the U.S. savings-and-loan debacle. Mexican banks are trying, with little success, to unload collateral from low-quality loans on everything from abandoned pig farms to luxury condominiums.</br></br>But for Mexico, this is no mere S&L crisis: It's much worse. Mexico's banking disaster has wounded nearly every one of the country's 18 largest banks. And while the S&L debacle cost American taxpayers the equivalent of about 3.5% of the U.S. 1991 gross domestic product, analysts at Standard & Poor's Corp. say the bill for Mexico's mistakes could total 12% of the country's 1995 economic output.</br></br>The banking crisis is exacerbating Mexico's deepest recession on record, touched off a year ago by a botched devaluation of the peso. Mexican bankers are afraid to lend more money until they see signs of a recovery. Yet unless the bankers turn on the taps again, there's little chance the economy will pick up.</br></br>That is troubling for the U.S. as well. If Mexico's economy stagnates further, more illegal immigrants are likely to head north. Mexico is America's third-largest trading partner. And President Clinton's financial rescue of Mexico last March -- which included billions of dollars in backstops to prevent Mexico from defaulting on short-term debt -- has deepened the U.S. stake in its economy.</br></br>Less obvious than the economic consequences, but potentially more pernicious, is the damage to the cause of Mexico's free-market reform. The privatization of the banking system in the early 1990s was a key part of Mexico's effort to reverse decades of state control. But analysts now say the total cost of the bailout could soar beyond the $12 billion the government realized from its bank sales in the first place.