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Viewing cable 08MEXICO2187, WHO ARE MEXICO'S WEALTHIEST BUSINESS LEADERS?
Reference ID Created Released Classification Origin
08MEXICO2187 2008-07-16 20:08 2011-02-14 12:12 CONFIDENTIAL Embassy Mexico
VZCZCXRO9189
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #2187/01 1982012
ZNY CCCCC ZZH
P 162012Z JUL 08
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 2588
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUEHC/DEPT OF LABOR WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RHMFISS/CDR USSOUTHCOM MIAMI FL
RHMFISS/CDR USNORTHCOM
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
C O N F I D E N T I A L SECTION 01 OF 05 MEXICO 002187
SIPDIS
STATE FOR A/S SHANNON
STATE FOR WHA/MEX, WHA/EPSC, EB/IFD/OMA, AND DRL/AWH
STATE FOR EB/ESC MCMANUS AND IZZO
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GERI WORD
USDOC FOR ITS/TD/ENERGY DIVISION
TREASURY FOR IA (RACHEL JARPE, LUYEN TRAN)
DOE FOR INTERNATIONAL AFFAIRS KDEUTSCH, ALOCKWOOD, GWARD
NSC FOR RICHARD MILES, DAN FISK
STATE PASS TO USTR (EISSENSTAT/MELLE)
STATE PASS TO FEDERAL RESERVE (BORA DURDU)
E.O. 12958:
DECL: 04/05/2011
TAGS: ECON EINV MX
SUBJECT: WHO ARE MEXICO'S WEALTHIEST BUSINESS LEADERS?
REF: A. MONTERREY 101
B. 06 MEXICO 6413
C. 08 MEXICO 1840
D. 07 MEXICO 6249
Classified By: Classified by Acting Econ M/C Laura Kirkconnell for reas
ons 1.5 (b) and (d.)
¶1. (SBU) Summary: Mexico, a country where roughly 40% of the
population lives in poverty, has 10 people on FORBES
Magazine's 2008 list of the world's billionaires. While
these individuals have made important contributions to
society via the expansion of services to marginalized areas,
job creation, and charitable donations, this concentration of
wealth and economic power hinders Mexico's ability to realize
more and deeper levels of competition in key industries.
This telegram spells out who these individuals are, how they
got where they are, and how this concentration of wealth
affects Mexico. End Summary.
------------------------------------
Mexico's Wealthiest Business Leaders
------------------------------------
2. (SBU) A number of prominent families control a significant
amount of wealth in Mexico. The net wealth of the ten
richest people in Mexico -- a country where more than 40% of
the population lives in poverty -- represents roughly 10% of
the country's GDP. To facilitate USG understanding of what
analysts are referring to when they talk about Mexico's
wealthiest business leaders, Post is providing the following
list, which draws from FORBES Magazine's 2008 list of the
world's billionaires. This list is by no means exhaustive.
Carlos SLIM Helu and family
------------------------
¶3. (SBU) In March 2008, FORBES ranked telecom tycoon Carlos
SLIM as the second-richest person in the world, behind Warren
Buffet and ahead of Bill Gates. His net worth of $60 billion
dollars is roughly equivalent to 6% of Mexico's GDP. This is
up from $13.8 billion dollars in 2004, when he ranked number
17. SLIM made it into the big leagues in 1990 when he led a
group of investors in buying Telmex from the GOM in a public
tender during the presidency of Carlos Salinas. Telmex now
controls nine of every ten landlines in the country, while
SLIM-controlled America Movil via its subsidiary Telcel has
73% of Mexico's cellular phone market.
¶4. (U) SLIM's business empire extends beyond
telecommunications. He has stakes in an airline, a bank, a
construction company, department stores (including Sanborns),
restaurants, music outlets, and he sells insurance, auto
parts, and ceramic tiles. He is developing a business
presence throughout Latin America. SLIM's holding company,
Grupo Carso, has stepped up its charitable donations in
recent years.
Alberto Bailleres and family
-------------------------
5. (U) Alberto Bailleres owns a holding company called Grupo
Bal, which controls a large number of businesses, including
the huge metallurgical company Industrias Penoles; the luxury
department store Palacio de Hierro; and other companies
related to insurance, financial services, and agriculture.
His father founded ITAM, one of Mexico's top economic
universities. Bailleres' net worth is $9.8 billion dollars.
German Larrea Mota-Velasco and family
----------------------------------
¶6. (U) German Larrea Mota-Velasco, whose net worth is $7.3
billion, is the CEO of mining company Grupo Mexico -- the
world's third-largest copper producer. He also has a
transportation business that includes the country's biggest
railroad. He sits on the boards of Grupo Banamex, Grupo
MEXICO 00002187 002 OF 005
Bursatil Mexicano, Grupo Televisa, and Seguros Comercial
America.
Ricardo Salinas Pliego and family
------------------------------
¶7. (U) With a net worth of $6.3 billion, Salinas took over
his family's discount retailer, Grupo Elektra, in 1987. He
also launched TV Azteca, which is now Mexico's second-largest
television network; mobile carrier Unefon; and Banco Azteca,
a bank run out of Elektra stores that serves nearly 15
million mostly low-income clients.
Jeronimo Arango
--------------
¶8. (U) Jeronimo Arango, whose net worth is $4.3 billion, is
cofounder of the Bodega Aurrera supermarket chain. In
addition to supermarkets, his family's company, Grupo Cifra,
has restaurants and fashion stores. Cifra partnered with
Wal-Mart in the early 1990s, but was later bought out by
Wal-Mart, which became Wal-Mart de Mexico. Arango cashed out
for more than $2 billion dollars, and kept some of the
company's stock.
Isaac Saba Raffoul and family
--------------------------
¶9. (U) Saba runs Grupo Casa Saba, which markets health,
pharmaceutical, and beauty products throughout Mexico. Saba
has a joint venture with Telemundo to produce
Spanish-language soap operas in the U.S. and Latin America.
He tried to get a Mexican broadcasting license in 2006, but
Televisa and TV Azteca so far have managed to prevent his
full entry into the market. His net worth is $2.1 billion.
Roberto Hernandez and family
-------------------------
¶10. (U) Worth $1.7 billion, Hernandez was CEO of Banamex when
the bank sold out to Citigroup in 2001 -- a deal that gave
him almost $2 billion dollars. He owns resorts on the
Yucatan Peninsula.
Emilio Azcarraga Jean and family
-----------------------------
¶11. (U) Emilio Azcarraga Jean is Grupo Televisa's chairman
and the son of an entrepreneur who built the company from a
string of radio stations into a huge conglomerate. Televisa
owns Mexico's two main cable television and satellite
providers (Cablevision and Sky). Azcarraga was handed a
legal setback last year when the Supreme Court struck down
provisions of a radio and television law designed to protect
Televisa from new competition. He is on the boards of
Telmex, Univision, and Banamex. His net worth is $1.6
billion.
Alfredo Harp Helu and family
-------------------------
¶12. (U) Worth $1.6 billion, Harp is a beneficiary of
Citigroup's buyout of Banamex. He owns the country's
second-largest telephone company (Avantel) and the Mexico
City Red Devils baseball team. He is an active
philanthropist and Carlos SLIM's cousin.
Lorenzo Zambrano and family
------------------------
¶13. (U) Mexico's tenth-richest man is Lorenzo Zambrano, the
head of cement giant Cemex. Zambrano, who inherited the
company from his grandfather, has turned the company into one
of the world's largest cement makers (Ref A). He also owns
part of the telecom company Axtel, and sits on the boards of
several large Mexican businesses.
---------------------------
How They Got Where They Are
---------------------------
MEXICO 00002187 003 OF 005
¶14. (SBU) It is difficult to make generalizations about how
these individuals accumulated their wealth. While most of
them inherited their wealth, others are largely self made.
And while some in this group have embraced the need for
transparency and modern business practices, others prefer
their privacy and more traditional ways of doing business.
That said, some of these individuals clearly took advantage
of shortcomings in Mexican institutions and their
relationships with important political figures to expand
their wealth. Several of the business dynasties that these
individuals own took off in the 1990s, when then-President
Carlos Salinas de Gortari (PRI) began dismantling Mexico's
centralized economy. Salinas sold off more than 1,000
state-run companies from metal foundries to railroads.
Unfortunately, in some cases, these privatizations ended up
creating private-sector monopolies -- benefiting savvy
businessmen and politicians while leaving the average Mexican
out in the cold.
15. (SBU) A classic example of this is Telmex's
privatization. When SLIM and his partners purchased Telmex
in 1990, the government gave them extremely favorable terms.
Not only did the GOM sell the Telmex monopoly intact, it
barred competition during the first six years
post-privatization. While countries like the U.S. initially
barred local "baby bell" carriers from offering long-distance
and cellular service in their same area, Telmex got to do all
of this at once, and across the entire country. Indeed, it
won the only nationwide cellular-telephone concession, while
rivals had to settle for concessions that were limited to
certain regions. When competition was allowed in long
distance, foreign carriers were limited to a minority stake
in the fixed-line business. Similarly, Ricardo Salinas
acquired the state-owned Imevision television network via
auction in 1993, converting it into TV Azteca.
--------------------------
The Downsides of Dominance
--------------------------
16. (SBU) The negative aspects of this concentration of
wealth and economic power cannot be overlooked because many
of these individuals control the monopolies and oligopolies
that hold back economic growth. SLIM, Salinas, and others
have used their influence to sway economic policy and work
the system to further their business interests and hinder
their competitors. A World Bank report found that
billionaire-controlled companies in Mexico are more likely to
be involved in monopolistic practices and win amparos, or
judicial stays, which allow them to delay regulatory rulings
against them while they mire the process in appeals. The
result is that SLIM still dominates the telecom market; GE,
NBC and others are unable to break into the broadcasting
market; and the Federal Competition Commission (Cofeco)
remains unable to impose significant penalties on
anti-competitive conduct. It is worth noting that even when
Cofeco applies a penalty and wins the inevitable court appeal
filed by the defendant, it cannot always force the offending
party to pay its (minimal) fine due to its weak enforcement
mechanisms and the ability of these powerful business
conglomerates to manipulate the judicial system.
¶17. (C) Another tactic these individuals (and others) use to
hamper their competition is criminalizing investment
disputes. (Note: The misuse of the judicial system is
employed by Mexican companies of all sizes to resolve
disputes. It reflects weaknesses in the legal system that
companies exploit, and is one of the reasons judicial reform
is an important issue in Mexico. End Note.) Salina's TV
Azteca, for example, excels at this tactic. The most recent
dispute brought to the attention of Post -- between TV Azteca
and a major U.S. insurance company -- was based on the
insurance company's refusal to make an insurance
reimbursement to TV Azteca. The insurance company believed
MEXICO 00002187 004 OF 005
that under the terms of its contract with TV Azteca, it had
no obligation to pay the settlement, valued at approximately
USD 18 million. While the dispute was being heard in
commercial court, the company's Director General and legal
counselor were arrested without warning and thrown in jail.
Company executives were told by TV Azteca that the Director
General would be charged with criminal fraud unless the
settlement was paid. Fearing for the health of the Director
General, who required medical care not readily available in
prison, the U.S. insurance company appealed to the judge to
release the Director General on health grounds. The judge,
who unsubstantiated rumors suggest may have accepted a bribe
of over a million USD on this case, refused to release the
Director General, and threatened to keep him in jail for the
duration of the weekend. Ultimately, the insurance company
paid USD 18 million as a settlement to have the Director
General released.
-------------------------------------
Calderon's Approach: Little by Little
-------------------------------------
¶18. (SBU) President Calderon has pledged publicly to foster
competition in the local economy since his campaign. Senior
administration officials, however, have told Emboffs that
they do not want to open too many reform fronts at one time
-- suggesting that they understand the importance of
increasing competition in the local economy but know that
they have to be realistic when going up against influential
powerbrokers like Carlos SLIM. This may be particularly true
as the mid-term election draws near, given that these
economic giants often help finance campaign costs, and in the
case of Televisa and TV Azteca, control television coverage
of Mexican politics. Instead, Calderon has given priority to
other economic reforms (tax, pension, energy), and moved
quietly (and very slowly) on competition reform.
¶19. (SBU) The limited progress we have seen has been on the
telecommunications front. SLIM has made known his desire
that Telmex be allowed entry into the television market to
complete their "triple play" -- telephone, internet and
television -- offering. In exchange for changing Telmex's
concession, the administration is requiring Telmex to comply
with number portability and interconnection requirements --
thus helping to foster increased competition in the sector.
The administration also has announced its intention to
auction a large amount of spectrum that might be used by
existing mobile telecommunications companies or new entrants
to provide broadband telephony services to the Mexican
consumer.
-------
Comment
-------
¶20. (SBU) The Mexican government has long been called on to
address monopolistic practices in the both the public and
private sector. Critics had hoped that the situation would
improve when the National Action Party (PAN) assumed power
from the Institutional Revolutionary Party (PRI) in 2000, but
progress has been minimal. The current administration's
strategy of slowly chipping away at the problem is better
than no progress at all, but until it deals with the "Robber
Barons" of its time, progress will continue to be limited.
¶21. (SBU) Of course, these economic powerhouses are not the
only obstacle to improving competition in the Mexican
economy. Cofeco needs to be strengthened so it can enforce
deterrent penalties on anti-competitive conduct. A bill that
would help make progress on this front is awaiting
congressional approval, but some PRI and PAN legislators have
been blocking it (Refs C and D). Equally important, Mexican
consumers need to stand up for their rights and press for
legal changes to give them a more powerful voice. Excessive
MEXICO 00002187 005 OF 005
regulations and obstacles to opening new businesses have
hindered the advancement of new entrepreneurs, as has
Mexico's underdeveloped private equity industry. Taming
widespread corruption and strengthening the judicial system
would also help promote competition. With regard to the
judiciary, the Embassy is working with Cofeco on a series of
seminars and exchanges between U.S. and Mexican judges and
competition officials designed to raise awareness of the
importance of robust competition and compare experiences in
enforcing our respective competition laws. Until the Mexican
government, congress, judiciary, and consumers work together
to address these issues, a lack of competition will continue
to be a stumbling block in Mexico's drive to improve the
economy's productivity, innovation, and competitiveness.
Visit Mexico City's Classified Web Site at
http://www.state.sgov.gov/p/wha/mexicocity and the North American
Partnership Blog at http://www.intelink.gov/communities/state/nap /
GARZA
Viewing cable 08MEXICO2187, WHO ARE MEXICO'S WEALTHIEST BUSINESS LEADERS?
Reference ID Created Released Classification Origin
08MEXICO2187 2008-07-16 20:08 2011-02-14 12:12 CONFIDENTIAL Embassy Mexico
VZCZCXRO9189
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #2187/01 1982012
ZNY CCCCC ZZH
P 162012Z JUL 08
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 2588
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUEHC/DEPT OF LABOR WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RHMFISS/CDR USSOUTHCOM MIAMI FL
RHMFISS/CDR USNORTHCOM
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
C O N F I D E N T I A L SECTION 01 OF 05 MEXICO 002187
SIPDIS
STATE FOR A/S SHANNON
STATE FOR WHA/MEX, WHA/EPSC, EB/IFD/OMA, AND DRL/AWH
STATE FOR EB/ESC MCMANUS AND IZZO
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GERI WORD
USDOC FOR ITS/TD/ENERGY DIVISION
TREASURY FOR IA (RACHEL JARPE, LUYEN TRAN)
DOE FOR INTERNATIONAL AFFAIRS KDEUTSCH, ALOCKWOOD, GWARD
NSC FOR RICHARD MILES, DAN FISK
STATE PASS TO USTR (EISSENSTAT/MELLE)
STATE PASS TO FEDERAL RESERVE (BORA DURDU)
E.O. 12958:
DECL: 04/05/2011
TAGS: ECON EINV MX
SUBJECT: WHO ARE MEXICO'S WEALTHIEST BUSINESS LEADERS?
REF: A. MONTERREY 101
B. 06 MEXICO 6413
C. 08 MEXICO 1840
D. 07 MEXICO 6249
Classified By: Classified by Acting Econ M/C Laura Kirkconnell for reas
ons 1.5 (b) and (d.)
¶1. (SBU) Summary: Mexico, a country where roughly 40% of the
population lives in poverty, has 10 people on FORBES
Magazine's 2008 list of the world's billionaires. While
these individuals have made important contributions to
society via the expansion of services to marginalized areas,
job creation, and charitable donations, this concentration of
wealth and economic power hinders Mexico's ability to realize
more and deeper levels of competition in key industries.
This telegram spells out who these individuals are, how they
got where they are, and how this concentration of wealth
affects Mexico. End Summary.
------------------------------------
Mexico's Wealthiest Business Leaders
------------------------------------
2. (SBU) A number of prominent families control a significant
amount of wealth in Mexico. The net wealth of the ten
richest people in Mexico -- a country where more than 40% of
the population lives in poverty -- represents roughly 10% of
the country's GDP. To facilitate USG understanding of what
analysts are referring to when they talk about Mexico's
wealthiest business leaders, Post is providing the following
list, which draws from FORBES Magazine's 2008 list of the
world's billionaires. This list is by no means exhaustive.
Carlos SLIM Helu and family
------------------------
¶3. (SBU) In March 2008, FORBES ranked telecom tycoon Carlos
SLIM as the second-richest person in the world, behind Warren
Buffet and ahead of Bill Gates. His net worth of $60 billion
dollars is roughly equivalent to 6% of Mexico's GDP. This is
up from $13.8 billion dollars in 2004, when he ranked number
17. SLIM made it into the big leagues in 1990 when he led a
group of investors in buying Telmex from the GOM in a public
tender during the presidency of Carlos Salinas. Telmex now
controls nine of every ten landlines in the country, while
SLIM-controlled America Movil via its subsidiary Telcel has
73% of Mexico's cellular phone market.
¶4. (U) SLIM's business empire extends beyond
telecommunications. He has stakes in an airline, a bank, a
construction company, department stores (including Sanborns),
restaurants, music outlets, and he sells insurance, auto
parts, and ceramic tiles. He is developing a business
presence throughout Latin America. SLIM's holding company,
Grupo Carso, has stepped up its charitable donations in
recent years.
Alberto Bailleres and family
-------------------------
5. (U) Alberto Bailleres owns a holding company called Grupo
Bal, which controls a large number of businesses, including
the huge metallurgical company Industrias Penoles; the luxury
department store Palacio de Hierro; and other companies
related to insurance, financial services, and agriculture.
His father founded ITAM, one of Mexico's top economic
universities. Bailleres' net worth is $9.8 billion dollars.
German Larrea Mota-Velasco and family
----------------------------------
¶6. (U) German Larrea Mota-Velasco, whose net worth is $7.3
billion, is the CEO of mining company Grupo Mexico -- the
world's third-largest copper producer. He also has a
transportation business that includes the country's biggest
railroad. He sits on the boards of Grupo Banamex, Grupo
MEXICO 00002187 002 OF 005
Bursatil Mexicano, Grupo Televisa, and Seguros Comercial
America.
Ricardo Salinas Pliego and family
------------------------------
¶7. (U) With a net worth of $6.3 billion, Salinas took over
his family's discount retailer, Grupo Elektra, in 1987. He
also launched TV Azteca, which is now Mexico's second-largest
television network; mobile carrier Unefon; and Banco Azteca,
a bank run out of Elektra stores that serves nearly 15
million mostly low-income clients.
Jeronimo Arango
--------------
¶8. (U) Jeronimo Arango, whose net worth is $4.3 billion, is
cofounder of the Bodega Aurrera supermarket chain. In
addition to supermarkets, his family's company, Grupo Cifra,
has restaurants and fashion stores. Cifra partnered with
Wal-Mart in the early 1990s, but was later bought out by
Wal-Mart, which became Wal-Mart de Mexico. Arango cashed out
for more than $2 billion dollars, and kept some of the
company's stock.
Isaac Saba Raffoul and family
--------------------------
¶9. (U) Saba runs Grupo Casa Saba, which markets health,
pharmaceutical, and beauty products throughout Mexico. Saba
has a joint venture with Telemundo to produce
Spanish-language soap operas in the U.S. and Latin America.
He tried to get a Mexican broadcasting license in 2006, but
Televisa and TV Azteca so far have managed to prevent his
full entry into the market. His net worth is $2.1 billion.
Roberto Hernandez and family
-------------------------
¶10. (U) Worth $1.7 billion, Hernandez was CEO of Banamex when
the bank sold out to Citigroup in 2001 -- a deal that gave
him almost $2 billion dollars. He owns resorts on the
Yucatan Peninsula.
Emilio Azcarraga Jean and family
-----------------------------
¶11. (U) Emilio Azcarraga Jean is Grupo Televisa's chairman
and the son of an entrepreneur who built the company from a
string of radio stations into a huge conglomerate. Televisa
owns Mexico's two main cable television and satellite
providers (Cablevision and Sky). Azcarraga was handed a
legal setback last year when the Supreme Court struck down
provisions of a radio and television law designed to protect
Televisa from new competition. He is on the boards of
Telmex, Univision, and Banamex. His net worth is $1.6
billion.
Alfredo Harp Helu and family
-------------------------
¶12. (U) Worth $1.6 billion, Harp is a beneficiary of
Citigroup's buyout of Banamex. He owns the country's
second-largest telephone company (Avantel) and the Mexico
City Red Devils baseball team. He is an active
philanthropist and Carlos SLIM's cousin.
Lorenzo Zambrano and family
------------------------
¶13. (U) Mexico's tenth-richest man is Lorenzo Zambrano, the
head of cement giant Cemex. Zambrano, who inherited the
company from his grandfather, has turned the company into one
of the world's largest cement makers (Ref A). He also owns
part of the telecom company Axtel, and sits on the boards of
several large Mexican businesses.
---------------------------
How They Got Where They Are
---------------------------
MEXICO 00002187 003 OF 005
¶14. (SBU) It is difficult to make generalizations about how
these individuals accumulated their wealth. While most of
them inherited their wealth, others are largely self made.
And while some in this group have embraced the need for
transparency and modern business practices, others prefer
their privacy and more traditional ways of doing business.
That said, some of these individuals clearly took advantage
of shortcomings in Mexican institutions and their
relationships with important political figures to expand
their wealth. Several of the business dynasties that these
individuals own took off in the 1990s, when then-President
Carlos Salinas de Gortari (PRI) began dismantling Mexico's
centralized economy. Salinas sold off more than 1,000
state-run companies from metal foundries to railroads.
Unfortunately, in some cases, these privatizations ended up
creating private-sector monopolies -- benefiting savvy
businessmen and politicians while leaving the average Mexican
out in the cold.
15. (SBU) A classic example of this is Telmex's
privatization. When SLIM and his partners purchased Telmex
in 1990, the government gave them extremely favorable terms.
Not only did the GOM sell the Telmex monopoly intact, it
barred competition during the first six years
post-privatization. While countries like the U.S. initially
barred local "baby bell" carriers from offering long-distance
and cellular service in their same area, Telmex got to do all
of this at once, and across the entire country. Indeed, it
won the only nationwide cellular-telephone concession, while
rivals had to settle for concessions that were limited to
certain regions. When competition was allowed in long
distance, foreign carriers were limited to a minority stake
in the fixed-line business. Similarly, Ricardo Salinas
acquired the state-owned Imevision television network via
auction in 1993, converting it into TV Azteca.
--------------------------
The Downsides of Dominance
--------------------------
16. (SBU) The negative aspects of this concentration of
wealth and economic power cannot be overlooked because many
of these individuals control the monopolies and oligopolies
that hold back economic growth. SLIM, Salinas, and others
have used their influence to sway economic policy and work
the system to further their business interests and hinder
their competitors. A World Bank report found that
billionaire-controlled companies in Mexico are more likely to
be involved in monopolistic practices and win amparos, or
judicial stays, which allow them to delay regulatory rulings
against them while they mire the process in appeals. The
result is that SLIM still dominates the telecom market; GE,
NBC and others are unable to break into the broadcasting
market; and the Federal Competition Commission (Cofeco)
remains unable to impose significant penalties on
anti-competitive conduct. It is worth noting that even when
Cofeco applies a penalty and wins the inevitable court appeal
filed by the defendant, it cannot always force the offending
party to pay its (minimal) fine due to its weak enforcement
mechanisms and the ability of these powerful business
conglomerates to manipulate the judicial system.
¶17. (C) Another tactic these individuals (and others) use to
hamper their competition is criminalizing investment
disputes. (Note: The misuse of the judicial system is
employed by Mexican companies of all sizes to resolve
disputes. It reflects weaknesses in the legal system that
companies exploit, and is one of the reasons judicial reform
is an important issue in Mexico. End Note.) Salina's TV
Azteca, for example, excels at this tactic. The most recent
dispute brought to the attention of Post -- between TV Azteca
and a major U.S. insurance company -- was based on the
insurance company's refusal to make an insurance
reimbursement to TV Azteca. The insurance company believed
MEXICO 00002187 004 OF 005
that under the terms of its contract with TV Azteca, it had
no obligation to pay the settlement, valued at approximately
USD 18 million. While the dispute was being heard in
commercial court, the company's Director General and legal
counselor were arrested without warning and thrown in jail.
Company executives were told by TV Azteca that the Director
General would be charged with criminal fraud unless the
settlement was paid. Fearing for the health of the Director
General, who required medical care not readily available in
prison, the U.S. insurance company appealed to the judge to
release the Director General on health grounds. The judge,
who unsubstantiated rumors suggest may have accepted a bribe
of over a million USD on this case, refused to release the
Director General, and threatened to keep him in jail for the
duration of the weekend. Ultimately, the insurance company
paid USD 18 million as a settlement to have the Director
General released.
-------------------------------------
Calderon's Approach: Little by Little
-------------------------------------
¶18. (SBU) President Calderon has pledged publicly to foster
competition in the local economy since his campaign. Senior
administration officials, however, have told Emboffs that
they do not want to open too many reform fronts at one time
-- suggesting that they understand the importance of
increasing competition in the local economy but know that
they have to be realistic when going up against influential
powerbrokers like Carlos SLIM. This may be particularly true
as the mid-term election draws near, given that these
economic giants often help finance campaign costs, and in the
case of Televisa and TV Azteca, control television coverage
of Mexican politics. Instead, Calderon has given priority to
other economic reforms (tax, pension, energy), and moved
quietly (and very slowly) on competition reform.
¶19. (SBU) The limited progress we have seen has been on the
telecommunications front. SLIM has made known his desire
that Telmex be allowed entry into the television market to
complete their "triple play" -- telephone, internet and
television -- offering. In exchange for changing Telmex's
concession, the administration is requiring Telmex to comply
with number portability and interconnection requirements --
thus helping to foster increased competition in the sector.
The administration also has announced its intention to
auction a large amount of spectrum that might be used by
existing mobile telecommunications companies or new entrants
to provide broadband telephony services to the Mexican
consumer.
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Comment
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¶20. (SBU) The Mexican government has long been called on to
address monopolistic practices in the both the public and
private sector. Critics had hoped that the situation would
improve when the National Action Party (PAN) assumed power
from the Institutional Revolutionary Party (PRI) in 2000, but
progress has been minimal. The current administration's
strategy of slowly chipping away at the problem is better
than no progress at all, but until it deals with the "Robber
Barons" of its time, progress will continue to be limited.
¶21. (SBU) Of course, these economic powerhouses are not the
only obstacle to improving competition in the Mexican
economy. Cofeco needs to be strengthened so it can enforce
deterrent penalties on anti-competitive conduct. A bill that
would help make progress on this front is awaiting
congressional approval, but some PRI and PAN legislators have
been blocking it (Refs C and D). Equally important, Mexican
consumers need to stand up for their rights and press for
legal changes to give them a more powerful voice. Excessive
MEXICO 00002187 005 OF 005
regulations and obstacles to opening new businesses have
hindered the advancement of new entrepreneurs, as has
Mexico's underdeveloped private equity industry. Taming
widespread corruption and strengthening the judicial system
would also help promote competition. With regard to the
judiciary, the Embassy is working with Cofeco on a series of
seminars and exchanges between U.S. and Mexican judges and
competition officials designed to raise awareness of the
importance of robust competition and compare experiences in
enforcing our respective competition laws. Until the Mexican
government, congress, judiciary, and consumers work together
to address these issues, a lack of competition will continue
to be a stumbling block in Mexico's drive to improve the
economy's productivity, innovation, and competitiveness.
Visit Mexico City's Classified Web Site at
http://www.state.sgov.gov/p/wha/mexicocity and the North American
Partnership Blog at http://www.intelink.gov/communities/state/nap /
GARZA
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