Lessons from bank privatization in Mexico
AbstractThe recently completed privatization of Mexican commercial banks may be one of the most successful financial operations in recent years. In 13 months, the Mexican authorities were able to sell 18 banks to private groups of Mexican investors for more than US$13 billion total - more than three times book value, and with a price/earnings ratio of 14.5.The author, Director General of the Development Planning Unit of the Ministry of Finance and a member of the Privatization Committee that supervised the program, sets out the preconditions, objectives, and main achievements of the privatization program. He summarizes the Mexican experience in nine lessons that may be relevant for developing countries considering similar exercises: The conditions suitable for privatization and the strength of the financial system are directly related to the economy's general performance. Macroeconomic stability is essential for bank privatization to succeed. Bank privatization must be complemented by the structural transformation of the economy, to improve efficiency and productivity. Financial reform must aim to strengthen competitive economic conditions and to enhance the efficiency of the financial sector. Bank privatization requires a new legal framework, especially designed for private institutions. Legal reform should lead to structures that encourage solid, efficient financial intermediation. To encourage ample participation and to ensure fairness, the privatization process must be trustworthy - with clear objectives, precise rules, and transparent procedures. The mechanics of privatization should be consistent with the legal framework and should be based on adequate, detailed preparation. The proceeds of privatization should be in cash, which should be used to permanently reduce government outlays. Common sense rules should be followed, such as selling the small banks first, ensuring economic certainty and confidence, centralizing management of the privatization program, and ensuring honesty and transparency in the process. The overall lesson of the Mexican experience is that bank privatization should not be rushed. Mexico waited until 1990, when inflation was less than 20 percent a year and the banks were strong (their numbers had been reduced and risky ventures restricted), while meticulous preparation set the ground rules for transparent and effective procedures.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 1027.
Date of creation: 30 Nov 1992
Date of revision:
Financial Crisis Management&Restructuring; Environmental Economics&Policies; Financial Intermediation; Municipal Financial Management; Banks&Banking Reform;
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Vittas, Dimitri & Demirguc-Kunt, Asli & Musalem, Alberto, 1993. "North American free trade agreement : issues on trade in financial services for Mexico," Policy Research Working Paper Series 1153, The World Bank.
- Klingebiel, Daniela, 2000. "The use of asset management companies in the resolution of banking crises - cross-country experience," Policy Research Working Paper Series 2284, The World Bank.
- Glaessner, Thomas Charles & Oks, Daniel, 1998. "NAFTA, capital mobility, and Mexico's financial system," Policy Research Working Paper Series 1984, The World Bank.
- Haluk Unal & Miguel Navarro, 1999. "POLICY PAPER: The Technical Process of Bank Privatization in Mexico," Journal of Financial Services Research, Springer, vol. 16(1), pages 61-83, September.
- Carlos Salinas de Gortari in Wikipedia (Spanish)
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.