2008 10 29: In Mexico, an Unstanched Flow of Drug Money

Source: AP & Washington Post

A grim reminder of what drives Mexican DTOs, political corruption, weapons purchases and organized criminal enterprise …

Zhenli Ye Gon's home stash... didn't have a safe big enough, I guess?

An old article from Maurizio Guerrero Martínez, writer for Mexico’s Poder y Negocios.

Even though an estimated $24 billion in criminal funds courses through Mexico each year, no Mexican financial institution has been publicly sanctioned for money laundering. The country has long been a center for drug trafficking, and a world record was set for a criminal cash seizure when $205 million was found last year in Mexico City tied to a Chinese-Mexican businessman who has been jailed in the United States on methamphetamine-related charges.

Experts fear that Mexico’s lack of aggressiveness against money laundering could contribute to global instability by allowing financing to flow to terrorists or subversive groups around the world — as has happened with the FARC guerrillas in Colombia.

U.S. officials estimate that 10 percent of the Mexican financial system operates with laundered drug money, according to Jonathan Winer, a Washington-based expert on international money laundering.

“It’s hard to understand how that much money could be moving around without any evidence of it,” Winer said.

Winer said that the United States has had money laundering laws on the books for years but that they were not seriously enforced until federal bank regulators started levying large fines.

Pablo Gómez del Campo, an official with Mexico’s chief federal bank regulator, Comisión Nacional Bancaria y de Valores (CNBV), insisted that his government does impose sanctions in money laundering cases. But his agency’s Web site does not list any fines against institutions, even though the law requires it to do so.

On July 17, the Mexican agency in charge of prosecuting money laundering, Procuraduría General de la República (PGR), announced a legal action against an exchange house — Casa de Cambio Catorce. It marked the first money laundering prosecution to stem from an investigation of country’s financial system by the Financial Intelligence Unit (UIF), the Mexican agency charged with investigating financial crimes.

Two other Mexican exchange houses, Puebla and Majapara, are currently on trial for charges that emerged from investigations by U.S. authorities.

Concerns about money laundering have taken on new urgency in an age of global terrorism. After the attacks on the World Trade Center and the Pentagon on Sept. 11, 2001, the U.S. government toughened the penalties for institutions with poor money laundering controls, affecting not only terrorists’ assets, but those of drug traffickers, too. Investigators focused, however, on money flowing to terrorists through Islamic charities based in the United States and elsewhere. That approach played down the U.S. interest in drug trafficking and its financing in Latin America, according to Douglas Farah, author of “Blood From Stones: The Secret Financial Network of Terror” and an expert in the financial operations of criminal networks.

But authorities are seeing evidence that terrorist money and drug money can flow through the same channels.

“A pipeline has been created from South America to the United States, where drugs, people, weapons and cash are trafficked, and that could be used for any aim, even by subversive groups. The ideologies no longer matter — only the money,” Farah said. “The free flow of information and money has changed everything. Mexican, Colombian and Middle East terrorist groups are increasingly connected. The limits that existed before are blurring.”

The U.S. State Department has denied that terrorist cells exist in Mexico. Nevertheless, in 2005 a British citizen, Amer Haykel, an alleged al-Qaeda member, was arrested in Baja California. According to a U.S. intelligence assessment provided by Winer, there is evidence of Islamist terrorist cells in Mexico, including a Hezbollah presence in the southern state of Chiapas.

Over the years, money laundering enforcement has proved the most effective tool for cracking down on the drug trade. Without cash, the criminal networks fall into a downward spiral.

“If you take away their money, they can’t pay their sources of supply, they lose credibility, and they can’t pay bribes and employees,” said Allan Doody, a former U.S. federal agent who now works as the principal analyst for the Homeland Security Institute, a research center that receives funding from the U.S. government.

Winer said the Mexican strategy should be to better regulate the centros cambiarios — exchange centers that act as global cash transmitters — and also to better monitor transactions between Mexican institutions and offshore banks, which he described as “opaque, and difficult to evaluate and document.”

Even with laws on the books, enforcement is difficult.

“It is not easy to align the legal infrastructure to prosecute money laundering,” explains Don Semesky, head of financial investigations for the Drug Enforcement Administration (DEA) in Washington. “There’s a lot of obstacles within the bureaucracy. To put the things in place takes a lot of time.”

The obstacles can be seen in the way the Mexican federal prosecutor, the PGR, investigates a financial crime. To respect the banking secrecy laws, the PGR must ask for the information through the CNBV, the Mexican bank regulator. CNBV can refuse the request, and in that case the dispute will end up before a judge. During the trial, the person whose account is in dispute is warned, so he has time to move his money before the investigation can be completed.

Seizures of cash have increased in Mexico in recent years. But except for Casa de Cambio Catorce, financial institutions have largely escaped seizures and penalties.

One reason may be lack of resources.

In 2008, the budget for UIF, the government’s financial investigative arm, was less than $6 million, or 0.16 percent of the budget of the Finance Ministry, which supervises UIF. The ministry spends four times that much on communications and public relations. The office that prosecutes money launderers has a budget of $3 million, just 0.3 percent of the federal prosecutor’s budget. The office’s director has changed three times since 2005.

The Merida Initiative — the U.S. government’s main program to help Mexico combat the drug trade — spends 1.25 percent of its $400 million budget on money laundering. That $5 million goes to updating computers.

2009 08 21: Mexico Central Bank Keeps Its Rate Unchanged at 4.5%

Source: Bloomberg

Mexico’s central bank kept its benchmark interest rate unchanged for the first time in eight months today and said it will “extend the pause” in borrowing costs amid an economic recovery.

The bank’s five-member board, led by Governor Guillermo Ortiz, held the rate at 4.5 percent, matching the forecasts of all 23 economists surveyed by Bloomberg. The bank had cut borrowing costs at seven previous meetings this year, lowering the rate by 3.75 points from 8.25 percent at the end of 2008.

Policy makers voted to pause as inflation holds above target and as economic reports suggest Mexico may be recovering from its deepest slump in at least three decades on the strength of a nascent recovery in the U.S., Mexico’s No. 1 export market, said Luis Flores at IXE Grupo Financiero SA in Mexico City.

“The weaknesses in the economy won’t be as severe as they were in April and May, so it’s not necessary to cut rates,” said Flores, who is a senior economist.

After last month’s quarter-point cut, Banco de Mexico said it planned to pause amid signs of economic recovery.

“The board has decided to extend the pause announced in the last press release,” the bank said in today’s statement.

The government says the economy will improve in the second half of the year after it shrank 10.3 percent in the second quarter. The contraction in the three months through June was the biggest quarterly decline in gross domestic product since at least 1980, according to data compiled by Bloomberg.

Mexico’s peso strengthened 0.5 percent to 12.8248 per U.S. dollar at 10:48 a.m. New York time.

Record Low

At 4.5 percent, the rate is the lowest since Ortiz began targeting the overnight lending rate in 2005. Previously, Banco de Mexico implemented monetary policy by targeting the money supply through a system known as the “corto.”

Lower interest rates can help prompt businesses to invest and consumers to buy on credit. Cheaper loans also can spur inflation by strengthening demand.

Mexico’s economic slump deepened in the second quarter and job losses accelerated as the recession in the U.S., which buys about 80 percent of Mexican exports, sapped demand for its products.

Latin America’s second-biggest economy will contract the most this year among the region’s largest economies, said Claudio Loser, former Western Hemisphere director for the International Monetary Fund, on a conference call yesterday.

The central bank forecasts Mexico’s economy will shrink as much as 7.5 percent this year, which would be the most since 1932. Brazil’s economy will only contract 0.34 percent this year, according to a survey by that country’s central bank.

Inflation

Inflation has slowed only “moderately” even as the economy shrinks, Mexico’s central bank said last month. The annual rate fell to 5.44 percent last month from 5.74 percent in June, the lowest in a year, the bank said Aug. 7.

The central bank forecasts an inflation rate of no more than 5.25 percent in the third quarter, slowing to as low as 4 percent by the end of the year. The bank’s inflation target is 3 percent by the end of 2010.

A widening fiscal deficit may lead the government to increase costs for public services such as electricity and water, which would fuel inflation, said Alejandro Ascencio, an economist at Bursametrica Management in Mexico City.

Morgan Stanley said in a report this week that the government would have to boost gasoline and diesel prices as much as 15 percent next year to cover an expected revenue shortfall through higher fuel prices, assuming oil prices of $60 a barrel.

That would add 0.6 percentage point to annual inflation, putting the rate at about 4.5 percent by the end of 2010, the report said.

To contact the reporter on this story: Jens Erik Gould in Mexico City at jgould9@bloomberg.net

2009 08 21: Bernanke Says Global Economy Emerging From Recession

Source: Bloomberg

Aug. 21 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke said the global economy is “beginning to emerge” from a recession after “aggressive” action by central banks and governments.

“After contracting sharply over the past year, economic activity appears to be leveling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good,” Bernanke said today in a speech at the Kansas City Fed’s annual symposium in Jackson Hole, Wyoming.

Economists forecast the U.S. will emerge from the worst recession since the 1930s, with the economy in the third quarter expanding at a 2.2 percent annual rate, according to the median estimate in an August survey by Bloomberg News. The International Monetary Fund last month predicted the world economy will expand 2.5 percent in 2010 after contracting 1.4 percent this year.

Signs are emerging that growth is resuming in other countries, with Japan, Germany and France all expanding in the second quarter. The Paris-based Organization for Economic Cooperation and Development said Aug. 19 that the economy of its 30 members was flat in the second quarter after contracting 2.1 percent in the previous three months.

Feldstein Sees Danger

The U.S. economy “is still weak and it’s not at all clear that the upturn that we’ve seen recently is the beginning of a sustainable rise,” Harvard University economist Martin Feldstein said in a Bloomberg Television interview in Jackson Hole. “There’s a serious danger that come the end of this year and the beginning of next year we will see it slipping back down again.”

Bernanke said the world economy still confronts “critical” challenges.

“Strains persist in many financial markets across the globe, financial institutions face additional significant losses and many businesses and households continue to experience considerable difficulty gaining access to credit,” Bernanke said. Recovery “is likely to be relatively slow at first, with unemployment declining only gradually from high levels.”

U.S. stocks gained for a fourth day, and Treasury securities fell in reaction to Bernanke’s speech and a rise in existing home sales. The Standard and Poor’s 500 Index was up 1.5 percent at 10:51 a.m. in New York. Benchmark 10-year notes yielded 3.54 percent, up 11 basis points from yesterday.

Home Sales Climb

Sales of existing U.S. homes climbed 7.2 percent to a 5.24 million annual rate, the most since August 2007, the National Association of Realtors said.

European Central Bank President Jean-Claude Trichet and Bank of Japan Governor Masaaki Shirakawa are scheduled tomorrow to address the conference. Brian Madigan, Bernanke’s top official for monetary policy, is scheduled to speak today as part of a panel discussion. The topic of the central bank’s mountainside conference this year is financial stability and macroeconomic policy.

The IMF may raise its forecast for the global economic rebound, John Lipsky, the fund’s first deputy managing director, said in an interview yesterday in Jackson Hole.

A “strong and unprecedented international policy response” averted “the imminent collapse of the global financial system,” Bernanke said. The Fed has “consistently maintained” that the failure of a large, interconnected financial institution would have dire consequences for markets and the economy.

‘Spared No Effort’

“We have therefore spared no effort, within our legal authorities and in appropriate cooperation with other agencies, to avert such a failure,” he said. “The case of the investment bank Lehman Brothers proved exceptionally difficult, however.”

The Fed chairman reiterated that Lehman had inadequate collateral to merit a Fed loan “of sufficient size to meet its funding needs.” The government also lacked the authority to inject capital and sustain the firm, he said. Lehman Brothers Holdings Inc. filed for bankruptcy in September.

“Although concerted policy actions avoided much worse outcomes, the financial shocks of September and October nevertheless severely damaged the global economy — starkly illustrating the potential effects of financial stress on real economic activity,” Bernanke said.

Last week, Fed policy makers extended by a month, through October, a $300 billion program to buy long-term U.S. Treasuries, aiming to ensure a “smooth transition in markets.” They also affirmed a pledge to keep interest rates near a record low for an “extended period” even as they determined the economy is “leveling out.”

Fed’s Debt Purchases

Since the collapse of Lehman, the Fed has bought as much as $350 billion of short-term debt issued by companies including General Electric Co. and expanded currency swaps with other central banks to aid financial firms outside the U.S.

Bernanke has also led policy makers in a reduction of the benchmark interest rate almost to zero and in the purchase of as much as $1.75 trillion of Treasuries and housing debt.

“As severe as the economic impact has been, however, the outcome could have been decidedly worse,” Bernanke said. “Unlike in the 1930s, when policy was largely passive and political divisions made international economic and financial cooperation difficult, during the past year monetary, fiscal and financial policies around the world have been aggressive and complementary.”

Policy makers must now rewrite regulations to reflect lessons from the crisis, and that will prevent “a recurrence of the events of the past two years,” he said.

Term Expiring

President Barack Obama has yet to indicate whether he will nominate Bernanke for a second term as Fed chief after his current term ends Jan. 31.

Feldstein endorsed Bernanke for a second term. “He certainly deserves it. He has done a remarkably creative job of dealing with these problems,” Feldstein said.

Investors and traders see reappointment as increasingly likely. Yesterday, futures contracts on the Web site Intrade showed a 79 percent chance Bernanke will be tapped for a second term.

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net; Scott Lanman in Washington at slanman@bloomberg.net.

2008 08 20: Mexico Experiences Fastest Contraction in 25 years

The good news story can be found here (speculation).  The not-so-good can be found below.

Source: Bloomberg

Mexico’s economy contracted at the fastest pace in more than 25 years last quarter as the global recession and swine flu caused a plunge in industrial output and services.

Latin America’s second-largest economy shrank 10.3 percent in the second quarter from a year earlier, the national statistics agency said today. Manufacturing shrank 16.4 in the second quarter and the service industry contracted 10.4 percent.

Mexico’s slump has deepened and job losses have accelerated as the recession in the U.S., which buys about 80 percent of the nation’s exports, saps demand for manufactured goods. Still, seasonally adjusted quarterly data shows the economy performed better in the second quarter than in the first.

“The economy had a heart attack and you’re starting to see a recovery,” said Rafael de la Fuente, chief Latin American economist at BNP Paribas SA in New York. “The bottom of the recession is behind us.”

The economy shrank 1.1 percent in the second quarter from the first quarter, compared with a 5.9 percent contraction in the first quarter from the previous three months, according to seasonally adjusted figures from the statistics agency.

“We’ll have a better GDP in the third quarter compared with the second, and in the fourth compared with the third,” Central Bank Governor Guillermo Ortiz said yesterday in an interview with UNAM TV. “But on average for the year, it will be very ugly.”

Worst in Region

Mexico’s GDP, the broadest measure of a country’s output of goods and services, will contract the most this year among the region’s largest economies, said Claudio Loser, former Western Hemisphere director for the International Monetary Fund.

“Exports have declined very sharply and we don’t yet see a reaction to the slow improvement in economic activity in the U.S.,” Loser said in a conference call.

Analysts had estimated gross domestic product would shrink 10.6 percent, according to the median estimate of 23 economists surveyed by Bloomberg.

The decline in second-quarter GDP was the biggest quarterly fall since at least 1980, according to data compiled by Bloomberg. The outbreak of swine flu in April and May will probably reduce GDP by 0.5 percent this year, Ortiz has said.

Auto Industry

Volkswagen AG, Europe’s largest automaker, said in June it would reduce production of four models in Mexico for about six weeks as demand stalled amid the global recession. Mexican production of cars and light trucks fell 48 percent in June from the same month a year earlier, the nation’s Automobile Industry Association said.

Mexico’s peso will depreciate because of the contraction in the economy, Rogelio Ramirez de la O, the Mexico City-based economist who predicted the 1994 peso devaluation, said in a conference call today.

The currency was little changed at 12.8875 per U.S. dollar at 5:05 p.m. New York time.

The central bank forecasts Mexico’s economy will shrink as much as 7.5 percent this year, which would be the most since 1932. Brazil’s economy will only contract 0.34 percent this year, according to a survey by that country’s central bank.

The shrinking economy has cut tax collection. That, along with falling oil revenue, will widen the budget deficit this year to the equivalent of 3 percent of GDP from 2.1 percent in 2008 and in 2007, the government predicts.

President Felipe Calderon said this month that officials may propose a combination of debt, higher taxes and lower spending in a bid to keep a lid on next year’s budget gap. Standard & Poor’s cut the outlook on Mexico’s debt to “negative” from “stable” in May because of the country’s dependence on oil revenue.

To contact the reporter on this story: Jens Erik Gould in Mexico City at jgould9@bloomberg.net

2009 08 18: Cesar Nava: Mirar al Sur

Fuente: El Universal

Por Cesar Nava

Escribo estas primeras líneas para EL UNIVERSAL desde Brasilia, en el marco de la visita de Estado del presidente Felipe Calderón a esta nación, no sin dejar constancia de mi reconocimiento a este diario por dar cabida a este espacio, en el que tendré oportunidad de compartir quincenalmente con los lectores algunas reflexiones sobre el acontecer nacional.

Mirar al sur implica volver la vista hacia donde habíamos dejado de ver. No todo pasa en el norte. Con los países más allá del Suchiate compartimos una herencia cultural común, anclada en valores, costumbres y cosmovisiones que nos acercan mucho más de lo que deberían alejarnos.

Con esta mirada, los dirigentes de nacionales de varios partidos políticos tuvimos la ocasión de conocer de primera mano la experiencia de éxito que ha llevado a Petrobras a ser, de una compañía nacional importadora y refinadora de crudo, a una de las compañías petroleras internacionales de mayor crecimiento en tan sólo una década.

El futuro nos alcanzará, nos hemos repetido los mexicanos una y otra vez. Acostumbrados a vivir sobre una enorme riqueza que yace en el subsuelo y en el lecho marino de nuestras tierras y aguas, nos hemos regodeado durante décadas en nuestro poderío productor, orgullosos de nuestro pasado, mientras otros países en Latinoamérica, con la esperanza puesta en el futuro, se han encaminado a la vanguardia y han cobrado una competitividad inédita. Es así como, a pesar de esfuerzos significativos tales como la reforma aprobada a finales de 2008 en materia de contratación petrolera, gobierno corporativo y régimen fiscal de Pemex, nuestro marco legal es todavía la legislación más cerrada, anticompetitiva e inflexible de toda América, por debajo de la normatividad vigente en países como Colombia, Brasil, Venezuela y… Cuba.

Revisemos algunos datos reveladores:

(a) Petrobras produjo en 2008 2.4 millones de barriles de petróleo crudo y está en camino de alcanzar la producción de 3 millones de barriles en 2010, mientras que Pemex cerró 2008 con una producción de 2.8 millones de barriles, y previsiblemente cerrará 2009 con una producción inferior a los 2.5 millones de barriles;

(b) por otra parte, el esfuerzo exploratorio de Petrobras, fundamentalmente en aguas profundas, ha rendido frutos extraordinarios: tras años de consecutivo crecimiento alcanzó, a finales de 2008, a Pemex en reservas probadas de hidrocarburos líquidos y gaseosos;

(c) más aún, gracias a su esfuerzo por atraer las mejores prácticas internacionales, Petrobras posee la tecnología suficiente para perforar y producir petróleo a más de tres kilómetros de profundidad y opera ya en el golfo de México, además de hacerlo en otros 26 países en distintas ramas de la industria, y

(d), finalmente, un dato que mueve a la reflexión: mientras Pemex se dispone a iniciar los trabajos de licitación y construcción de una sola refinería que será instalada en el estado de Hidalgo tras un largo y complejo proceso de selección, Petrobras se apresta a construir cinco refinerías durante los siguientes 10 años.

¿Cómo hicieron posible los brasileños este salto cuantitativo y cualitativo en su industria petrolera?

Se limitaron a adoptar las experiencias exitosas de otros países: entre otras medidas, dotaron a Petrobras de un marco legal flexible que le permite celebrar contratos de asociación y de producción compartida con otras empresas; la autorizaron a colocar en los mercados una parte de su capital social, sin ceder el control de la empresa brasileña y sus filiales, y crearon un régimen de gobierno corporativo que garantiza transparencia y rendición de cuentas a la sociedad.

¿Sugiero que hagamos lo mismo? No necesariamente. Hay fórmulas que podrían adaptarse al modelo mexicano y que serían compatibles con nuestro régimen constitucional, mientras que otras posiblemente no lo serían. No se trata de aplicar recetas a ciegas, es cierto. Pero tal vez, eso sí, podríamos empezar por mirar al sur.

Presidente nacional del PAN