• home
  •  

    Keep the Model under Review

     

     
     
    © International Trade Centre, International Trade Forum - Issue 1/2002

    Mexico City Stock Exchange

    During the 1980s, Mexico ambitiously began modernizing and transforming its economy at all levels in order to participate more fully in the global marketplace. This included developing a commercial policy based on liberalization, deregulation, privatization and integration, as well as a flexible exchange rate policy. Bancomext, the Mexican Bank for Foreign Trade, was founded in 1937 to finance Mexican foreign trade and played a key role in developing international commerce domestically ("border-in"). In this interview, Raul Arguelles, deputy president of Export Development, considers the Bancomext experience and what lessons it holds for other developing countries.

    Interview by Peter Hulm

    Q As the national trade promotion and investment agency for external trade, by all accounts Bancomext has been a great success in providing a service to Mexican exporters. What do you think are the ingredients that made it so successful?

    A At one point Mexico had a TPO (trade promotion organization) and a separate financial institution. The TPO was criticized, like so many others, as being inefficient, ineffective and expensive. In 1986 the Government decided to establish one institution and have trade financing, trade insurance and trade promotion activities under one roof. This "Mexican model" worked very well at that specific point in time. It has worked well because in 1986 Mexico also joined the General Agreement on Tariffs and Trade.

    Basically, for the past 15 years, despite the fact that Mexico's financial institutions were not considered very efficient (in 1984 they got deeply into trouble in the financial crisis), Bancomext was very successful, at least for the last ten years on the financial side of the business. We were able to make a lot of profit, hundreds of millions of US dollars, and our only stockholder - the Mexican Government - decided not to take out those profits, but to keep the money inside the bank and pay the TPO activities from those profits. In that sense, for the last 12 years we have been self-sufficient financially and we have not cost the Mexican taxpayer a single cent. Today, Mexico is the world's eighth exporter, exporting more than US$ 170 billion in goods and services. We have the North American Free Trade Agreement, we have a free trade agreement with the European Union and in general we have 31 countries as our partners with free trade agreements.

    Q It's been a terrific formula, but very few developing countries have taken it on board. Why do you think that is?

    A It all depends on the type of government that you have and on the type of private sector you have. I would suggest to all our friends who might be thinking of the Mexican experience, that if we had done this five years ago, it probably would not have worked. It worked in 1986 because in that year the conditions in Mexico were, I think, very favourable for a project like this. I also have to say that 15 years later we are reviewing this model, because now we have a very open economy, an economy that is part of the global environment. We have a lot of free trade agreements, we are completely in partnership with the United States and Canada, and we are finding that our private banks - both Mexican and foreign banks - are efficient; they have funds and they are willing to enter the private sector again.

    Q Do you think they have been educated by the way that Bancomext has operated?

    A Definitely. I would say that is part of what a development bank or a government institution should do. Sometimes a government has to intervene in the economy to give an example or to lead on a specific strategy, and once it has achieved that goal, it should retire. We have been thinking of various scenarios. Within the next 15 to 20 years, perhaps Bancomext as an institution will go out of the business of trade finance and become only a TPO. Who knows? Right now, what the free economy shows us is that on the financial side there are a lot of competitors and a lot of players that could be equally efficient at providing funds to Mexican exporters. But as long as there is a niche for Bancomext to finance small and medium-sized enterprises (SMEs), we will continue doing so.

    Q What do you do as a TPO in Bancomext?

    A On the financial side, we provide working capital, we provide funds for investment projects and we finance sales and exports of goods; we also have risk capital. With regard to trade promotion activities, we have 43 offices all over the world, we have information services, counselling, training and a design centre. We provide funds for quality and ISO 9000 certification. Every year we help more than 2,000 SMEs to participate in the best international events and trade fairs all over the world. A one-stop front desk or a single window for an SME that wants to export - Bancomext has it all.

    Q What is the financial structure?

    A We charge for some of our services - not the full cost. But about five years ago we started charging for everything else that we provide: photocopies, market studies, etc. It has helped us to try to run our TPO as a business. It has also helped our private sector to ask us for higher quality and better service. Our annual budget is around US$ 60 million. This year we will probably receive about US$ 4 million for the products and services we provide. We have a goal that in six years we should recover about US$ 10 million for products and services, around 15% of our total budget. That also puts pressure or provides incentives for our people to provide better quality and service.

    Q Many participants in ITC's Executive Forum talked about the advantages of running a TPO as a business. Bancomext doesn't require its TPO activities to recover all their costs or turn a profit. Do you reject the business model?

    A Overall our institution is run as a business because we compete with other commercial banks in Mexico. For the last ten years, the TPO within Bancomext has been very aggressive about running its whole operation in a businesslike way - to have measurement of all results - and I think it can be done. It is just a matter of trying to establish your mission, your vision and your strategic objectives very precisely. You must definitely decide on quantitative and qualitative targets and be able to measure them. What is sometimes frustrating is that everyone wants the organization or the TPO to be run as a business, but since you are a government agency, they also ask for a lot of reports, a lot of paperwork to be done. You have to cope with that and balance the results against the other activities you have to carry out.

    For more information about Bancomext, contact Raul Arguelles (rarguell@bancomext.gob.mx) or visit Bancomext's web site (http://www.bancomext.com).