Mexican banks

Riding high

Mexico's fast-growing banks appear unusually unaffected by the financial crisis north of the border

AFTER the 1994 peso crash, the risk of Mexico's difficulties spilling over into America was considered so great that the Clinton administration helped bail out its southern neighbour. In the first quarter of 2008, the boot was on the other foot, though the scale was entirely different. Now it was the turn of Banamex, one of Mexico's two largest banks, to help out Citigroup, its crisis-stricken parent. Banamex provided $453m of the $1.1 billion Citi earned in net income from its overseas operations between January and March (Citi lost $5.1 billion overall). You could almost hear Vikram Pandit, Citi's new chief, mutter “Gracias, compadre.”

Yet Banamex was not even the best-performing of the Mexican banks. Of Mexico's five largest financial institutions (which control three-quarters of the market and also include Bancomer, Santander, HSBC and Banorte), it was the only one that did not show a big rise in year-on-year profits in the first quarter. The performance of the banks was impressive for two reasons. Firstly, Mexico has one of the most open banking systems in the world; two of its top five banks are Spanish-owned, one is American, one British, and only one is Mexican. Yet the crisis in global banking has barely ruffled it. Also, Mexico's economy is usually more exposed than almost any other to a slowdown in America. As Alejandro Valenzuela, boss of Banorte, delicately puts it: “Decoupling is the wrong word, but there is now a certain shield.”

That shield, however brittle, has been forged both from financial reform in recent years and from macroeconomic stability. On the financial front, lending has ballooned. According to the central bank, credit to the private sector has nearly tripled since 2001, while consumer credit has increased by around seven times. The banks have also feathered their nests with relatively high consumer-banking fees.

Meanwhile, the market has grown more sophisticated, thanks to some shrewd moves by regulators. Chief among these, according to an IMF working paper released this week, were reforms to bank-secrecy laws which allowed the creation of a successful credit-reporting system, as well as reforms to bankruptcy laws. These have given birth to a thriving mortgage-backed securities industry. If that sets off alarm bells, Alejandro Werner, the deputy finance minister, notes that over the past seven years, the accumulated increase in house prices in Mexico has been less than inflation: there is no bubble yet.

There are also economic reforms to thank. Marcos Martínez, the head of Santander in Mexico, says that infrastructure investment as well as a huge public-sector mortgage programme have boosted demand. It helps that Mexican GDP closely correlates with America's industrial production, rather than its overall economy. The brunt of the slowdown in America has been borne by the services sector.

Although Mexican economic growth is likely to remain sluggish, at something under 3%, the health of the banking industry is a salutary sign. For once, Mexicans can look northward with a sense of sympathy rather than envy.

Colombia and Venezuela

The FARC files

Just how much help has Hugo Chávez given to Colombia's guerrillas?

THEY represent only one side of a story, and most of their claims have yet to be independently corroborated. But Interpol has now concluded that the huge cache of e-mails and other documents recovered from the computers of Raúl Reyes, a senior leader of the FARC guerrillas killed in a Colombian bombing raid on his camp in Ecuador on March 1st, are authentic and undoctored. The documents throw new light on the inner workings of the FARC. And they raise some very pointed questions about the ties between Venezuela's leftist president, Hugo Chávez, and a group considered to be terrorists by the United States and the European Union (EU).

Batches of the documents have been seen by The Economist and several other publications. They appear to show that Mr Chávez offered the FARC up to $300m, and talked of allocating the guerrillas an oil ration which they could sell for profit. They also suggest that Venezuelan army officers helped the FARC to obtain small arms, such as rocket-propelled grenades, and to set up meetings with arms dealers.

Venezuelan officials have dismissed the documents as fabrications. That was contradicted by Ronald Noble, Interpol's secretary-general, who announced in Bogotá on May 15th, after two months of study by a team of 64 foreign experts, that the computer files came from the FARC camp and had not been modified in any way. Mr Chávez called this “ridiculous”, questioning the impartiality of Mr Noble, who is American, and labelling him a “gringo policeman”. However, in one indication of their accuracy, the documents provided information that in March guided police in Costa Rica to a house where they found $480,000 in cash, as an e-mail suggested.

The FARC are in some ways a throwback to a past era in Latin America. In other ways they are part of the new face of organised crime in the region. Old-fashioned Marxists unmoved by the collapse of the Soviet Union, they have flourished since then by drug-trafficking and kidnapping. Their war against Colombia's elected government has almost no public support, especially since they showed no interest in making peace during three years of talks with the government from 1999 to 2002. Since then, a determined security build-up by Álvaro Uribe, Colombia's popular president, has put the FARC on the defensive, driving it into remote jungles and savannahs—and towards the country's borders.

Mr Chávez has long expressed sympathy for the FARC. But Colombian officials, backed by detailed testimony from guerrilla deserters, accuse Venezuela and Ecuador of more than rhetoric, saying they have turned a blind eye to guerrilla camps on their territory. The killing of Mr Reyes, a member of the FARC's seven-man secretariat, underlined the point. The captured documents seem to confirm that FARC commanders have co-ordinated closely with Venezuelan army and intelligence officers on the border for several years, according to a Colombian official.

The documents also cast light on the FARC's strategic thinking. Its overriding objective seems to be to obtain international recognition as a “belligerent force” and to persuade the EU to stop labelling it a terrorist group. The guerrillas are desperate to establish a “strategic alliance” with Mr Chávez. But that was still just an aspiration in early 2007, the documents suggest. “We don't know if we enjoy their trust,” writes Jorge Briceño (alias “Mono Jojoy”), the FARC's military leader, to other members of the secretariat.

Contacts intensified last September after Mr Uribe asked Mr Chávez to mediate with the FARC to release the guerrillas' hostages, including Ingrid Betancourt, a politician with French and Colombian nationality. The secretariat agreed to send one of its members, Iván Márquez, to meet Mr Chávez in Caracas to talk about swapping the hostages for jailed guerrillas—but also, wrote Mr Briceño, “to lay the foundations for mutual political relations...even though this might be in the long term.”

At their meeting, Mr Chávez “approved totally and without batting an eyelid” a FARC request for $300m, Mr Márquez reported to his colleagues in a message published by Spain's El País and Colombia's Semana. In a long e-mail 12 days later, Mr Briceño notes that it was not clear whether the money was “a loan or for solidarity” but that the FARC should offer Mr Chávez help in return. According to a document obtained by the Wall Street Journal, Mr Chávez's interior minister, Ramón Rodríguez Chacín, asked the FARC to train Venezuelan soldiers in guerrilla tactics for use if the United States were to invade.

In an e-mail dated February 8th, Mr Márquez and a colleague report that Mr Chávez (whom they identify with the pseudonym “Ángel”) had told them that the first $50m was “available”, with another $200m over the course of the year. However, there is no corroboration as to whether any money was actually paid. Colombian officials have long said that the FARC was wealthy through drug money. So why were they so jubilant about the loan? Perhaps because army pressure against the guerrillas has disrupted their drug business. The government has evidence that some FARC fronts are short of cash and have trouble paying farmers for coca paste, says Sergio Jaramillo, the deputy defence minister.

The secretariat's e-mail correspondence sheds light on several other matters. It confirms that Manuel Marulanda, the FARC's veteran leader, is still alive and apparently in overall command. It also shows the FARC's cynicism about the plight of its hostages. Mr Briceño says repeatedly that he does not expect to achieve the hostage-for-prisoners swap while Mr Uribe is in power but that the FARC will keep pushing it to create problems for the president. When Mr Chávez asked for Ms Betancourt's release “we told him that if we did that we would be without cards,” Mr Márquez writes.

The e-mails show the extent to which the army has the FARC on the run: the secretariat members often complain of their difficulties in communicating with each other. Days after Mr Reyes was killed another member of the secretariat, Iván Ríos, was murdered by his own bodyguard. This week Mr Ríos's deputy, Nelly Ávila Moreno (aka “Karina”), surrendered. But the FARC is far from defeated. In an e-mail last August Mr Briceño notes that guerrilla landmines are undermining army morale. Their impact is “very good and we are going to increase them,” he writes.

The e-mails released so far represent only a fraction of the almost 40,000 written documents and 610 gigabytes of data on the computers. For all his bravado, Mr Chávez is clearly discomfited by all this. At a get-together of European and Latin American leaders in Lima on May 16th he was unusually conciliatory. Some Republicans in the United States have seized upon the computer cache as grounds for declaring Venezuela to be a state sponsor of terrorism. This could require the United States to impose trade sanctions on a country from which it buys some 10% of its imported oil—and so is unlikely to happen. And the e-mails are not a smoking gun implicating Mr Chávez unequivocally. It was Mr Márquez and other FARC commanders, not Mr Reyes, who handled relations with Venezuela. So there are no e-mails from Venezuelan officials on his computer.

Even so, the documents should trouble Venezuela's South American neighbours. None of them echoed Mr Chávez's call in January for the FARC to be recognised as legitimate belligerents. The centre-left governments in many countries are wary of Colombia's close alliance with the United States, which supplies it with military aid. But all have signed the Organisation of American States' democratic charter, requiring them to support, not undermine, each other's democracies. Last month José Miguel Insulza, the OAS's secretary-general, said that “no evidence” linked Venezuela to the FARC. But the evidence from the laptops suggests that there is certainly a case to be answered—by something more than a blustering denial.