Investors Peer Through Wider Door

BUYING INTO MEXICO

August 3, 1989

MEXICAN President Carlos Salinas de Gortari looks like no bullfighter, but his moves to open Mexico to foreign investment shows similar courage. They wave a red cape at some Mexican nationalists. They lance conservative Mexican businessmen concerned about foreign competition. North of the border, potential United States investors are watching the rising dust with a certain intrigue.

``Some interest has been aroused,'' says Diego Asencio, a former United States ambassador to Colombia and now a consultant to Mexico. ``But I haven't seen many gringos holding satchels of money waiting to cross the border.''

US companies are waiting to see how Mexico treats them when they cross the Rio Grande, says Gary Springer, director of programs at the Council of the Americas. Investors are nervous because the regulations for foreign investment are new, enacted by the executive branch on May 15.

``People are not as sure now as they will be in, say, 1990,'' says Mr. Springer. ``Then they will have a clearer understanding of what the regulations mean.''

The regulations will help Mexico compete for world money, says Miguel Jauregui Rojas, a Mexican lawyer. Mr. Jauregui, who spoke at a symposium held recently by the law Firm, Curtis, Mallet-Prevost, Colt, & Mosle, says the regulations come at a time when Mexico desperately needs foreign money.

``The regulations open the door for major investments from Japan, Europe and the US,'' Jauregui says. ``This opening to foreign investment becomes crucial to the development of Mexico.''

Mr. Salinas promised in his election campaign last fall to bring foreign money into Mexico and to modernize the economy. By liberalizing its 16-year-old foreign-investment regulations, Mexico hopes to attract investors at a time when bank credit is scarce.

Modernizing in Mexico means more than roads and electronics. In that country, where a police officer's whim may declare the law, a customs officer can set a tariff, or a politicians' desire could make or break an enterprise, modernizing also means enforcing and applying laws or regulations impartially and consistently.

``The regulations spell out what is open and closed and what rights the investor has,'' says Jorge Cervantes, a Mexican lawyer at Curtis, Mallet.

The new regulations were designed to make restrictions the exception and not the rule, says Agust'in Barrios G'omez, former ambassador to Canada and consul general of Mexico in New York. For example, if Mexico does not act on investment requests within 45 days, the proposals automatically become legal.

The most important change is that foreign companies are now allowed under certain circumstances to own 100 percent of a company. Before May 15, a Mexican partner had to own the controlling 51 percent of a company.

Though the new regulations give more latitude to foreign investors, some restrictions still remain. There is an investment ceiling of $100 million for automatic approval. Mr. Gomez expects this will result in smaller, more manageable projects in the $10 million to $20 million range.

Also, Mexico City, Guadalajara, and Monterrey, the three largest cities in the country, are out of bounds for new investments because of pollution problems.

And there are restrictions on investing in certain industries.Oil, banks, and radio and television networks are closed. Telecommunications requires approval from the state. The building industries are open 100 percent and Gomez says cement and glass industries are moving in.

Tourism remains the top area for foreign investment. Since the new rules were introduced, Gomez reports, $500 million in new money has gone into tourism. Five hotels owned by a French chain, a Canadian chain, and a US chain were approved two weeks ago. The Mexican government refuses to release the names of the new investors.

Politically, the act of writing new investment rules was tough. Salinas was criticized within Mexico. However, Mr. Asencio says they are an example of Salinas' take-charge stand on Mexican economic reforms.