JUNE 1996 · VOLUME 17 · NUMBER 6

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E C O N O M I C S

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MEXICO CITY -- After Mexico's December 1994 peso meltdown, Chase Manhattan Bank consultant Riordan Roett called for a military crackdown on the Zapatista rebels [see "Chasing the Zapatistas," Multinational Monitor, February 1995]. Should Roett next get a consulting job with Mexican banks -- Chase having let him go -- he might call for an attack on the debtor movement, known as El Barzón, that is giving south-of-the-border banks fits.

Like eliminating the Zapatistas, snuffing out El Barzón is easier said than done. "In Mexico there are two revolutions. One is armed, which is the one in Chiapas, and the other is unarmed, which is El Barzón," says debtor Silvia González Román.

González Román speaks from a make-shift office in the uncompleted, multi-tiered parking garage she built near La Costera, the main drag along Acapulco's ritzy beaches. The state and local governments governing Acapulco had decided to outlaw parking along La Costera and to promote private garage construction as an alternative. González Román built the garage to serve a flood of tourist traffic that was supposed to be displaced from La Costera.

But this business fell victim to two Mexican planning failures. First, relatively few people in Mexico City -- where the minimum wage is $110 a month -- can afford to pay $50 in tolls to drive 215 miles on the new private highway. Second, when the forecast traffic failed to materialize by October 1993, the local and state governments for Acapulco reversed their plans to prohibit parking along La Costera, putting those who invested in a government garage-construction program out of business.

González Román says these setbacks deprived her of the means to repay a $105,000 debt to the Bank of Mexico. Now, she lives like a squatter in the bunker-like garage. González Román says she approached her bank several times in 1994 to try to stretch out her repayment period. "The alternative they gave me was to sell my assets at a price of their choosing," she says. "Mine was a variable-rate loan that went up to 110 percent annually. Can you imagine? What I have is the work of 30 years. They are not going to take it away from me as a consequence of bad government policies."

If the bank ever finds a buyer in Mexico's depressed economy for what González Román calls her "patrimony," she says her fellow Barzonistas will not allow it to change hands. "Do you know what we say in El Barzón? We don't need arms. All we need are huevos," says González Roman, using the Spanish word for "eggs," which is slang for "testicles."

"In Acapulco there have been around 30 suicides as a result of bank debts," González Román says. "If I'm going to lose my life, I'd rather do it fighting [the banks]."

In January 1996, bank attorneys threatened to take the possessions of a family three blocks away from the office of Juarez Neighbors, a nongovernmental organization that represents 1,200 debtor families in Ciudad Juarez, across the border from El Paso, Texas.

Do you know what that family did?" asks Eric Magollón, a legal adviser to Juarez Neighbors and to the National Coordinating Committee of Bank Users (NCBU), an umbrella organization of 54 social groups that represent 30,000 debtor families throughout Mexico. "With all the furniture and everything inside, they set the house on fire."

González Román and the Juarez family's stories are not unique; the scale of the Mexican debtor problem is enormous. A January 1996 Salomon Brothers study of 12 of Mexico's largest banks estimated that, according to U.S. Generally Accepted Accounting Standards, a staggering 30 percent of these banks' loans were nonperforming; and representatives of Mexico's National Banking Commission estimated in mid-1995 that the net worth of the country's commercial banking system was negative $10 billion.

"With 40 million Mexicans [with nonperforming loans], this is more delicate than Chiapas," says Magollón. "There, there are 5,000 people on a small piece of land known as the Lacandón Jungle. But here, we could be looking at a social division of unimaginable magnitudes -- worse than what occurred in Nicaragua and El Salvador."

Politicization by debt

Mexican debtor groups encourage people to fight back rather than take their lives or torch their homes. "We make the banks return what they take from us," says Juan José Quirino Salas, El Barzón's national leader. "If they take a house, we open the door and occupy it. If they take a tractor, we reclaim it and put it to work. In the case of farmers who use electricity to run irrigation pumps, if we don't have enough money to pay the bill, we hook up the electric cables and pump the water."

"No one does anything because we are thousands of people who are well organized to fight the banks. We are the ones who generate wealth. We are the ones who produce goods, while the banks just act as intermediaries," he says. "It is ridiculous that they, through high interest rates, are strangling the hen that lays the golden eggs, even as they demand that it keeps laying golden eggs."

Debtor groups estimate that between one and two million Mexicans with nonperforming loans -- defined as those loans that are more than 90 days past due -- have been organized to stand up to their bankers. The debtors movement emerged from a pool of some 40 million nonperforming Mexican loans. Although the average Barzonista has a debt of between $83,000 and $166,000, the group has also signed up some heavy hitters -- whose identities are protected by El Barzón's anonymity policy -- who owe millions.

Self-interest motivates many Mexicans with non-performing loans to join the debtor groups. But when large numbers of common Mexicans come together to defend themselves, these self-interested acts are transformed into a social struggle.

"People join El Barzón to defend their patrimony, so the banks won't seize their home," says Emilia González, the leader of All for Chihuahua, a broad-based, progressive civil organization which is part of El Barzón. "But after walking down this path together, they discover that there is no solution if the economic model isn't changed, if the countryside isn't returned to production, if the small- and medium-sized industries -- which are dead -- aren't reborn. Only then can we begin to talk of repaying the debts."

Barzonistas say that they are not shirking their debts but are merely seeking realistic conditions under which they can repay what they borrowed. "I owe, I don't deny it, but I will pay only what is just," is the group's slogan. El Barzón directs its members to make regular -- albeit modest -- payments to special escrow accounts overseen by judges. The banks are allowed to access these funds only if they agree to apply the money to the debt's principal. Initially, the banks refused to accept the conditional escrow payments. But as the liquidity crisis of the banks deepened and as debtors established more than 10,000 escrow accounts worth a total of $2.7 million by mid-1995, banks began taking the money on the principal-only terms.

Unilateral restructuring

Acknowledging the existence of a debt crisis in early 1995, Mexican banks first offered to restructure some debts by converting debts to investment units (UDIs), a financial instrument that links debt interest rates to the rate of inflation, which was 52 percent in 1995. By June 1995, even the president of the Mexican Bankers Association, Jose Madariaga Lomelín, admitted that the nationwide response to the bankers' UDI proposal had been negligible.

In November 1995, the bankers and Mexican President Ernesto Zedillo were back with a revised restructuring plan, the Immediate Aid to Bank Debtors Agreement, known as Ade. The Ade plan stretches loan terms out over 30 years with a fixed interest rate of 6.75 percent in the first year and 8.55 percent for the remaining 29 years. This sounds like a vast improvement over interest rates that, in many cases, exceeded 120 percent in 1995. But the plan leaves debtors vulnerable to future peso devaluations. "The deception is that the value of the money is indexed to the annual rate of inflation, but that rate is calculated in dollar terms," says Juarez Neighbors President Jesus Tapia León. "We Mexicans don't earn dollars, we earn pesos."

In late January 1996, the Mexican Bankers Association declared the Ade program a success, announcing that it had restructured 1.5 million nonperforming loans. One feature of the new program promoted at least passive participation: nonperforming credit card debtors, the largest single debtor group, were automatically assigned to the program, receiving a notice that their debt had been restructured, Tapia León says. The debtors' movement says that the banks' Ade numbers -- like many Mexican banking figures -- are baloney.

New York-based Securities Auction Capital, a private financial firm, calculates that 47 out of every 100 Mexican debtors had nonperforming loans in February 1996. Securities Auction Capital estimates that, by U.S. accounting standards, Mexican banks have a loan portfolio of about $41 billion, of which $20 billion runs the risk of never being collected. In March 1996, Mexican Bankers' Association President José Madariaga Lomelín cited a slightly more conservative figure of $18.2 billion in nonperforming loans, which he said was up from $7.1 billion at the time of the peso crisis in December 1994.

Given the crisis, Mexico's deposit insurance institution, the Savings Protection Bank Fund (Fobaproa), has been forced to take over the management of six banks: Cremi, Unión, Banpaís, Banorie, Interestatal and Obrero. By the end of 1995, Fobaproa had purchased $8.4 billion worth of bad Mexican loans, or about 10 percent of the loan portfolio of Mexican banks. This amount was close to twice the amount of bad debt that the government had expected to acquire. Fobaproa's ballooning costs are being financed in part by $14.3 billion in World Bank and Inter-American Development Bank credits to be paid off over 15 years.

Debtor groups say that the failure of the banks and the government to redress the debt crisis can be traced to two fundamental flaws. First, Mexico's neo-liberal model in general -- and NAFTA in particular -- has left the country in ruins and deprived all manner of debtors of an income that will allow them to repay their loans.

Second, the debt restructurings presented so far have been designed without the input of debtors. Mexican Bankers' Association President Madariaga Lomelín says bankers will only negotiate the terms of restructuring with individuals -- not groups like El Barzón -- because banks make loans to individuals, not groups.

El Barzón and the NCBU pledge to continue their struggle until the government and the banks acknowledge the futility of taking over thousands of homes, cars and businesses, dismantling the country's productive base and falling into an even deeper social crisis. They demand that the government, banks and other business groups enter into a dialogue with debtor groups to find a way to resuscitate the economy.

Court marshaling

Mexican debtor groups are prosecuting their war against "usury" on two distinct and -- some critics say -- conflicting fronts. The most visible battle has been on the streets, where militant debtors have mobilized huge demonstrations, blocked roads with tractors, enforced involuntary bank holidays and, in the case of Acapulco Barzonistas, even stripped off their clothes in a bank to show how little bankers have left them. On another front, the debtors' movement has tried to harness Mexican law to defend its members in court.

Both the Barzonistas and the National Coordinating Committee of Bank Users say that they have the same objectives, though the groups subscribe to different street tactics. The NCBU opts to protest within the boundaries of the law, whereas Barzonistas say Mexico's corrupt judicial system will circumvent the law in the absence of unrelenting popular pressure. "We have realized that El Barzón has to pursue both the legal route, to defend our patrimony, and the civil disobedience route to force the judicial powers to respect the law," says All for Chihuahua's Jesus Beutelspacher.

Ignacio Burgoa Orihuela, head of the National Lawyer's Bar and considered by many colleagues to be Mexico's leading constitutional scholar, has fortified El Barzón's legal case. In early 1995, he agreed to help the group frame its legal strategy. Within months of Burgoa Orihuela's announcement that he would assist El Barzón, more than 300 lawyers around the country came to El Barzón's defense, forming a national network of lawyers to represent members at a fraction of the market cost of their services. The NCBU has also mobilized a legal team to defend its members at discount rates.

Despite this aid, the potential legal requirements of the debtors are staggering. Bankers threatened to hunt down uncooperative debtors after the timetable for their Ade program expired on January 31, 1996. Burgoa Orihuela warns that, if the bankers stick to this threat, up to a thousand debtors a day could be served with legal complaints, overloading the court system.

Apart from representing individual Barzonistas in foreclosure proceedings, lawyers have helped El Barzón file thousands of usury complaints against bank administrators. El Barzón has also filed null contract complaints against bankers, arguing that the interest rates they have charged were unforeseen when the loans were made. "The law says that the crime of usury is committed when, for lack of foresight or knowledge, one's patrimony or goods fall victim to interest rates that are not within one's reach and that were not contracted," Quirino Salas says. "For the lack of foresight and errors of the economic cabinet, suddenly we had [annual] interest rates that are above 100 percent, against which we are defenseless."

Preemptive usury suits filed by the debtors have bogged down in the courts, with the legal system apparently reluctant to rule against either the banking industry or millions of well-organized debtors. But legal defenses of debtors whom the banks have tried to strip of their possessions have had considerable success -- especially when combined with street activism.

El Barzón: A Lyrical Metaphor

El Barzón takes its name from a song that became popular in Mexico in the 1930s. A barzón is a leather strap that some Mexican peasants still use today to hitch their plows to yokes shouldered by oxen. The song that made singer Luis Perez Mesa famous says, "The barzón broke and the oxen kept trudging along." Today's Barzonistas say bank usury broke their metaphorical barzón, leaving them spinning their wheels, toiling for nothing. El Barzón originated among ranchers in the northern Mexican states of Sonora, Chihuahua and Zacatecas, says the organization's leader Juan José Quirino Salas, a native Zacatecas farmer, rancher and businessperson. Serious problems began for these once-prosperous ranchers in the early 1990s, as former President Carlos Salinas de Gortari began to open up Mexico's markets to foreign products, including U.S. meat and grain, a process that accelerated with the January 1994 implementation of the North American Free Trade Agreement. As foreign agricultural products displaced home-grown ones, the northern ranchers' incomes dwindled and their debts mounted. Many of these ranchers were self-made individuals who were ashamed that they were unable to repay their debts. Seven ranchers decided that there must be an alternative to either surrendering their properties to the banks or restructuring their loans on the banks' terms. These ranchers turned to Quirino Salas in the fall of 1993. Better educated than the average rancher, Quirino Salas earned a master's degree in economics from Mexico's National Autonomous University. Quirino Salas, whose own debts have since fallen into the nonperforming category, tutored the original Barzonistas on the terms of their debts. "They learned how they had been taken," he says. As more ranchers and peasants sought out Quirino Salas's advice, the Barzonistas decided that there was power in numbers. The Barzonistas set up a tent in front of the Fresnillo town hall, where everyone could see debtors who were not ashamed of their debts. "To our total surprise," Quirino Salas says, "in 15 days we had 400 members." Next, they organized a tractor caravan from Fresnillo to the city of Zacatecas. When they arrived in the state capital, they had about 1,000 members, Quirino Salas says. "After a month and a half in Zacatecas, we realized that we weren't just agricultural producers; owners of inns, restaurants and small businesses approached us" saying that they had non-performing loans, Quirino Salas says. Throughout 1994, the Barzonistas extended their geographical reach, with chapters founded in 19 of the country's 31 states. In Mexico, Quirino Salas says that many business lobby groups and even the smaller banks support El Barzón or have adopted its positions. In January 1996, for example, the conservative Livestock Union declared a moratorium on bank debt payments. Many Mexican trade groups representing small- and medium-sized businesses now openly discuss their inability to repay loans, the need to renegotiate NAFTA and find an alternative to the government's neoliberal economic export model. Nonetheless, the debtors' movement -- like the rest of Mexico's increasingly independent and assertive civil society -- confronts a herculean task in trying to dethrone the privileges of the country's political, legal and financial elite. In July 1995, for example, Barzonistas in the northern industrial state of Nuevo Leon denounced 100 "usurers" to state Attorney General David Cantú Díaz, demanding that they be prevented from proceeding with attempts to repossess properties from 300 people with nonperforming loans. Among the "usurers" that El Barzón denounced to the attorney general were his cousin, Jorge Humberto Cantú Garza and one of the attorney general's predecessors, Napoleon Cantú Cerna, the uncle of a ruling party senator. "Here in Mexico, it is very clear to us that when a social struggle has just one front, just students, for example, the government can brush it aside as if with a feather," says Emilia González, leader of the civic organization All for Chihuahua. "With just peasants, we're gone. Our government runs this society by sectors. But a pluralistic movement like this one is very difficult to control. It's not the same to crush businesspeople as it is to crush peasants. This complicates things enormously." -- A.W.

Mexico's Creditor of Last Resort

Debtor groups charge the banks have milked the economic crisis that struck in December 1994 by accepting bailouts with one hand and tightening the screws on debtors with the other. Many Mexican banks have been bailed out by $14 billion in capital infusions from multilateral lenders such as the World Bank and from the Mexican government, which has drawn on about $30 billion of the $53 billion Mexican bailout package that the Clinton administration patched together, including $20 billion in credits offered directly from the U.S. Treasury. [See "The Fall of the Peso and the 'Mexican Miracle,'" Multinational Monitor, April 1995] Mexico's bank bailout in 1995 and 1996 will cost the country $28 billion, wrote La Jornada columnist Luis Linares Zapata in March 1996, the equivalent of 5.5 percent of its gross domestic product in those years and equal to three years worth of Mexican oil exports. "We're using the U.S. money to save the 28 families that control the banks," says Jesus Tapia, president of Juarez Neighbors. "The government is now paying out to the banks twice what the banks paid the government to reprivatize the banks [in 1991]. The bankers paid $5 billion [for the banks] and the government is injecting them with $11 billion." Mexico has paid a few hundred million dollars in interest on its U.S. bailout loans this year, but the country's repayment schedule gets considerably steeper in the years ahead. This is particularly troubling given that the Mexican government collected 20 percent less in taxes in 1995 than 1994, even as its debt service costs increased 90 percent in the same period. In the absence of a dramatic economic recovery in Mexico, the government appears on course to continue to mine Mexico's social and infrastructure budget to pay off bailout debts and subsidize the banks. -- A.W.