Mexico To Receive $11bn From Abroad

Mexico is on course to receive a record $ 11bn of foreign direct investment this year in a further sign of the countrys broadening economic recovery, Guillermo Ortiz, finance minister, said yesterday.

Mr Ortiz forecast economic growth of 6 per cent in 1997, following growth of 5.1 per cent in 1996 and a 6.2 per cent contraction of GDP during the 1995 financial crisis.

Mr Ortiz, who is under pressure to lower taxes from an opposition-controlled Congress, told a meeting of business leaders the government would run a fiscal deficit of 1.3 per cent of GDP in 1998, against a balanced budget this year. The deficit, he said, would result from unexpectedly high costs related to the rescue of troubled Mexican banks and a fall in government revenues as Mexicans switched from the state-run pension system to private retirement schemes.

The recovery of foreign direct investment, which dropped to $ 7bn during the 1995 recession and rose only marginally to $ 7.6 bn in 1996, according to central bank estimates, follows the privatisation of Mexican railways and the deregulation of electricity generation, telecommunications and gas distribution, sectors that were previously barred to foreign investors.

In addition, foreign investors have taken big stakes in many undercapitalised private-sector Mexican companies this year.

A number of insolvent Mexican banks have been purchased by foreign banks. Mexicos largest tobacco company, Cigarrera La Moderna, was bought by BAT Industries in July for $ 1.71 bn. In June, Wal-Mart, the worlds biggest retailer, took a controlling stake in the Mexican retailer Cifra for $ 1.2 bn.