Will Mexico’s Bank Trust Requirement Become a Thing of the Past?

Everyone, from large international news sources like Washington Post to small-scale investors in Mexican real estate, is talking about the newly proposed law  that would modify the country’s Constitution to allow …

Everyone, from large international news sources like Washington Post to small-scale investors in Mexican real estate, is talking about the newly proposed law  that would modify the country’s Constitution to allow direct ownership of coastal and border lands by non-Mexicans.

But now we all have to wonder – how long will it take for this change to gain final approval and pass the remaining hurdles?

This is the question I will tackle today.

Opinions and Guesswork …

First of all, it is important to point out that speculating how long it will take to pass this modification of the Constitution is just that – speculation.  I will present a few opinions here and the factual evidence that supports each opinion.  In the end we’ll have a fairly clear idea, but no final, 100% answer.

Changes and Optimism – The Process Could be Fast!

Considering the current political climate, some people are very optimistic that the process I described yesterday could be fast – a matter of a few months.  Personally, I get the feeling it would take considerably longer, but at the same time there are facts in favor or such strong optimism:

President Enrique Pena Nieto – Besides being enthusiastic for reform (as was the last president) Pres. Pena has managed to foster a political climate in which the government is actually able to push reforms forward at a rapid pace in just the first few months of his presidency.

“Pact for Mexico” – A key element in this climate has been the “Pact for Mexico” in which several major parties have agreed to cooperate on reforms rather than attempting to block the government.  While this is most certainly not one of the “big” reforms (of which there are about 4 or 5) it seems that the “spirit of cooperation” is overflowing.

Constitutional Reform for Education Fast-tracked – At the beginning of this year a major education reform that required changes to 2 articles of the Constitution (3 and 73) passed the entire process from first being tabled to final approval from the majority of states in less than 2 months!!  The land-ownership law is not as important, so it is unlikely to get the same special fast-track priority, but the education reform shows what’s possible under this government.

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Telecommunications Reform Momentum – Another reform, this time for the telecommunications industry, requires changes to 8 articles of the Constitution (6, 7, 27, 28, 73, 78, 94 y 105.)  This one is in the final stages of legislative approval for some minor changes by the senate, after which it will be presented to the state legislatures to be made law.  It has gained enough momentum that observers expect it to follow the rapid approval of the education reform.

Only 2 Weeks in Chamber of Deputies – The reform for foreign ownership of Mexico land – the one of most interest to us – is in its very early stages.  However, it’s spectacular that it gained its initial approval from the Federal Deputies in only 2 weeks!  Many people expect that the Senate will pass it without modification, which would make it the fastest Constitutional reform to do so of the 3.

Much Less is at Stake  The 2 other reforms in question directly impact highly influential people, including the country’s most powerful union leader and Carlos Slim, the world’s richest man.  Since the land-ownership reform doesn’t affect any rich/powerful/influential people negatively, it may even go through more easily (although not necessarily more quickly.)

2 Dominant Parties On Board – On Tuesday, in the Chamber of Deputies, the foreign land ownership bill passed with overwhelming support (356 to 119) backed by the country’s 2 most influential parties – the PRI and the PAN.

State Parties take Orders from Above

These 2 parties mentioned above dominate the legislatures of 28 of the 32 states.  The approval of only 16 is needed.  In Mexico, state parties will usually “take orders” from their federal overlords.  So, if the 2 parties support the bill on the federal level …

Sponsored by Influential Politician

The PRI’s congressional leader, Manlio Fabio Beltrones, is one of the country’s most influential politicians and one of the 3 main sponsors of the bill.

“On the Other Hand …” Why it Could Take Long

Other people are of the opinion that since it is a change to the Constitution, it will probably take much longer, if it even gets anywhere at all.  Facts in favor of this less optimistic view are:

Lack of Success in Previous Attempts – Previous attempts to make the same constitutional change, made by less influential politicians, died in stagnation.

Low Motivation for non-Coastal States – Probably only 11 coastal states would benefit immediately from this reform.  One of them is dominated by a party that opposes the bill. (There are 17 coastal states in total, but several of them don’t have any significant expat population.)  Central states can already offer direct ownership to foreigners.

Renegade State Parties – It’s not always a given that all state parties will follow their federal counterparts’ lead.

Negative Press from the Left – The more solidly leftist parties oppose the change saying that it puts sovereignty in danger and opens the doors for “greedy” foreigners to “rob” poor coastal land owners of their property.  The majority of politicians don’t take such ideas seriously, and thankfully, so far such press has been very limited.  But if the popular press picks up on it on a large scale, state governments may focus on saving their reputation with home voters.

Political Power Games – This bill would cost banks the money foreign owners pay them to maintain the Bank Trust.  Some observers are noticing that there is currently a major bank reform bill which will also impact bank income.  There is speculation that either banks will try to stop the land-ownership reform or the government may negotiate it away in favor of the more important reform if the banks present major opposition.

Many of these points are the “other side of the coin” and could be countered by points above, or vice versa.  We can’t really say either view is the “final word.”

My Verdict – Reserved Optimism

While I’m not by any means an expert on Mexican politics, by putting the two opposing opinions together, I come to a conclusion of reserved optimism.

I would say the political situation and other facts point to more optimism than pessimism.  Mexico’s political steam is going strong and seems to be moving reform full tilt ahead in a superb multi-lateral cooperation that has not been seen before, stream-lining important constitutional reform.  In such a context, you could easily imagine the land-ownership bill being made law quickly.

However, there are also real possibilities of delays and obstacles.  Instead of jumping to the conclusion that it’s all said and done, we’ll do better to sit back and watch – watch optimistically, but not making any assumptions until we actually see this bill move forward!


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