Documents on Mexican Politics.

Power to the plutocrats

Power to the plutocrats

by Lucy Conger

Institutional Investor February, 1995, International Edition

In mid-January Mexico's 20-day-old peso-devaluation crisis only seemed to be getting worse. Domestic interest rates had zoomed beyond 50 percent. Dollar-denominated government bonds -- the tesobonos -- were yielding 20 percent. The specter of double-digit inflation loomed menacingly on the horizon. Foreign investors had bolted from the Mexico City bolsa like a herd of cattle panicked by a thunderstorm. The trauma sent buoyant Latin American markets crashing. And markets as far away as Stockholm and Hongkong were being rocked by the financial shock waves emanating from Mexico.

Desperate to regain control of the fast-deteriorating situation, Mexican Finance Minister Guillermo Ortiz Martfnez, who'd been promoted only two weeks before to repair the damage from the bungled devaluation, huddled on January 12 with an old ally, and sometime adversary, of Mexican governments past and present: the Mexican Businessmen's Council. No mere glorified chamber of commerce, this ultraexclusive group is limited to the country's 40 top empresarios and banqueros -- the country's true plutocrats (many of them billionaires), who exercise vastly disproportionate sway over the economy and the financial markets through their sprawling industrial and financial holdings. Together they control about 27 percent of the economy.

As if to underscore the influence of these modern-day grandees, during the next few days President Ernesto Zedillo in turn met individually with some of the leading magnates, such as Roberto Hernandez of Banco Nacional de Mexico, the leading institution of Banamex-Accival, and Jorge Martinez Guitron of steel-and-tourism giant Grupo Sidek. "We are requesting that this bubble of inflation, instability and variable parity end as soon as possible," Martinez Guitron told Institutional Investor after one of his sessions with Zedillo. "The battle against inflation [must] be serious so that we don't lose the advantages of the devaluation." Zedillo was closeted with Hernandez when the banker hosted 25 foreign investors at his home.

The government has little choice but to heed the admonitions of the conglomerateurs: In Mexico's highly concentrated economy, they, as much as the Ivy League-educated government technocrats who are engineering a package of economic reforms, are the ones who will have to lift Mexico out of its current quagmire. The boost that devaluation will give their companies' exports should supply much of the momentum needed to restore strong overall economic growth and reduce Mexico's gaping trade deficit. What should also help, of course, is the $ 50 billion aid package from various sources that was assembled by President Bill Clinton at the end of January, when it became obvious that the administrations $ 40 billion rescue plan was not going to make it through Congress.

If the Zedillo administration is counting on big business, big business can assuredly count on the government, as the top Mexican corporations have in the numerous nearly cyclical crises that have shaken the economy over the past 18 years. Paradoxically, though perhaps predictably, the long-term product of the peso crisis could well be a Mexican corporate elite that, with the weaker companies weeded out, is more competitive internationally -- and thus even more influential domestically. As much as Mexico must nurture small and medium-size businesses to prosper in the long run, it plainly must now fall back on the resources, and the resourcefulness, of the 90-odd industrial, retail and services giants that dominate trading on Mexico's bolsa. Their continuing dominance is both a strength and a weakness for Mexico's newly fragile economy as it retools for global competition.

In the near term the peso crisis could prove to be a trial by ordeal, for the conglomerates as well as for the wider economy. Many of the companies carry heavy dollar debt loads, which the peso devaluation has suddenly made far more burdensome. Some, such as retailer Grupo Gigante, bottler Grupo Gemex and construction company Tribasa, have scant foreign dollar sales to offset their dollar debts. A number of conglomerates may have to hive off businesses to survive, reckon some analysts. But others, like Telefonos de Mexico and brewer Grupo Modelo, have modest dollar debts and ample foreign dollar sales to hedge their debts, according to a Baring Securities reports. And many offer products that can replace slowing imports. These companies could do just fine.

Faltering loan portfolios, however, will put the entire Mexican banking system under severe strain. Some vulnerable banks may fail or be forced to sell out to foreigners. Yet the biggest banks, like the biggest conglomerates, will also be able to use their amassed peso wealth to buy up assets and stocks that lesser rivals now cannot afford.

The giant conglomerates, too, are in an enviable position to bolster their competitive clout by teaming up in joint ventures with their corporate counterparts to the north. Last fall Grupo Alfa surprised the markets by forming a strategic alliance with AT&T Corp. in preparation for Mexico's telecommunications deregulation, causing the stock of phone monopoly Telmex to skid. But just weeks later Telmex itself won a commitment from Sprint Corp. to create a strategic alliance.

"We've gone through three crises already -- in 1976, 1982-'83 and 1987," says Gustavo Caballero, CFO of cement holding company Cemex, "and through all of them the company has created value." Cemex has accelerated a cost-reduction program, maximized liquidity (in part by negotiating with Citibank and J. P. Morgan to roll over some debt) and plans to increase its exports from Mexico from 1 billion tons of cement in 1994 to 2.2 billion tons this year. Considering a grim scenario of -1.1 percent GDP growth and 24 percent inflation in 1995, Cemex says it will easily be able to cover its debts. "And in '96 in Mexico, we expect we'll see business up again," Caballero says. "Management has bought a lot of stock."

"The conglomerates are much better off than most other companies," says Pablo Riveroil, an analyst with the Bursamex brokerage house. "They will survive. Some conglomerates might [even] get bigger."

Who are the Mexican magnates and how did they become so powerful? The richest of the rich form a galaxy of families -- perhaps as few as 300 -- who bestride the business world and have long enjoyed, and depended upon, close dealings with the government.

Among the magnates at the top of the Mexican economy: Adrian Sada Gonzalez, head of glass container maker Vitro and Serfin financial group; Eugenio Garza Laguera, chief of beverage company Femsa and Bancomer; Hernandez and Alfredo Harp of financial group Banamex-Accival; Carlos Slim, controlling shareholder in conglomerate Grupo Carso, Telmex and financial group Inbursa, with important holdings in Televisa and Alfa; Lorenzo Zambrano of Cemex; Emilio Azcarraga, the Televisa media magnate who until mid-1993 held the only government concession for private TV broadcasting; Dionisio Garza of Alfa; Alfonso Romo of industrial-financial conglomerate Pulsar; and Roberto Gonzalez Barrera, CEO of Maseca, a producer of corn flour and tortillas.

Most have fortunes of more than half a billion dollars and many are billionaires. Most head conglomerates. Even the bankers among this ultraelite are in diversified lines of business, heading whole financial groups. Yet the plutocrats' great power and wealth in a country where nearly half the population is mired in poverty is becoming a political as well as a social issue. The Chiapas guerilla movement's recent land seizures and political protests and the subsequent peso devaluation only underscore this reality. Indeed, the more enlightened of the superwealthy pay lip service at least to the notion that their own well-being depends on the vibrancy of the wider market they serve. From the lofty heights of the Mexican Businessmen's Council, some of the magnates have expressed to Zedillo their concern for broader social programs for the poor. For his part, Zedillo has negotiated a pact between his ruling Partido Revolucionario Institucional and opposition parties that aims to reduce political unrest with referendums on controversial elections in the states of Chiapas and Tabasco and redistribution of land to peasants in Chiapas.

The government's levers

Politics and wealth have long been intimately intertwined in Mexico. In this century the state has regularly made, unmade and remade private fortunes. Officially, the modern government that was forged out of the social revolution of 1910 has kept the private sector at arm's length in favor of building broad popular support through social programs. In reality, government has largely determined the fate of business. Sundry Mexican presidents have made unilateral decisions to confiscate large landholdings, expropriate foreignowned oil fields and seize private banks. At other times the government juggernaut -- led by the PRI, the world's longest-lived state party -- has both preserved and created business opportunities through its control of strategic industries.

A bitter break occurred in 1982, when departing president Jose Lopez Portillo nationalized the entire banking system. When banker Agustin Legorreta is asked to confirm the popular story that he fainted upon learning he'd lost Banamex, the jewel of Mexican banking, he smiles broadly and responds, "I was shocked, but I did not faint." But then his expression turns serious: "It is one of the worst things I've gone through." Legorreta today heads the more modest Inverlat, Mexico's fourth-largest bank.

The bank seizure marked the nadir of government-business relations in recent decades. To end the ensuing economic crisis, Mexico City had to fashion a new working relationship with the private sector. Since 1982 liberal reformist governments led by presidents Miguel de la Madrid and Carlos Salinas de Gortari have sought to rebuild investor confidence. They implemented stringent economic programs that benefited companies by lowering inflation, stabilizing the currency, selling off government-held enterprises, lifting regulations and creating a larger role for the private sector.

The plutocrats in particular prospered. The government-private sector reconciliation was forged "under a balance of forces, whereby these [industrial] groups were able to get far more from government than ever before," says Jorge Castaneda, a political scientist at the National Autonomous University of Mexico.

In the dark days following the 1982 debt crisis and the accompanying devaluations, many of Mexico's leading businessmen got their first exposure to Zedillo. Then a bright young central bank official, he dreamed up a foreign-exchange-risk-coverage program known as Ficorca that aided strapped conglomerates in managing their foreign debt.

Ficorca saved Guadalajara's Grupo Sidek steel-and-tourism conglomerate when it was unable to make timely payments on its $ 32 million debt. "Ficorca was the most valuable help the business has had from the government," recalls Sidek's Martinez Guitron. "It made the difference between growing and disappearing." Of course, Zedillo's ability to come to the rescue of big business -- and banks in particular -- will be tested again in coming months, as he carries out his stabilization program in the wake of the December devaluation.

In 1989 then-president Salinas began accelerating the liberal reforms, particularly the privatization drive. He sold off state airlines and steel and mining interests. Initiated to help balance the state budget and shift leadership of the economy to the private sector, the privatization campaign also created new tycoons out of the merely rich, who got to buy huge and lucrative business franchises at favorable prices.

Many of the fastest-growing Mexican fortunes are an outgrowth of the Salinas-era privatizations of telephone service (Telmex), highway concessions (Tribasa) and banks. Under Salinas at least 23 Mexicans attained billionaire status. Their fortunes, along with that of longtime Televisa multibillionaire Azcarraga, totaled $ 44.4 billion before the devaluation, according to Forbes magazine. That would put the equivalent of 12 percent of Mexico's annual GDP in the hands of just 25 families. Postdevaluation their wealth is now estimated to be a still impressive $ 26.7 billion.

Most fortunes based in Mexico City have everything to do with government, say informed sources. By contrast, outside Mexico City, and particularly in the northern industrial capital of Monterrey, the great fortunes were not won through privatization plays but were built up by individual families over decades, usually in manufacturing and industry.

The most visible symbol of fortune-building through privatization is Telmex's Slim. An astute empresario, he increased his family's wealth in the depth of the '80s depression by buying up companies cheaply and turning them around. But it was the Telmex privatization that vaulted him into the billionaire class. His Grupo Carso won the bidding for 5.1 percent of the company, and under the complex sale scheme, the stake amounted to nearly 51 percent of the voting shares. (A majority of such shares were reserved by law for Mexicans. ) He also owns Inbursa, which, says Baring Securities, "has the healthiest capitalization ratio" of any Mexican bank, at 22.7 percent. Slim, who is said to be Carlos Salinas' closest friend in the business community, has a fortune estimated at $ 4.4 billion (with the peso valued at 5.7 to the dollar), according to Forbes.

The government's 1991 decision to reprivatize the banks created an opportunity for rich business owners to consolidate their power by restoring the sundered ties between leading industrial and financial groups. "As a less developed country, we had to go more for the German model than the American, having large industrial groups tied to banks," says Rafil Mendez, CEO of Fimsa bank. Explains Laura Berdeja, senior bank analyst for Baring Securities, the banks put on the block were expensive, and "it was clear that the leading shareholders [primarily owners of stock brokerages] couldn't put the necessary resources together, so they invited in the top industrialists." For instance, the board of owner-directors of the Banacci financial group includes 14 of the country's richest businessmen.

The Mexican magnates of the '90s are a diverse group, though they share an aversion to publicity. Slim is known as a devoted family man, patron of the arts and member of the charity social circuit. His operating style seems to reflect a disdain for corporate image: Carso has no corporate headquarters, and two of Slim's prize properties, Telmex and the Sanborn's restaurant chain, are infamous in Mexico for dreadful service. Telmex nevertheless boasted a 43 percent aftertax profit margin in 1993.

In 20 years of running Televisa, Azcarraga has never given an interview. He cultivates an image as a common man -- avowing a love of chilies, for example -- that suits the owner of a company notorious for its earthy soap operas. This has not made him popular, however: "He is Machiavellian; his association with the government is always for personal ends. His [television] monopoly is terrible," mutters Guadalupe Loaeza, a chronicler of Mexican high society.

Other business barons hold themselves aloof in the manner of old wealth everywhere. The Sadas of Vitro and Femsa's Garza Lagtiera are leaders of family dynasties going back 100 years or more. Then there's Juan Sanchez Navarro, the elegant 81-year-old director general of Grupo Modelo, of Corona beer fame. For decades Sanchez Navarro has operated comfortably in the public eye as a founder and leader of Mexico's most important business associations (see box).

Magnates based outside the capital or with provincial roots tend to be the least standoffish." Martinez Guitron of Sidek exemplifies the straightforward, easygoing style found in the provinces. He professes a simple philosophy of hard work, emphasizing team play. "In work you can't think alone," he says. "You need collaborators, and with collaborators things go well." In an unflashy way Martinez Guitron has been a trailblazer, introducing steel minimill technology to Guadalajara and taking his company public on the bolsa in 1979. Sidek has created resort megadevelopments featuring beach hotels, marinas, time-share condominiums and vacation homes; these holiday complexes have fueled rapid expansion of the company's tourism division. Martinez Guitron is respected in part because "people know where his money came from," says a close observer of the business scene in Guadalajara (a city now riddied with corruption and drug trafficking).

Although Banacci's Hernandez is director general of Latin America's largest financial group, he retains some of the relaxed style of his Veracruz youth. In meetings he strikes a cordial tone, making jokes freely. But his casual demeanor fails to conceal a dazzling ability to distill information and cut to the heart of an issue.

As the torch passes from founding fathers to sons and grandsons who studied abroad and grew up in the conglomerates, a new operating style is emerging. These youthful barons have a wider world of competition to contend with. The emphasis in Mexico's great family-held businesses today is on education, professionalism and international vision; the new generation needs to transform these coddled enterprises into global public companies with strong export operations and transnational strategic alliances, and the peso crisis has made these pressures more real and more urgent than ever.

Fifty-year-old Zambrano of Cemex is the dean of this new class, and Alfa's Garza, its 40-year-old wunderkind. Zambrano has a serene, directed energy that has no doubt been instrumental in expanding Cemex from a company with $ 300 million in market capitalization to a $ 9 billion (predevaluation) behemoth during his nine years at the helm. With an industrial engineering background and a Stanford University MBA, he can burrow into the minutiae of business. But his clear focus on cement as a core business and his expansion of Cemex into the U.S., South America and Europe are what has placed the company on the Big Board in New York. Indeed, foreign exchange sales are helping to offset Cemex's particularly heavy load of dollar-denominated debts. Moreover, the company predicts that growth in cash flows from foreign operations this year will nearly offset the expected drop in cash flow from Mexican sales.

Garza, who took over as Alfa's chairman just last April, has an easy, natural manner (he favors the informal tu in conversation) and brings enthusiasm and drive to the job. He's known for being decisive and direct. With 18 years' experience at Alfa and a Stanford engineering MS and a Harvard Business School MBA, Garza brings formidable skills to the tasks of tightening administration at Alfa and developing new businesses. He describes the coup of the AT&T alliance with calm pride: "I decided that if we could achieve a good deal, we'd go into telecommunications. But we'd not go into it just for the sake of being in telecommunications."

The power that such men and a select few others wield in Mexico can hardly be exaggerated. The popular press commonly writes of the 300 ruling families of Mexico, or of the 70 men that run the economy. The conglomerateurs' grip on the economy is indeed formidable. One man alone -- Carlos Slim -- controls nearly 25 percent of the market capitalization of the Mexican bolsa. Together the presidents of the three largest banks control 60 percent of the assets of the financial system. Hernandez's Banacci financial group was valued before devaluation at about $ 8 billion. Sadas Vitro conglomerate, which encompasses Banca Serfin and the Cydsa synthetic-fibers conglomerate, weighed in at $ 4 billion. Market values have been battered, of course (see table). But Bursamex" Riveroil is convinced that in the long run, "this crisis will just concentrate wealth more."

The sheer size of their holdings isn't the magnates' only source of power. They rely on their close links with the political establishment, which in Mexico means the PRI. Azcarraga's monopoly position in television makes him worth $ 2.9 billion. He is proud to declare himself a priista, a PRI supporter. Not incidentally, he keeps Mexico's television news coverage anodyne and pro-government.

A government connection was all too apparent in a scandal that broke last summer. Fresh Del Monte's new (and now absconded) owner, Carlos Cabal Peniche, expanded his business empire through illicit loans from his own banks. Mexican publications played up Cabal's close ties with prominent PRI officials who had helped him win his bank franchise. He was also alleged to have connections with a cabinet official and to have received support from Nacional Financiera, the government's biggest development bank, for the purchase of Del Monte's canned-foods business.

The benefits business derives from government are many. "We get a lot of support from the authorities," says Sidek's Martinez Guitron. Governors have asked Sidek to set up his resort megadevelopments in their states; in return officials expedite the paperwork. More important, the government may construct access highways and bridges.

The single most important conduit for communications between government and business is the Mexican Businessmen's Council. The council's Who's Who of business titans ranges from Modelo's Sanchez Navarro and Vitro's Sada Gonzalez to bankers Hernandez and Garza Laguera to Kimberly-Clark de Mexico director Claudio Gonzalez to the men whom Sanchez Navarro warmly calls "new bloods" -- Alfa's Garza and Pulsar's Romo.

The panoply of Mexican fortunes is represented. There's the old and unostentatious wealth of a Sanchez Navarro, the more recent riches of the "new bourgeoisie" like Inverlat's Legorreta, whose fortune grew out of Mexico's industrialization era of the '50s, and then the fast-made, modern-era wealth of Hernandez and Slim. Any social gulf between old money and the nouveaux billionaires is easily bridged. "There is a lot of mistrust over [the Salinas-era] fortunes, but then they are invited to parties. There is an unlimited hypocrisy," says social commentator Loaeza, a certified blue blood.

Given the sway over the Mexican economy enjoyed by the council (known by its acronymn of CMHN), it's not surprising that its members have a direct channel to Los Pinos, Mexico's White House. The group meets at least once a year with the president and once a month with a cabinet member (most often the minister of finance or of trade), as well as with the central bank governor. In a span of three weeks in the critical period before Zedillo took power, the CMHN met twice with Zedillo and once with Salinas. The magnates talk openly with Mexican presidents, as if among friends, over long lunches held at the home of a CMHN member. "The meal smooths the conversation a bit," says Sanchez Navarro. Mexico's more mundane industrial associations, such as the Manufacturing Industry Chamber, enjoy only formal "institutional relations" with government, notes Alberto Aguilar, a business columnist for Mexico City's Reforma newspaper.

In these early meetings with president-elect Zedillo, the council expressed its hopes for the new administration's program -- ironic in retrospect. "We spoke of the desire of empresarios that the current Salinas economic policy be maintained, while moving into a second stage [of reforms] that would give greater attention to the distribution of wealth and solving poverty. And Zedillo was in agreement," says Sanchez Navarro. In the more recent -- and far more grim -- session with Ortiz, the group's members stated their concern that the government control inflation and stabilize the exchange rate.

Privileged access of the council's sort is priceless in the context of Mexico's secretive political system. "You need the most information possible," explains Martinez Guitron. In just the two months since his admission into this exclusive club, Alfa's Garza has already seen its benefits. "It is an important forum for seeing what is going on in other regions of the country," he says. "It has helped me a lot."

When the Salinas administration needed to raise funds for the 1994 presidential campaign, it naturally turned to the wealthy businessmen it knew so well through the CMHN or through the privatization process or through personal ties. On February 23, 1993, Salinas himself presided at a select dinner at which an appeal was made to 27 of Mexico's top industrialists and financiers: Each was asked to donate or raise $ 25 million for the party's war chest. Televisa's Azcarraga reportedly pledged to donate $ 70 million himself, presumably out of appreciation for all the money he had earned during the Salinas years. His dinner companions, including Gigante's Angel Lozada, Kimberly-Clark's Gonzalez, Cemex's Zambrano and ICA's Gilberto Borja, were more lukewarm to the idea. "Each man gave his opinion of what he could give, and each said he would see what he could get," Martinez Guitron recounts.

When news of the dinner leaked to the press, opposition parties protested loudly. Such fundraising tactics, they asserted, would allow big business to monopolize political power. "It was implicit the government would have to pay back these donations with protection of industry [and banking]," declares Sanchez Navarro, who did not attend the dinner.

It is rare that news of so intimate and sensitive a government-business confab gets out. In Mexico, where silence, not mere discretion, is the better part of valor in business circles, the private sector is cautious about speaking out. Several heads of conglomerates refused interviews with Institutional Investor for this story.

Still, a few magnates don't hesitate to voice their views. Late in the presidential campaign, banker Hernandez caused a flap by reawakening fears of a government controlled by banking interests when he openly endorsed Zedillo, saying that economic instability would rock the country if the PRI lost. "Where does he get the authority?" huffs an indignant Loaeza. Hernandez, however, defends his statement: "I said it in the name of Roberto Hernandez as a person, as president of Banacci and as president of the Mexican Bankers Association." Following the peso's free fall last month, a Partido Accion Nacional leader, Felipe Calderon, slammed Hernandez for his erroneous prediction: "Where did your certainty end up? What of your guarantee for the future?" wrote Calderon in a bitter column in La Jornada.

The Mexican magnates' ties to one another can be even cozier than those to politicians. The directorates of the leading conglomerates and financial groups are as intertwined as braided Oaxacan string cheese. Cemex's Zambrano, for instance, sits on the boards of Alfa, Banamex, Cydsa, ICA, Grupo Autrey, Poncho Romo's La Comercial insurance company and Nafinsa. "By looking at the Banacci board you can almost get their client list," says one analyst. The denationalization of the banks in 1991 created the conditions for Mexico's wealthy to extend their existing linkages. The investor groups that bought the banks featured prominently the country's foremost high-networth individuals, including industrialists, merchants and ranchers. The biggest banks created regional commissions made up of those holding the largest fortunes in these regions. A seat on a regional board of Banamex represents an estimated $ 10 million stake as an initial shareholder in the banks privatization. The list of provincial board members -- who typically are the ones controlling local industries and large landholdings -- offers fresh evidence of the concentration of wealth, says one analyst.

Some New York-based analysts dismiss the importance of the interlocking directorates, but Mexican analysts based in Mexico do not. "You have a Mexico Inc. concept. Nobody wants to rock the boat very much," says Bursamex' Riveroil. Adds another brokerage analyst, "All of the big companies sort of make a spiderweb, and they all know about the decisions of everybody else," and they try to stop upstart rivals from growing.

Like their fathers, uncles and in-laws before them, the new generation of executives in Monterrey meet regularly. They are currently arriving at a consensus on the issues affecting regional development, says Alfa's Garza. Collectively, they are powerful enough to influence major projects, such as a possible bullet train between Monterrey and San Antonio, Texas. In Mexico's second city of Guadalajara, business leaders known as the Big Ten and including Martinez Guitron as well as two leading bankers and the chief paint manufacturer, combined forces this year to set up the Jalisco Investment Board to lure investment to the state. "Our interest is in the development of the state, which indirectly benefits us," says Martinez Guitron.

The clubbiness of Mexico's businessmen can lead to abuses, as the recently created Federal Competition Commission has discovered. In 1994, its first year of operations, Mexico's mild-mannered trustbuster uncovered a case of collusion to fix prices on Mexican Treasury bills among the Banamex, Serfin and Prime International financial groups, the banks Banco Internacional and GBM and the Probursa brokerage house. The violators were fined an undisclosed amount. Asked about the price-fixing, Banacci's Hernandez shifts uncomfortably in his chair and says, "Banks, in a moment of crisis, tend to unite." In another case the commission charged the three largest banks with "seeming to coordinate their behavior" in setting merchant commissions and imposed a fine. And in early December the now-watchful commission called for an investigation of the proposed $ 211 million Telmex purchase of shares in Televisa's Cablevision subsidiary.

The forces of globalization, free trade and modern technology are a far greater threat to Mexico's conglomerates than the competition commission, however. The conglomerateurs were visibly stunned by the harsh reality of foreign investors yanking away so much money after the devaluation, causing sharp drops in the market value and capitalization of Mexico's corporate giants. Says Sanchez Navarro, "I did not imagine such a rapid flight." But they plan to build on the experience. "We have to think hard about short-term financings," he adds.

As for the long-term competitive threat, the magnates have been maneuvering to maintain their dominance. Foremost among the survival strategies is capitalizing on their sheer size. Many of the Mexican blue-chip stocks are out-and-out monopolies, or at least duopolies. Femsa and Modelo, Cemex and Apasco, Cigatam and Empresas La Moderna are all examples of the latter. One analyst totes up 25 industrial and consumer goods sectors dominated by duopolies.

"You need size to be heard [by the government]," says an official of a Monterrey company that is big enough to merit such attention. Recognizing the enormous potential market in underbanked Mexico, Inverlat board chairman Legorreta saw scale as the key to growth and last year developed a plan to merge with Serfin. "The idea of the merger was size, taking into consideration the structure of the banking system," he says. "You have a No. 1 [bank] 20 percent larger than No. 2, a No. 3 probably 40 percent of No. 2 and a No. 4 that is one half of what No. 3 is." The merger, however, failed to gel, for reasons that remain unclean A few aggressive industrial conglomerates have positioned themselves as major market players in the U.S. or the wider international scene. Cemex is the leading one. "Getting big and achieving economies of scale is the only way," says cement chief Zambrano. The once-regional cement company has expanded into a multinational holding company, with 40 percent of its assets and 46 percent of its staff outside of Mexico. Vitro's hostile takeover of Tampa, Florida-based Anchor Glass Container Corp. reflected a similar global vision and has made Vitro into the world's largest producer of glass containers.

Empresas La Moderna's $ 300 million acquisition of Kalamazoo, Michigan's Asgrow Seed Co. in November should make the holding company a global leader in seed biotechnology. Tortilla giant Maseca boasts enviable shares of its U.S. markets: 65 percent of that for corn flour as well as 65 percent of the fast-growing market for ready-made tortillas in the Los Angeles area.

With the devaluation, some of these companies could now expand even further. Sidek, for example, plans to increase steel exports in the U.S., Colombia and Costa Rica.

Rich vs. poor?

For conglomerates that haven't expanded abroad, the opening of the Mexican border served to rein in their swagger. Stack these companies up against the capital and assets of their mighty North American competitors and they begin to shrivel. Rather than confronting the Goliaths of the North, many are embracing them, forming strategic alliances to open up the U.S. market to their exports and to improve marketing, product segmentation and distribution in Mexico. "It's a defensive measure that allows you to go on the offensive," says Femsa CFO Alfredo Livas. After losing market share to Modelo brewery and Corona beer, Femsa is striking back by engineering an ambitious continental consolidation through the Femsa-Coca-Cola Co. association and a new joint venture with Canada's Labatt Brewing Co.

Some of the conglomerates benefit from vertical or horizontal integration, which should help them preserve market share. Maseca supplies flour-grinding machinery along with corn flour; Televisa owns sports teams and soccer stadiums that feed its programming; Grupo Carso owns Condumex, a maker of the copper cable used by fellow Slim company Telmex.

Some conglomerates may safeguard their positions by diversifying into undeveloped sectors of Mexico's economy. Construction and construction supplies, telecommunications, banking and insurance are all areas that are bound to experience growth rates that outstrip GDP growth -- once the economy rights itself following the financial shock. Among the companies poised to respond to Mexico's pent-up demand in the long term are Cemex, Tribasa and ICA in construction; Alfa, Banamex, Grupo Iusacell, Pulsar and Telmex in telecommunications; and those banks and insurers that can offer competitive services. However, the peso's fall and the sudden withdrawal of foreign investors casts a shadow over prospects for economic growth; some analysts predict recession in '95. That would at least postpone expansion for these conglomerates.

Despite the new obstacles to growth posed by the combined currency and confidence crisis, the future could be quite bright for the conglomerates. "The only way Mexico can have important growth is if you adopt market-based economic reforms, continuing to open markets and allow a broader range of trade," points out Chip Brown, Morgan Stanley & Co.'s senior economist for Latin America.

As Mexico's rich do get richer, their wealth is sure to come under increasing scrutiny. The political opposition has demanded genuinely competitive free trade, an end to protected industries and an improved redistribution of wealth. "You can't justify monopolies like Televisa and Maseca and not allow imports in," says economic analyst Sergio Sarmiento of Reforma. The magnates themselves have told Zedillo of their desire for a better distribution of wealth. Fairness aside, a broader consumer class represents an attractive market for their companies.

Meanwhile, the plutocrats must brace for a riskier world in which international competition buffets their conglomerates. Over the long term, however, their personal fortunes are probably not at risk. In Mexico the wealthy are not taxed on stock market capital gains, and there is no inheritance tax. Besides, the elite empresarios and banqueros can always count on their friends the politicians. The poor have not been so lucky.

After the fall

The combination of a devalued peso and a plunging bolsa wiped out a big chunk of the market value of Mexico's top corporations -- and the paper wealth of the plutocrats who control them. Figures are for the first three weeks after the December 20 devaluation; Market values are stated in both pesos and dollars.

        Percentage change     Market value      Percentage change     (US$
             (pesos)       (millions of pesos)        (US$ )       millions)
Company 12/19/94-1/11/95         1/11/95         12/19/94-1/11/95   1/11/95

Banacci             -42.3%            N$ 17,150             -65.2%    $ 2,983
Sidek               -32.6                 4,025             -59.4         700
Cemex               -27.7                23,869             -56.4       4,151
Femsa               -25.2                 4,818             -54.9         838
Gigante              -8.8                 3,413             -45.0         593
Moderna              -6.9                 8,974             -43.9       1,561
Carso                -6.2                27,908             -43.4       4,853
Cifra                -6.1                25,023             -43.4       4,352
Alfa                 -3.7                 7,324             -41.9       1,274
Maseca                0.7                 3,633             -39.3         632
Tele-                 3.9                21,661             -37.4       3,767
Telmex               18.2               105,819             -28.7      18,403
Modelo               21.6                17,275             -26.7       3,004

Source: Reforma, with data from the Mexican Stock Exchange.

GRAPHIC: Picture 1, Grupo Carso's Slim: Launched into the billionaire class by privatization, Keith Dannemiller/Saba; Picture 2, Grupo Alfa's Garza: A daring diversification into telecommunications, Peter Stone/Black Star; Picture 3, Cemex's Zambrano: From $ 300 million to $ 9 billion (predevaluation) in nine years, Jesus Rodriguez/Editora El Sol; Picture 4, Sidek's Martinez Guitron: Lots of growth -- with lots of support from the government