DEBT RESTRUCTURING LEADS TO BANKING CONTROVERSY

By Kelly Simmons and Ana Vinas

The January 1995 peso devaluation and ensuing financial and economic crisis in Mexico has created havoc for the nation’s creditors and debtors. According to reports in Diario de Juarez and El Norte, the Mexican government created a program to restructure debts, the Additional Benefits Program, with a deadline for application of September 30. The program used a system for converting the old debts into UDIs (Uniform Debt Investments) and required debtors to sign new contracts agreeing to interest rates, payment plans and other terms. If debtors did not register with the program or did not agree to the restructure terms, the banks were then filing suit against their former clients for default. As a result of the devaluation and ensuing debt crisis, families have lost their homes, businesses have folded and properties are sitting vacant in communities across the country.

As the September deadline drew near, the president for the the Mexican Bankers Association, Jose Madariaga, said the banks are not going to go out looking for those who have not made payments, and said they would follow the law as to what must be done with debtors. Madariaga said any type of phone call would be considered an effort to restructure debts.

On the day of the September 30 debt restructure deadline, it was reported that 9,000 clients showed up at banks with the intention to start the paperwork or just to find out about the Additional Benefits Program. Banamex had already restructured 102,000 home loans under the program and that number could increase to 110,000 to 120,000 by the end of the program. They were meeting with an average of about 1500 clients a day nationally to restructure debts. Bancomer received 9,500 calls the day before the deadline and 70 percent were about restructuring debts.

On the same day, members of the El Barzon group, an activist organization defending the rights of debtors, blocked judges from entering Chihuahua City offices for 5 hours during a protest and withdrew 2 liters of their own blood. Yelling “don’t sell yourselves judges,” and “out with the national banks”, the group, along with bank clients, used the blood to paint the Bank Center building and spill it on the floor of Inverlat, a Mexican bank. Meanwhile another part of the group blocked the entrance of the Federal Electric Commission (CFE) and detained the chief of the department, cutting his hair off as part of a protest over the rise in electrical prices and the cutting off of electricity to citizens who can’t pay. El Barzon members said the community was tired of the abuse by the banks, and other companies like the electric company, the gas company and Telmex (phone). They said this is the beginning of a series of activities they will do until something is done to benefit debtors. (see related FNS story, Protests Lead to Local Effort to Change Electric Rates)

In September, the Urban Development Commission and Senate Housing agreed to request that the National Bank Association, Mexican Bank Association and the Secretary of Social Development extend, until Dec. 31, the Additional Benefits Program to Housing Mortgage Debtors. It was felt that the extension would prevent many mortgage note-holders from becoming homeless or from joining in political protests.

Meanwhile on October 1, the local banks had begun extending the deadline for restructuring debts into UDI without official authorization. Banking institutions like Bancomer, Serfin, Banoro and Bital extended their deadlines to sign up for the program before a notary. The extension was to be for a week. Those who applied to initiate the paperwork to restructure their debts now fall into a different group which, under another extension, will stop legal actions by the banks against their clients for the time being. Under the terms of restructure, clients must accept the new conditions on their debt contracts, with the debts translated into the Investment Units (UDIs). Those who don’t accept the terms will be prosecuted under the law by the banks.

Official authorization to extend the restructure program was granted in November to give debtors a chance to catch up and make their payments. Up until June, 900,000 people had debts with banks in Mexico. The new extended period runs to December 31, 1996.

More than $230 billion pesos in debts have been restructured in UDIs since the peso devaluation in January 1995. In addition, the National Banking Commission has calculated that more than 80 percent of business people, state and city government workers and home owners have had debts restructured under the program. However, the nation’s banks are also reporting that 3% or 20,000 citizens who have restructured their debts since the value of the peso was lowered, have gone into default on their payments. Other statistics published in November indicate that 187,000 citizens went into default on their debts during the month of September alone.

DEBTORS GROUP FILES SUIT

Nearly 30 members of the El Barzon group, an activist organization defending the rights of those who have bank debts, are planning to sue Mexico’s banking institutions for ‘legal non-existence’. Lorenzo Munoz, a spokesperson for the group, said they are just waiting for the paperwork to be done. The banks to be named in the suit are Banamex, Bital, Mexicano, Union, Inverlat, BanCrecer, Confia, Serfin, Bancomer, Internacional and Atlantico.

According to the group, their charge of legal non-existence is based on the apparent failure of 10 banks in the country to register before the deadline for the privatization of the banking system set by then-President Carlos Salinas de Gortari. The deadline was July 14, 1991 and members of the group have accused the banks of lying about irregularities in registering for privatization. Jesus Tapia Leon, representative for the Juarez Neighbors Association said the reason El Barzon is suing is because banks are charging interest on top of interest, the high interest rate of the contracts and the unviability of the banking system.

The National Action Party (PAN) has also announced that it will use the argument of the legal non-existence of banks in 14 court cases it is defending and the Juarez Neighbors Association stated it will also use the same defense for its members who are in default. Jesus Tapia, president of the Neighbors group is also planning to use the term “legal non-existence” in efforts to protect bank clients. He said several debtors won a suit against the Banco del Atlantico in Mexicali based on the mentioned term, and other debtors in Mexicali and in the country have followed. Tapia also indicated that evidence shows banks registered with the government for the transition from national bank to private bank more than a year after the deadline. Camilo de la Rosa Hernandez, coordinator for PAN’s lawyers organized to defend debtors, said some Juarez military lawyers from different political parties, have been soliciting their opinion on the legal non-existence of the banks in order to solve their default problems and protect their clients.

According to a report in El Norte, on October 31, a Federal Judge in Mexicali ruled that there were irregularities during the privatization process of the bank, Banco del Atlantico, and it lacked legal standing in a trial against debtors.

In addition, Tapia told an El Norte reporter that if the legal nonexistence of the banks currently being argued by the debtors is upheld, the credit institutions would have to return the money to their clients in cases in which the amount paid exceeded the legal interest rate of 6 to 9 percent annually. According to regulations governing merchants and credit, the interest that may be charged by those who are not banking institutions is between 6 to 9 percent annually. “If nonexistence was upheld, the contract could be annulled with restitiution made between the parties.” Tapia also announced that Juarez Neighbors will start to use the argument of legal nonexistence against the 10 main banks in Juarez to try to cancel contracts with the banks.

Sources: El Norte, Diario de Juarez


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