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Mexico Left Questions Bank Bailout

August 14, 1998

MEXICO CITY (AP) _ A meeting that was supposed to patch up differences between the executive and legislative branches over Mexico’s controversial $65 billion bank bailout plan ended Thursday with a bitter debate over the legality of the program.

The left-center Democratic Revolution Party accused President Ernesto Zedillo of violating the constitution by absorbing private debts without congressional approval, an allegation the government denied.

``The government has always acted in strict accordance with the law,″ Finance Secretary Jose Angel Gurria told a news conference after the meeting with legislators.

Opposition legislators didn’t accept Gurria’s arguments.

``That is absolutely not true. They violated the law and the Constitution, that is absolutely clear,″ said Pablo Gomez, a Democratic Revolution congressman who attended the meeting.

The meeting worked out an apparent compromise over how much information legislators will get on the $65 billion in non-performing loans bought by the government after the 1994 peso devaluation forced debtors and banks into insolvency.

The opposition-dominated congress will get broad information on the debts held in the rescue fund, while more detailed information, including the identity of individual accounts, will be turned over to a congressional commission for use in audits of the program.

At issue in the debate is whether taxpayers, still shell-shocked from the 1994 peso crash, should pay off the debts held by the bank savings protection fund known as Fobaproa, the Mexican equivalent of the U.S. Federal Deposit Insurance Corp.

The government says the bailout is vital to the banking system and the nation’s economic recovery, but opposition lawmakers have dubbed Fobaproa ``the fraud of the century,″ because bad loans were absorbed without congressional authorization.

Mexico’s Constitution requires the Executive Branch to obtain permission from Congress before contracting public debt, but legislators were not informed about the fund’s liabilities until years after they were absorbed.

In March, Zedillo asked lawmakers to recognize Fobaproa as public debt, but the opposition insists on excluding some of the bad loans they say were either fraudulent or the product of insider trading by wealthy businessmen and bankers, some of whom have recently confessed that part of the money was used to finance the ruling party’s campaigns.

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