Mexico Regulator Defies Critics With Probe Into Bank Collusion

Sep 14, 2017 11:51 am ET

(Bloomberg) -- Mexico’s antitrust agency, tasked with cracking down on monopolies that hinder economic growth, is facing the biggest test of its three-year history as it probes allegations of collusion at the country’s biggest banks.

Alejandra Palacios, who runs the office known as Cofece, has been lambasted by columnists and commentators who say she’s “slow,” “ridiculous,” “weak” and “at the mercy of her enemies.” Opponents have accused Palacios of “overstepping” her mandate, and said she and her staff don’t have the knowledge to undertake financial investigations.

None of that fazes the 41-year-old economist, who says her office has a mandate to probe all anticompetitive practices, including the accusations that Mexican bankers conspired to increase interest rates on government bonds in order to juice payouts. She views her work as patriotic, an effort that will help Mexico modernize and even reduce poverty. Critics are trying to protect entrenched business interests that hold Mexico back, she says.

“When they speak ill of you in the papers, that’s a way to pressure you,” Palacios said in an interview at her office in Mexico City. “You read it and realize that’s someone’s way of telling you something.”

Businesses in Mexico are just beginning to feel the impact of the new antitrust regulator. Cofece was created in 2014 to replace what many saw as an inept and ineffective predecessor, which left the country saddled with near monopolies in industries from agriculture to energy and telecommunications.

The problem was so severe that in 2009 the World Bank published a book on Mexico which made the case that economic growth was stuck below its potential because big companies used politics to preserve privileges. Only a strong competition regulator “insulated from day-to-day politics,” the bank prescribed, could break the country’s decades-old business cartels and reinvigorate the economy.

Palacios has overseen 57 investigations into anticompetitive practices in the oil, retail, pharmaceutical and transportation industries. Cofece has blocked and put restrictions on mergers, and imposed 2.4 billion pesos ($136 million) in fines.

Its most dramatic success was winning an admission by the country’s four largest pension funds that they conspired to make it difficult for workers to transfer assets to competitors, a right ordained by Mexican law. The agency has also fined companies including state-owned oil producer Petroleos Mexicanos, Panasonic Corp. and Alsea SAB, which runs Starbucks cafes in Mexico.

But critics say Palacios took matters a step too far when she announced in April that Cofece was probing collusion in Mexico’s bond auctions, specifically whether banks conspired to offer low-ball bids in an effort to boost interest rates. Manipulation of the $400 billion market for government securities may end up costing taxpayers millions of dollars, according to Cofece.

Mexico’s financial regulator unveiled its own investigation into the bond market three months after Cofece’s announcement, and is now advising banks to limit the information they provide to antitrust authorities as the two agencies undertake separate probes. Officials close to both organizations have dismissed the ability of the other regulator to effectively conduct the review, according to people with knowledge of the matter. The dispute highlights rising tensions between two agencies locked in a turf war over a high-profile investigation.

“Lack of competition and corruption often come together,” Palacios said. “Sometimes we see agreements between businessmen and regulators that are made to protect privileges.”

Palacios sees those sort of unfair advantages as helping to perpetuate inequality in Mexico, where 53 million people -- almost half the population -- live in poverty. It’s also home to Carlos Slim, one of the world’s richest men, whose fortune was derived from his acquisition of the state-run telephone network. It gave him a monopoly on the market for 23 years, until it was broken up in 2013 as part of the same reforms that created Cofece.

“I don’t have a problem with wealth and I have no problem with successful businessmen that get there on their own merit,” noted Palacios, who says she gets inspiration from a large photo of impoverished children that hangs behind her desk. “I do have an issue, a big issue, when your advantage comes at the cost of screwing others.”

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