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the banquet

Excerpted from Bordering on Chaos - Guerrillas, Stockbrokers, Politicians and Mexico's Road to Prosperity.
By Andres Oppenheimer. First published by Little, Brown and Company.

Reprinted with permission of International Creative Management, Inc. Copyright (c) 1996 by Andres Oppenheimer. All rights reserved.

Nothing made Zapatista leader Subcommander Marcos's claims that Mexico's political system was hopelessly corrupt more apparent than a private dinner party held at the home of former finance minister Don Antonio Oruz Mena to raise funds for the ruling party's I994 campaign. It was one of those high-level, top-secret meetings that seem to exist only in the minds of conspiracy theorists--but that turned out to be real.

The party, attended by President Salinas and Mexico's top billionaires, was supposed to have remained a confidential affair. It had taken place on a Tuesday evening about ten months before the Zapatista up rising, on February 23, 1993. It was 8:30 P.M., and one by one, the thirty wealthiest men in Mexico (there were no women in the group) began arriving in their limousines at the mansion of Ortiz Mena at Tres Picos Street Number 10, in Mexico City's exclusive Polanco neighborhood. Their invitations had asked them to attend "a small dinner party" --a code for no wives included and no word out to the media-- with President Salinas.

The agenda of the secret meeting, as specified in the invitation letter, was to discuss a five-point program to help prop up the PRI for the 1994 elections. After more than six decades in power, the PRI had become rusty. It was in urgent need of updating its ideological platform and campaign strategies to confront a growing challenge from the left. Among the points to be discussed were rewriting the party's platform to reflect the new closeness with the United States and support for free market policies, shoring up the party's grass roots support, and discussing the upcoming electoral campaign fund-raising drive. The key proposal to be discussed called for getting the PRI to raise its own funds instead of continuing to receive massive government financial aid. Mexico could no longer afford to be described by critics at home and abroad as a state party system. The time had come for the PRI to sever its financial ties with the government and help give Mexico a democratic image.

PRI president Genaro Borrego had organized the dinner with the help of two business leaders close to Salinas--banking tycoon Roberto Hernandez and construction magnate Gilberto Borja. Borrego and the two businessmen had met several times at the PRI headquarters and for breakfast at the University Club. They had planned everything to the last detail, from the list of the guests to the order of the speakers to the menu. Now, after weeks of preparations, their banquet was about to begin.

A uniformed watchman guided the guests, most of them overweight, folksy-looking men in their late fifties, to the elevator that took them to the second floor dining area. It was a big room, decorated with sixteenth-century French furniture and original paintings by muralists Diego Rivera, David Alfaro Siqueiros, and Jose Clemente Orozco worth several million dollars. In the middle of the room was a U-shaped table, with the guests' place cards in alphabetical order. Facing the center of the table, between its two open wings, was a small table for three: Salinas, PRI president Borrego, and the host.

None of the visitors looked at the paintings: They had them by the dozens. Among the guests were television tycoon Don Emilio Azcarraga, known as El Tigre ("The Tiger"), described by Forbes magazine as the richest man in Latin America (the magazine estimated his net worth that year at $5.1 billion); telecommunications czar Don Carlos Slim (net worth: $3.7 billion); cement baron Lorenzo Zambrano (net worth: $2 billion); Bernardo Garza Sada (net worth: $2 billion); Jeronimo Arango (net worth: $1.1 billion); Angel Losada Gomez (net worth: $1.3 billion); Adrian Sada (net worth: $1 billion); and Carlos Hank Rohn, whose multimillion-dollar fortune was almost entirely in family-owned businesses and thus unaccountable. Mixed with the guests were party organizers Borja and Hernandez, who had--as an additional show of support for the party--provided the Paris-trained kitchen personnel of his Banamex bank to cater the event.

Last to join the party, at nine P.M. sharp, was President Salinas, according to several of the guests. Everybody applauded the minute he entered the room. After greeting most of those present with ear-to-ear grins and bear hugs, Salinas took his seat at the smaller table. Dinner was served. There was smoked salmon as an appetizer, followed by steak au poivre. The atmosphere was joyful. Word had gotten out that the business leaders would be asked to raise funds for the PRI, and the government leaders and the business tycoons were exchanging barbs about the project in front of an amused, good-spirited president.

"Well. how much are we supposed to collect?" Borrego was asked by one of the business leaders shortly after they had begun to eat.

"Mucho" ("a lot"), Borrego responded, smiling.

"But how much?" the business tycoon insisted.

"Muchisimo" ("a whole lot"), Borrego responded, drawing laughter from around the table.

Nearly an hour later, when everybody was having dessert--vanilla ice cream topped with melted chocolate--Ortiz Mena, the host, stood up. He hit his spoon several times against a wine glass and asked for silence. Ortiz Mena introduced the first speaker, Borrego, who quickly ran down the five-point party modernization program. The August I994 presidential election was getting close, and the PRI faced a serious challenge from the left, the PRI president concluded. It was crucial that all the business tycoons around the table make major contributions to save the PRI-- and the country, he said. Salinas, his eyes on the ceiling, nodded. Ortiz Mena followed suit, recounting the PRI's history and stressing the ruling party's role as a social glue that had prevented Mexico from exploding into chaos and bloodshed throughout the country's history. Salinas closed the presentation, saying he wholeheartedly supported the proposed reforms to re-energize the party.

Okay, the business leaders said, nodding to one another. There was general support for the idea of stopping the flow of money from the government to the PRI and getting the party to raise money from the private sector. But how much were the business leaders supposed to fork out? The conversation went back and forth. Officials at the head table at first avoided giving a figure, then suggested that the PRI needed a campaign chest of at least $500 million. Then, Salinas's friend Roberto Hernandez, the banker, threw out the figure that had been previously agreed upon between the three banquet organizers during their breakfast at the University Club.

"Mr. President, I commit myself to making my best effort to collect twenty-five million," Hernandez said.

There was an awkward silence in the room.

"Mexican pesos or dollars?" one of the billionaire guests asked. "Dollars," responded Hernandez and Borrego, almost in chorus. Twenty-five million dollars each? ! There were hmms and ahhs around the table. Don Garza Sada, of Monterrey's Visa soft drinks empire, said he agreed -- it was the business community's responsibility to support the party Telecommunications magnate Slim, who had won the government bid to privatize the national telephone monopoly, supported the motion, adding only that he wished the funds had been collected privately, rather than at a dinner, because publicity over the banquet could "turn into a political scandal." In a country where half the population was living under the poverty line, there would be mediate questions as to how these magnates --many of whom had been middle-class businesspeople until the recent privatization of state companies-- could each come up with $2 5 million in cash for the ruling party. Charges of massive corruption under the Salinas administration were bound to surface. At that point, department store magnate Angel Losada took the opportunity to voice more personal concerns about the proposed contributions, witnesses say. Collecting $25 million was an exorbitant task for somebody like himself, he said. He was small compared to others at the table. He couldn't even dream of coming up with that kind of money for a political contribution. He had just formed a joint venture with U.S. investors. What would his American partners say if he pledged $25 million for the PRI?

Before other reluctant contributors could join Losada in voicing their opposition to the enormous sum that was being requested, television baron Emilio Azcarraga stood up, full of enthusiasm, to make his pledge. The minute he rose from his chair, the room went silent. Azcarraga was the biggest among the big -- not only financially but physically. An imposing man of six feet two inches, he commanded instant attention --and some fear-- wherever he went. He could be brutal with his aides and would often publicly embarrass almost anybody but the president. He gave a vintage Azcarraga performance: loud, arrogant, and grandiose.

"I, and all of you, have earned so much money over the past six years that I think we have a big debt of gratitude to this government," Don Emilio said. "I'm ready to more than double what has been pledged so far, and I hope that most in this room will join me. We owe it to the president, and to the country."

Everybody raised his eyebrows. Azcarraga was talking of pledging more than $50 million. President Salinas. smiling broadly, applauded. Others followed suit. A few did their best to smile, still dumbfounded. Don Carlos Slim, trying to break the ice, said he would be delighted to give as much as Azcarraga -- if he had his money. The room broke into laughter as many wondered aloud whether Slim wasn't conveniently playing down his fortune. The men around the table began to tease one another about who was in a position to give more and who was making more money at the expense of whom. But whatever protests had been uttered about the size of the pledges were clearly obscured by generalized acceptance. Ortiz Mena and Salinas looked pleased.

By midnight, when the president left, Mexico's wealthiest business men -- had committed themselves to contributing an average of $25 million apiece to the ruling party, for a total of about $750 million. The men swore themselves to secrecy, slapped each other on the back, exchanged the last jokes of the evening, and walked out to their limousines.


The PRI needed the money badly, and not just because it wanted to avoid an embarrassment during the electoral race over the massive financial help it had long received from the government. After decades of functioning like a de facto government agency that got its money directly from the Finance ministry, the PRI was discovering that the flow of government funds was running dry. A few months earlier, Finance Secretary Pedro Aspe had sent a memo to party president Borrego informing him that the central government would no longer finance the party's needs.

The memo didn't put a complete stop to the flow of government aid to the PRI, But Borrego was under growing pressure to find new sources to cover an estimated $1 billion in government funds that was wire-transferred every year to the party headquarters, most often disguised in the government's budgets as disbursements for public works. In the past, the PRI president had only needed to ask for the money to get it. And if for some reason or other the transfer was delayed, there was always the national lottery. "The national lottery is the party's petty cash," a top PRI official familiar with the party's finances explained to me matter-of-factly. "Whenever we need a few million from one day to another, there's where we get it from."

Aspe, a conservative economist with top connections in the world financial community, had explained his memo to Borrego as part of the government's overall policy of reducing public expenses. Just as the government was privatizing state enterprises and reducing subsidies across the board, it needed to make drastic cuts in its financial support to the PRI. The party needed to generate its own resources. Borrego, a reform-minded economist, supported the idea--even though it would make his life as party president more difficult, according to participants in the talks. He was sensitive to criticism from Mexico's opposition that the country would not be democratic until the ruling party became independent of the government and allowed a fair competition among all parties. Like many young party leaders, Borrego believed that Salinas's bold economic reforms had to go hand in hand with political reforms to turn Mexico into a truly modern democracy.

Borrego had heard that the PRI's local chapter in Mexico state had created a blind trust to which the state's most powerful businessmen had contributed enormous sums, making it virtually independent from government resources. After discussions with Salinas and separate meetings with Hernandez and Borja, he had instructed an aide to mail the invitations for the banquet. There was no time to waste. The finance secretary was threatening to shut off the flow of funds, and the August elections were nearing. What none of the fund-raiser's organizers suspected at the time was that it would become a major political scandal.

The banquet at Don Ortiz Mena's residence created a public uproar over the months that followed, when details of the meeting began to make their way to the press, not the least because the pledges made that night were a mind-boggling sum by international standards. How could these billionaires pledge so much so fast? Mexicans from all walks of life would ask themselves. What kind of favors would these chosen few get in return for their political contributions? The billionaires' pledges were a startling symptom of the massive corruption in Mexico's official circles--a world where publicly disclosed funds amounted to a small fraction of the fabulous sums that were moved under the table.

Mexico's gross domestic product barely reached 5 percent of the U.S. economy and amounted to that of the state of Ohio, yet Ortiz Mena's guests had pledged more than five times what the Democratic Party had spent in the 1992 U.S. presidential elections. Compared with the largest single contribution to the Democratic Party that year-- $398,876 from the United Steel Workers of America--Azcarraga's single offer to donate $50 million was gargantuan.

But, more importantly, the pledges were obscene in light of Mexico's generalized poverty and of the rapidly growing gap between the rich and the poor. Under Salinas, the concentration of economic power had reached record highs, and little effort had been made to increase the new billionaires' contributions to society through increased taxes or charity ventures. The privatization of hundreds of state enterprises --and their purchase by a select group of presidential friends-- had led to the creation of giant business empires and to an increasingly skewed distribution of wealth.

By the early nineties, the wealthiest 20 percent of the population was receiving 54 percent of the country's income, while the bottom 20 percent was getting only 5 percent of it, according to the government's Institute of Statistics, Geography, and Information (INEGI). Fewer Mexicans were having more; growing numbers were having less; and it looked as if the country's business tycoons were spending much more in political contributions to preserve their influence with the ruling party than to help alleviate ever-growing poverty rates.


The "Mexico twelve," as the best-known billionaires became quickly known in Mexico's political and business circles, had mostly benefited from Salinas's radical measures to get Mexico out of its $96 billion foreign debt crisis. Building on a timid economic opening begun by his predecessor Miguel de la Madrid, Salinas in early I990 signed a much heralded debt pact with creditor banks to ease Mexico's debt payments over a thirty-year period. But it soon became clear to him that the agreement --which became known as the Brady plan, for U.S. Secretary of the Treasury Nicholas Brady-- would only make a small dent in the $10 billion Mexico was paying its foreign creditors annually.

Bolder moves were needed to stop the financial hemorrhage and lure capital back to Mexico. It was a time of a world economic slowdown. International investors, fascinated with the collapse of the Soviet bloc, were fantasizing about fabulous business opportunities in Eastern Europe. Salinas had discovered with shock during a visit to Davos, Switzerland, to address the World Economic Forum, that his announcements of drastic free-market reforms were generating little interest: His presentation had drawn a small audience compared to the enthusiastic crowd that Russians and Poles had attracted. European investors were too busy studying the new markets of the former Soviet bloc to spend time looking into faraway Mexico.

"It's becoming clear that our future lies closer to home," Salinas told his aides with resignation on the plane back. Mexico could only emerge from its hopeless foreign debt quagmire if it took drastic free-market steps to draw the attention of the world's financial community -- especially that of the United States.

Salinas would soon make his mark by announcing the privatization of Mexico's eighteen commercial banks, which had been expropriated in I982 by President Jose Lopez Portillo. He also announced the privatization of Telmex, Mexico's giant telephone monopoly, and dozens of other state companies, while stating Mexico's intentions to sign a free-trade treaty with the United States that would among other things bind future Mexican governments to the new free-market policies. Salinas's economic revolution had an immediate psychological and economic impact: Slowly at first, faster later, massive capital inflows began to return to the country. Mexico would take in nearly $20 billion over the next three years through the sale of more than three hundred government companies to the private sector.

Salinas's reversal of the nationalization of the banking industry a decade earlier marked the end of a policy that had severed the bond between the PRI and Mexico's business class. But Salinas did much more than mend a strained relationship. He extended such an array of privileges to a small group of businesspeople -many of them close to him-- that he elevated them into a power clique married through a commonality of business and ideological principles to the new leadership of the PRI.

In his bid to increase capital inflows, Salinas had put state banks on the block at three times their book value and often more. Contrary to the criticism of leftist politicians and popular belief in Mexico, the state enterprises were not sold at bargain prices. But in exchange for high prices, Salinas offered their buyers sweet regulatory deals and longterm promises of fabulous riches through NAFTA, which would soon allow some of the new private owners to sell their monopolies to multinational corporations at record profits. More importantly, in the short run, he offered them a new climate of government-big business cooperation that, in its best form, translated into new opportunities for the private sector in an environment of growing deregulation, and, at its worst, a series of behind-the-scenes government favors that would guarantee the profitability of the new owners' investments.

Through a policy of "directed" deregulation or selective liberalization, Salinas paved the way for the formation of more than a dozen monopolies that would control industries such as copper mining and telecommunications. They were meant to be strong enough to compete with U.S. firms in a free-trade environment, and perhaps even be come the first Mexican multinationals to make it big in the U.S market.

To the United States and the rest of the world, Salinas sold his privatization program as the biggest turnaround in economic policy since the 1910-1917 Mexican Revolution. What he didn't say is that to get Mexican entrepreneurs to buy government companies at several times their book value, he had to offer them generous rewards under the table. Shortly after the government's Telmex telephone monopoly was sold to Slim, the son of a Lebanese merchant who had made a fortune in real estate and the cigarette business, Salinas authorized spectacular tariff increases without demanding corresponding improvements in the telephone service. In 1991, Telmex was allowed to increase telephone rates by 247.4 percent, while wages that year were allowed to rise by 18 percent. When the announcement of the telephone rate hikes triggered massive protests, the company withdrew its announcement and agreed in a compromise to raise rates by a mere 170 percent. "With wage in creases of 18 percent and telephone rate increases of 170 percent, you don't need to be a financial genius to make it in the business world," wrote political scientist Lorenzo Meyer at the time. "And since the telephone service in Mexico is a monopoly, there is no free competition to benefit the consumer."

What's more, the government assured several of the new business barons a longterm monopoly over their respective industries and overt or disguised government protection well into the NAFTA era. Under the trade agreement that went into effect January I, I994, key Mexican industries --mainly those of the Mexico Twelve-- were assured government protection for up to fifteen years. Television baron Azcarraga's Televisa network, which had more than 90 percent of Mexico's viewing audience and acted as a virtual mouthpiece for the PRI, was protected from foreign competition for twelve years. Telecommunications czar Slim was assured protection against foreign competitors for ten years under the NAFTA deal. Banamex banking tycoon Roberto Hernandez, the Salinas friend who had catered the PRI fund raiser at Ortiz Mena's home, was protected from foreign competition for the next fifteen years.

Of course, the whole point of NAFTA was to prevent protectionism, but the government-big business alliance in Mexico would take advantage of the years before the full effects of the treaty kicked in. The selected tycoons were given a head start in the new game of free trade -- not an unreasonable principle in a deal between very unequal partners. But their considerable privileges would allow them to position them selves so strongly in the Mexican market that no foreign competitor was likely to make a dent in their businesses before they were forced to compete openly with U.S. and Canadian firms at the beginning of the next century. Free trade had created its own brand of protectionism, and the Mexico Twelve were to be its main beneficiaries.

Mexico in the early nineties was similar to American capitalism in the late 1870s. Azcarraga, Slim, and Hernandez were not much different from railroad and steel magnate Andrew Carnegie or oil trader John D. Rockefeller. Like the American "Robber Barons" of their time, the Mexico Twelve were making a fortune from their close partnership with the government. And to their immense relief, Mexico was not contemplating anything like the 1890 Sherman Anti-Trust Act, which had broken up U.S. monopolies through forced sell-offs.

"They discovered how convenient it was for them to use the government's power in favor of their enterprises, and to thus accumulate fabulous fortunes," Meyer said of the Mexican billionaires of the nineties. "Government leaders walk around arm in arm with them, for the benefit of both of them, and for the detriment of society."


The business tycoons who attended Don Antonio's banquet were far from strangers to one another. They all belonged to a small, secretive organization called the Council of Mexican Businessmen (Conselo Mexicano de Hombres de Negocios, CMHN). It was a private group made up of Mexico's thirty-six wealthiest industrialists that met with the Mexican president and his top ministers several times a year to discuss the issues of the day.

The council had been created in 1962 in an effort to fight Mexican president Adolfo Lopez Mateos's increasingly antibusiness policies and the socialist rhetoric that shrouded them. After the president had stepped up distribution of land to peasants and refused to join other Latin American governments in breaking ties with Cuba's new revolutionary government, the council made its political debut by placing an ad in the newspapers under the headline "Which way are we going, Mr. president?" It turned out to be amazingly effective in scaring the government into toning down its populist rhetoric, not the least to stop a growing wave of capital flight that had been --perhaps unwittingly-- encouraged by the ad. Since then, the council had met with every Mexican president and had had a growing behind-the-scenes influence over state affairs.

Under Salinas, it had reached the peak of its clout. It had advised the president at every step of his tortuous struggle to push NAFTA down the throats of skeptics on both sides of the U.S.-Mexico border, while assuring that its members' business conglomerates would not be affected by the proposed free-trade environment.

The council, which had never had a headquarters and met mostly at the home of the daily Novedades publisher, Romulo O'Farril, was now moving into its first formal headquarters--its political weight had become too obvious to continue exercising it from the shadows. But the council's membership---a virtual carbon copy of the list of guests at Don Antonio's fund-raiser---had fresh memories of the l982 nationalization of Mexico's banking system and other impetuous presidential measures against the business class. It was eager to transform its variable influence into more permanent and structured political clout.


Don Gilberto Borja, sixty-four, was the prototype of the Mexican business tycoons whose companies had long lived from sweetheart contracts with the government. A tall, silver haired, and aristocratic looking man, Borja presided over Mexico's biggest construction and engineering firm, the 30,000-employee ICA Group, which among hundreds of other public projects had built the $11 million opera house in San Cristobal de las Casas. The firm's board of directors and advisers read like a who's who of Salinas's closest friends in the business world: ICA's two main outside advisers were Telmex chief Carlos Slim and banker Roberto Hernandez.

Under Salinas, ICA helped build, among other projects, the Highway of the Sun between Mexico and Acapulco (a megaproject that according to some was the costliest in the world per mile), another highway linking Mexico City to Guadalajara, several legs of the Mexico City subway system, and a huge pipeline system for the national oil monopoly, Pemex, serving the city of Guadalajara. By I994, ICA officials said theirs was Latin America's largest construction firm, with public works in Colombia, Turkey, the Philippines, China, and the United States, where it was building, among other things, the City of Miami metro stations.

Several months after he had helped organize the secret fund-raiser at Ortiz Mena's house, Borja had adopted a more public political position as head of the PRI's Celulas Empresariales, or "business committees." In his new capacity as special adviser to candidate Ernesto Zedillo on business matters, Borja was leading a nationwide drive to get owners of small and medium-sized businesses to become active PRI contributors. Borja said he had come up with the idea of forming the committees as a way to gather the businesspeople's concerns and pass them on to the candidate. He had already chaired more than forty such meetings, many of them in a tent he had specially built for that purpose in the garden of his Mexico City home. In reality, it was a little-disguised fund raising drive, whereby small groups of businesspeople were invited to offer their advice before being asked to make a pledge for the candidate.

"I think I'm putting about thirty hours a week for Zedillo, and about fifty hours for ICA," Borja told me with obvious pride during a May 17, I994, campaign tour with Zedillo to Acapulco. "I travel about two days a week with Zedillo and hold the meetings at home in "Mexico City on the other days. But I try to travel with Zedillo and hold the meetings after I leave the office at six P.M., when I can work it out."

"When you hold the meetings at your home, do you just talk about business problems? You don't discuss politics?" I asked.

"The main purpose is to listen to their concerns," Borja responded. "But I must say that at the end of each meeting, I make the concluding remarks. I have to confess that I make the personal reflection that Mexico's political system is being severely questioned, that we are in a time of growing political competition, that the people demand more democracy, that we have the duty to make a careful analysis on to whom we are going to give our vote. It's at this point when I express my personal support for Zedillo: I tell them that because of his capacity, because of his background, because of his moral standards, Zedillo is the person who must carry on this country's economic program."

"But isn't your whole involvement as a PRI liaison with the business Community a huge conflict of interest?" I asked as politely as I could. "If Zedillo wins the election and ICA" wins the bids on major roads and highways during his term, won't there be a generalized suspicion that his government would be returning your favors?"

Borja looked at me with amazement, cracking a forced smile. He shook his head, saying no. "Why?" he asked, as if he didn't understand what I was talking about. "I don't see it at all that way," he went on. "I don't mix the activities of ICA with those of Gilberto Borja. . . . I'm not doing it in my capacity as ICA president, I'm doing it as Gilberto Borja."

More than angry, Borja looked baffled by the question. In the world of Mexico's big business, where the government had long been the biggest client and political connections counted more than anything else, it hadn't even crossed his mind that his increasingly visible role in the ruling party could be seen as a source of favoritism. The ICA Group president was wearing his new title of official adviser to Zedillo on business matters as a feather in his cap. In fact, his business committees were largely created as a new way to come up with campaign funds for the PRI's presidential campaign following the scandal over the Ortiz Mena banquet.

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