Billionaire Slim Pushes Mexican Growth Plan That Aids His Fi

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Billionaire Slim Pushes Mexican Growth Plan That Aids His Firms
May 4 (Bloomberg) -- Carlos Slim, the world's third-richest man, posed in mid-March with three governors in a courtyard at a former colonial home for the poor in Guadalajara, Mexico. He smiled for television cameras.

``We live in times of economic stability here and abroad, probably the most favorable moment Mexico has ever had,'' Slim told 450 people gathered under a billowy white tent in the midday sun. ``Let's not let this opportunity slip away.''

Slim, who has amassed a $30 billion fortune building Latin America's biggest telecommunications empire, has stepped aside from running companies to try to set the economic and social agenda for Mexico. Although he's not running in the July 2 presidential election, Slim has been acting like a candidate.

He's been traveling the country by private jet in a campaign to convince the next government to cut energy costs, rid the legal system of corruption and allow more private investment in roads, power plants and state oil monopoly Petroleos Mexicanos, or Pemex.

Slim, 66, whose net worth is surpassed only by the fortunes of Microsoft Corp. co-founder Bill Gates and investor Warren Buffett, says such changes are needed to reverse economic stagnation in Mexico, which is growing at about half the average pace of Latin America.

If Slim succeeds, Mexico will grow faster, create more jobs and be able to compete for investment and trade with rivals such as China, says James Barrineau of AllianceBernstein Holding LP in New York.

`Be Wary'

If the changes aren't made, Mexico will lose ground to neighbors that are revamping their economies, such as Brazil, says Barrineau, 49, senior vice president responsible for Latin American economic research at AllianceBernstein, which manages $8 billion of debt from emerging markets, including Mexico.

That would mean Mexico would likely suffer through years of slow growth, rising unemployment and soaring debt, he says. Those conditions could hurt foreign investors, who've pumped $238 billion into Mexican stock and bond markets.

``In the back of your mind, you've got to think that if the situation goes on and the fundamentals degrade, you have to be wary of your holdings,'' Barrineau says.

In Mexico, electricity costs companies 20 cents per kilowatt-hour, more than double the U.S. price, according to the Paris-based Organization for Economic Cooperation and Development, which adjusts data for each nation's purchasing power.

The Federal Electricity Commission charges are so high that Alfa SA, Mexico's second-largest industrial group, moved a polyester fiber plant in June 2005 from northern Mexico to North Carolina. In addition, rates for trucking and shipping are higher than the international average, the OECD says.

More Ports, Airports

In 2003, China surpassed Mexico as the No. 2 exporter to the U.S. If Mexico is to catch up, it needs the changes proposed by Slim, says Manuel Medina Mora, chief executive officer of Citigroup Inc.'s Grupo Financiero Banamex SA, Mexico's second- largest bank.

``This country needs ports, airports, toll roads and power plants to be able to compete in a globalized world,'' Medina Mora says. New York-based Citigroup has invested $14 billion in Mexico since buying Banamex in 2001, including that purchase.

Mexico's future is critical to the U.S. About 500,000 Mexicans immigrate illegally to the U.S. each year, the Pew Hispanic Center estimates. That exodus could grow if Mexico's economy slows, says Gabriel Escobar, an associate director at Washington-based Pew.

`Important Alliance'

About half of the 12 million Mexican-born people in the U.S. are undocumented, Pew says, putting Mexico at the heart of a debate in Washington over whether to give visas to those immigrants.

Slim has won support for his proposals from more than 4,000 people. All state governors and some labor leaders, academics and executives -- including Emilio Azcarraga, chairman of Grupo Televisa SA, Mexico's biggest television network, and Mario Molina, the 1995 Nobel laureate in chemistry -- have endorsed the plan.

``This is one of the most important alliances Mexico has ever seen,'' says Javier Arroyo Chavez, CEO of Guadalajara-based Corporativo Fragua SA, Mexico's biggest pharmacy chain.

Incumbent President Vicente Fox's six-year term ends in November, and Mexican law doesn't allow a president to run for re-election.

Two of Mexico's three main presidential candidates have endorsed Slim's policies. Former Energy Minister Felipe Calderon of Fox's National Action Party and Roberto Madrazo of the Institutional Revolutionary Party, or PRI, signed Slim's proposal in November.

Opposition From Candidate

Even with that support and his wealth -- his companies account for more than a third of the Mexican stock exchange's $256 billion value -- Slim faces opposition from the frontrunner in the presidential race, Andres Manuel Lopez Obrador.

Lopez Obrador, 52, a former Mexico City mayor, led election polls by more than 10 percentage points for two years. An April 20-22 poll by Mexico City newspaper Reforma showed Calderon had pulled ahead of Lopez Obrador by three percentage points, with a margin of error of 2.3 percent.

Lopez Obrador says Slim's campaign proposals don't focus enough on fighting poverty. Slim wants to allow private oil companies to drill wells and run refineries for Pemex and build electricity plants for state power companies; Lopez Obrador says the government can do a better job by firing inept managers and boosting investment.

Lopez Obrador calls for slashing government wages to raise funds for social spending; Slim says such cuts would encourage bureaucrats to take more bribes.

Rich Versus Poor

Lopez Obrador, of the Party of the Democratic Revolution, has based a three-decade political career on pledges to defend the poor against the excesses of rich Mexicans like Slim and has balked at supporting Slim.

Slim's 11-page proposal, called the Chapultepec Accord, after the Mexico City park where it was announced, calls for many policies Slim says Fox didn't enact. It includes making the police and courts more independent, cutting red tape to make government programs more responsive to the poor and allowing more private investment in housing, schools, clinics, roads and bridges.

Enrique Krauze, author of ``Mexico: Biography of Power'' (HarperCollins, 1997), which chronicles Mexican politics since the country's fight for independence from Spain in 1810, says Slim has won the respect of a mix of workers, executives and governors from opposing political parties.

``It's a rare show of consensus in a country where disputes are so ingrained,'' he says. ``But if the man who is likely to be the next president isn't behind it, it won't go far.''

`Really Worrisome'

Slim, in an interview in the contemporary Mexico City mansion that serves as his office, says Mexico's future is threatened by regulations that suffocate investment, an inept legal system, rampant crime and a lack of jobs and growth.

Twelve years after the North American Free Trade Agreement, or Nafta, brought down trade barriers with the U.S. and Canada, Mexico is so uncompetitive it's losing $6 billion of export revenue and 1 percentage point of economic growth every year, says Guillermo Ortiz, governor of Mexico's central bank.

``This is really worrisome because it's translating into less growth, less employment and less welfare,'' Ortiz says. Slim says his plan could change that trend. ``There has to be more investment to create jobs and fuel growth,'' says Slim, sitting on a white, silk-covered couch across from a bronze sculpture by Auguste Rodin of a couple embracing.

``The only healthy way to invest is if it's a combination of public and private investment,'' he says.

Slim May Profit

Slim is setting up his own empire to profit if he succeeds. In September, Slim created a company called Impulsora del Desarrollo & el Empleo en America Latina SA, or Ideal, to build roads, waterworks and power plants if Mexico's next president follows his recommendations for more private investment.

Slim has been savvy at profiting from past forays into public service. During the time he worked with Lopez Obrador on a project to restore the colonial center of the nation's capital, he was also buying up property.

Absent in Slim's campaign is a call to force more competition in telecommunications. Slim's flagship company, Telefonos de Mexico SA, or Telmex, controls more than 90 percent of the fixed phone lines in Mexico.

In the past eight years, Telmex has used the courts to block antitrust rulings designed to reduce its dominance.

Monopoly

``If Carlos Slim is convinced that there has to be competition in this market and is willing to do it, he needs to say publicly in his words that he will support the commission's position and will comply with our rulings,'' says Eduardo Perez Motta, president of the Federal Competition Commission, Mexico's antitrust regulator.

Mexican Finance Minister Francisco Gil Diaz says opening up Slim's monopoly to competition is the most important reform Mexico can pursue. AllianceBernstein's Barrineau says Slim's monopoly is bad for Mexico and investors.

``Virtually any sector that is dominated by the oligopolies that took over the economy as it was privatized in the 1990s is inefficient compared to global standards,'' Barrineau says. ``And you just can't do that when you are competing against China.''

Almost a decade after the Mexican telephone market was opened to competition, Telmex still has 94 percent of the telephone lines, according to the OECD. Companies that tried to grab a piece of the pie, including units of AT&T Corp. and MCI Inc., have all failed.

`Guerrilla War'

Telmex charges 7.5 times more to connect a call between towns where it has a monopoly than where there's competition, says Carlos Montemayor, CEO of Monterrey, Mexico-based long- distance telephone carrier Marcatel SA.

``We're fighting a guerrilla war, picking underserved locations or focusing on niche markets,'' he says. ``We know we can't win the war against this monster.''

Slim says profit isn't his motive in pushing for new economic policies in Mexico. He says his telephone prices are competitive and that two-thirds of Telmex's phone lines are in low-income areas that competitors won't serve because they aren't profitable.

``If we didn't have a sense of responsibility to society, we wouldn't be there,'' Slim says. ``We would be focusing on A and B clients,'' says Slim, dressed in an open-collared, white linen shirt, creaseless khakis and leather loafers without socks.

Slim has shunned running for office or throwing himself behind one candidate who embraces his proposals.

Full-Time Job

He plans to contribute 1.03 million pesos ($93,000), the maximum permitted by law, to each of the three main candidates, just as he did in the 2000 race, says Arturo Elias Ayub, 40, Slim's son-in-law and communications director at Telmex.

Under Mexican law, corporations are barred from financing political campaigns.

Slim works full time on his political push. His eldest son, Carlos Slim Domit, 39, is chairman of the family's industrial company, Grupo Carso SA. Another son, Patrick Slim Domit, 37, oversees mobile-phone company America Movil SA. And another son, Marco Antonio Slim, 38, is CEO of Grupo Financiero Inbursa SA, the family's bank.

Slim has also given up all his board seats in Mexico and in foreign companies such as New York-based Altria Group Inc. and San Antonio-based SBC Communications Inc.

The billionaire says he's taken a methodical, intellectual approach to drawing up his proposal, developing ideas gleaned from a library that takes up two rooms in his private office. Leather-bound antique books reach to the ceiling, including ``History of the Indies of New Spain'' by Diego Duran.

Baseball Memorabilia

On the top shelf along one wall: ``Katherine Graham's Washington'' and Bob Woodward's ``Bush at War.'' Memorabilia and books related to Slim's favorite sport, baseball, line four shelves, including the 2005 ESPN Baseball Encyclopedia and a collector's set of major league baseballs.

Slim cites futurist and writer Alvin Toffler when trying to explain why Mexico needs to revamp its social and economic policies.

Echoing Toffler's book ``The Third Wave'' (William Morrow, 1980), Slim says Mexico can't grow rapidly until it enters a postindustrial society that focuses on the well-being and training of workers so they can adapt to the demands of companies competing in markets around the world.

``It's very important to develop human capital,'' Slim says, gesturing with one of the Cuban Cohiba cigars he chain-smokes during a three-hour interview. ``Agrarian societies used slaves to exploit the land and man. Industrial society, in this latest phase, should be interested in the well-being of its workers.''

Education, Health Care

In his proposal, Slim translates that concept into calls for policies to improve education, health care and housing for Mexican workers.

Slim is up against Lopez Obrador, the son of shop owners from Tepetitan in Tabasco, who's dedicated his political life to rallying Mexicans against the wealthy. While Slim travels by private jet and limousine, Lopez Obrador drives a Volkswagen Jetta.

He lives in a small apartment with his three children in Copilco, a lower-middle-class neighborhood in Mexico City. Lopez Obrador has been rallying poor voters in a half dozen towns a day against spending cuts and other free-market economic policies he says protect the interests of the rich.

At a mid-March rally in Las Choapas in the southern state of Veracruz, he was cheered as he blamed the rich for the plight of Mexico's 49 million people living in poverty, almost half the nation.

`Gang of Ruffians'

``We have to unite the people to defeat the gang that has led our country to ruin and has kept our people in poverty,'' he said. ``A gang of ruffians from above is impeding the improvement of our country.''

Lopez Obrador's attacks on the rich go against the grain of Mexican society, where the poor are generally deferential to the wealthy, Krauze says. That deference shows up in colloquialisms. When waiters, taxi drivers and store clerks are thanked for their service in Mexico City, they usually reply, ``Para servirle,'' which means ``At your service.''

Lopez Obrador has said that Slim has good ideas; fighting poverty, which isn't on Slim's list, must be a stated priority, he says. He rejects Slim's call to give up state monopolies on oil and electricity, citing a constitutional amendment to keep petroleum in the hands of the people.

Lopez Obrador has declined requests for an interview. ``Lopez Obrador wants to add to the agreement a paragraph on poverty and a paragraph on corruption,'' says Rogelio Ramirez de la O, his main economic adviser. ``It's a wonderful pact, otherwise.''

Anti-Rich Platform

Lopez Obrador's platform reminds some wealthy Mexicans of governments that have taken power across Latin America in the past decade on pledges to help the poor at the expense of the rich, Krauze says.

In Bolivia, Evo Morales, leader of the country's coca farmers, was elected in a landslide on Dec. 18 by promising to fight the excesses of millionaires. Venezuelan President Hugo Chavez has targeted companies, particularly the oil industry, and the rich since taking office in February 1999 by raising taxes, seizing farms and rewriting oil production contracts.

``The business community is worried and a bit perplexed, not so much about Lopez Obrador's ideas but his attitude,'' Krauze says. ``His verbal aggression, his constant pitting the rich against the poor -- this isn't the kind of thing that we're used to in Mexico.''

Rodin Collection

No one personifies wealth in Mexico like Slim. His hobbies include building the biggest private collection of sculptures by Rodin outside of France. They're on display in two public museums Slim built in Mexico City.

He's also a philanthropist. He has plowed $4 billion into two foundations that fund art museums, hospitals, schools and scholarships for the poor.

Slim is the son of Christian immigrants from Lebanon. He learned financial acumen from his father, Julian Slim Haddad, who opened a general store in the heart of modern Mexico City, near a cathedral built by Spanish conquistadores atop razed Aztec temples.

In his office, Slim pauses over a pile of black-and-white photographs from his childhood and says his first investment, at age 13, was a 10-year government bond that promised to double the principal by maturity. The catch, Slim says, was that the bond paid a low interest rate in the beginning.

Teenage Investor

``They wanted to force you to hold the bond until the end,'' he says. The teenage Slim switched to stocks, buying 30 shares in Banamex, a state-owned bank Citigroup later purchased. Slim kept investing in equities, and by the age of 26, his fortune had surged to more than 5 million pesos.

He made his biggest gambit in 1990, when then Mexican President Carlos Salinas de Gortari put Telmex, the state phone monopoly, up for sale. In December 1990, a group consisting of France Telecom SA, Southwestern Bell Telephone Co., Slim's Grupo Carso and 35 individual Mexican investors bought control of Telmex for $1.7 billion.

Slim put up a quarter of the money and was named chairman.

Telmex, which is now 46 percent owned by Slim and his family, has a market value of $24 billion. Within Telmex, Slim created a mobile phone division, and in 2001, he spun it off into America Movil.

In 2002, Slim started buying mobile-phone networks across Latin America from rivals looking to exit the region. On April 3, America Movil agreed to pay $3.7 billion for the Latin American operations of New York-based Verizon Communications Inc., the No. 2 U.S. telephone carrier. America Movil has a market value of $59.5 billion; Slim's family owns about 30 percent.

Political Push

Slim began his political push in late 2004, when Leonardo Rodriguez Alcaine, former president of the CTM, Mexico's biggest labor union confederation, invited him to dinner, Slim says.

The two men talked about what could be done to spur growth and create jobs, inspiring the proposed reforms. Rodriguez died in August of heart disease at the age of 86.

In November 2004, Rodriguez took Slim to meet with other labor leaders at the union's headquarters in Mexico City over a lunch of shrimp and steak. Slim also sent a draft of his plan to academics, political leaders and the heads of nonprofit groups, asking for ideas for improvement.

``I sort of coordinated this process, and we slowly came to a consensus,'' Slim says.

In October, Slim sat next to a bust of revolutionary leader Emiliano Zapata to sell his plan to 150 skeptical small farmers in Mexico City. After grilling him for two hours, they agreed to support him. On March 10, their leader, Heladio Ramirez, flew on Slim's jet to the northern city of Chihuahua to promote the billionaire's plan to local political leaders.

`A Good Counterbalance'

The alliance of unions, corporate executives, governors and political parties should give Slim leverage with Lopez Obrador or whoever wins the election, says Elias Ayub, Slim's son-in-law.

``Without a doubt, it could be a good counterbalance -- to any of the three candidates,'' Ayub says in an interview held in a Telmex building in Mexico City where a guard with an automatic weapon stands at the entrance.

Slim gained some unlikely allies, such as Francisco Hernandez Juarez, a union leader who has brokered labor agreements with Slim and his group since he bought the Telmex phone monopoly. ``The political class isn't living up to the needs of the country, and we must push them so that they behave the way the country needs,'' Hernandez says.

Bodyguards, Photographers

In February, Slim announced a tour of cities in seven Mexican states aimed at winning the support of regional political and labor leaders and executives.

In Guadalajara, Slim invited 39 executives to dinner with some of the people who helped write his proposal. The next day, on March 18, Slim was treated like the nation's president as he walked to his seat on a stage beneath a tent through the Hospicio Cabanas in Guadalajara.

Slim paused in the entryway to a Roman Catholic chapel inside the hospice to view murals from the 1930s by Jose Clemente Orozco that depict the struggle of workers against the rich. About 450 guests, picked from among the city's industry, labor and political leaders, looked on.

Slim walked to his seat with a half dozen bodyguards, photographers and camera crews crowded around. ``I think he genuinely wants to do what's good for workers, the poor, and we have to rally behind it,'' says Victor Flores, a national union leader and a congressman in the PRI party, who helped write Slim's plan.

Dirt Roads

A 20-minute car ride from downtown Guadalajara leads to a low-income neighborhood called Cerro del Cuatro, which is named after the television tower at its highest point that's used by Televisa's Channel 4. Trash is piled along rutted dirt roads.

Francisco Javier Cruz Lopez, one of the first people to squat on land and build a house in the area in 1988, says he's perplexed by what Slim is doing. Cruz, 50, peddles bread from a wheelbarrow along rocky dirt roads in the morning sun and says he's seen stories about Slim's campaign on the television news.

All Cruz knows is that Carlos Slim is the richest man in Mexico. Cruz says he pays 380 pesos a month for a telephone, more than any other bill he pays. The rich, he says, don't normally give much to the poor. ``He made a lot of money here in Mexico, that much I know,'' says Cruz, sitting in his unpainted brick home, where he bakes the bread he sells.

Slim says he now wants to focus his corporate work on executing the economic and social goals of his plan. Ideal, the company Slim created in 2005, will evaluate and manage government roads, ports and hospitals that may be opened to private investment.

`Passion'

Carso Infraestructura & Construccion SA, or Cicsa, will do the construction work. Slim's bank, Inbursa, will provide financing.

The billionaire says he'll show that profit isn't his motive by pumping $2.5 billion into one of his foundations to help finance education and health care for the poor. The donation, announced in March, includes transferring a 29 percent stake in Ideal held by Slim and his family to the foundation.

Slim intends to formally ask Lopez Obrador to support the proposal before the July election, and he says he doesn't expect any candidate to hurt the economy. ``I don't think any of the three leading candidates would do anything crazy,'' he says.

Slim isn't taking any chances, and he has spent the last two years lining up an alliance to press the next president to overhaul Mexico's stagnant economy. ``He has a clear view of what he wants and is doing everything he can to make it happen with the same passion he has for business,'' Flores says.

Being the richest man in Mexico may work against Slim this time.

If the presidential candidate advocating for the poor wins the July election, Slim's economic plan could be put on hold for another six years. And that could be bad news for investors in Latin America's second-largest economy -- including the man who made his fortune there.


To contact the reporters on this story:
Michael Smith in Santiago, Chile at mssmith@bloomberg.net
Adriana Arai in Mexico City at aarai1@bloomberg.net

Last Updated: May 4, 2006 01:02 EDT

We need to understand what is down south of us.... :!: