Mexico - Industrial Equipment Fund (FONEI) Project

RESTRICTED Report No. DB-91a This report is for official use only by the Bank Group and specifically authorized organizations or persons. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF FONDO DE EQUIPAMIENTO INDUSTRIAL (FONEI) MEXICO May 10, 1972 DevelopmentFinance Companies Department  CUXRRENCY EQUIVALENTS currency unit = peso Exchange rate effective May 10, 1972 US$ 1.00 = Mex$ 12.50 Mex$1.00 = US$ 0.08 ABBREVIATIDNS BANXICO Banco de Mexico, S.A. (Central Bank of Mexico) NAFIN Nacional Financiera S.A. (National Financiera) ROMEX Fondo para el Fomento de las Exportaciones de Productos Manufacturados (Fund to Promote Exports of Manufactured Products) INFRATUR Fondo de Promocion de Inversiones de Infraestructura Turistica (Fund to Promote Tourism Infrastructure) INCE Instituto Mexicano de Comercio Exterior (Mexican Foreign Trade Institute) CONCANIN Confederacion de Camaras de Industrias (Confederation of Chambers of Industry) INIT Instituto Mexicano de Investigaciones Tecnologicas (Mexican Institute of Technological Research) LAFTA Latin American Free Trade Association ECLA Economic Commission for Latin America IDB Inter-American Development Bank AID Agency for International Development  APPRAISAL OF FONDO DE EQUIPAMIENTO INDUSTRIAL (FONEI) TABLE OF CONTENTS Page No. SUMLARY ................................ i I. INTRODUCTION ........................................ 1 II. THE INDUSTRIAL ENVIRONMENT ................. 1 III. INDUSTRIAL FINANCING ................................ 3 Financial Institutions ...... ................... 3 Problems of Industrial Credit ....................... 5 IV. FONEI'S ORGANIZATION AND OPERATIONS .... ............. 6 General Objectives ....... .................... 6 Legal Basis and Organization ..... ................. 6 Management and Staff ...... ................ 7 Participating Intermediaries ..... ................. 8 Selection of Intermediaries ..... ................ 9 Role of Intermediaries ..... ................... 9 Types of Project Loans ...... ................... 9 Export Projects ....... ............................ 10 Efficient Import Substitution Projects .......... .. 10 Tourism Projects ....... ........................... 10 Feasibility Studies ...... ......................... 10 Resources ........................................... 11 Terms and Limits of Financing ....................... 11 Prospects for FONEI ...... ........................... 13 V. THE PROPOSED BANK LOAN .............................. 14 Amount and Purpose ................................ 14 Disbursement and Procurement ...................... 14 VI. CONCLUSION AND RECOMMENDATIONS ...................... 15 Conclusions ......................................... 15 Recommendations ..................................... 15 This report is based on the findings of a mission to Mexico by Messrs. Manuel J. Sequeira and Donald Stout in November-December 1971.   LIST OF ANNEXES 1. Indexes of Industrial Output 2. Portfolio Requirements of the Banking System 3. Characteristics of Financial Paper Issued by Financieras 4. Types, Sources, Maturities and Interest of Credit Extended to Industry by the Private Banking System 5. Total Domestic Financing Granted Annually to the Private Sector 6. Executive Order of October 15, 1971 7. Contract signed between the Ministry of Finance and the Central Bank (as Trustee of FONEI). October 29, 1971 8. Addendum to the Contract of October 29, 1971 9. Operating Regulations 10. Organization 11. Composition of FONEI's Technical Commitee 12. Curricula Vitae (Messrs. Cano, Acevedo, Gonzalez-Karg) 13. Projected Sources and Uses of Funds, 1972-76 14. Projected Balance Sheets, 1972-76 15. Projected Income Statements, 1972-76 16. Estimated Disbursement Schedule   APPRAISAL OF FONDO DE EQUIPAMIENTO INDUSTRIAL (FONEI) SUMMARY i. During the 1960's the Mexican economy grew at an average annual rate of 7.1% and the industrial sector grew even faster, largely because of protected import substitution. This protection has increasingly aggravated problems of industrial efficiency and of the balance of payments. Since 1969, the Bank has maintained a dialogue with the Mexican Government regard- ing effective policies and financing for domestic and export industries. These discussions contributed to Government adoption of concrete policy measures to promote exports and industrial efficiency, and to the establish- ment, on October 15, 1971, of the Fondo de Equipamiento Industrial (FONEI) (Industrial Equipment Fund). The proposed Bank loan of US$35 million would supplement the official Mexican resources of US$40 million equivalent and finance the import component of FONEI's operations. ii. Long-term funds for industrial investment are scarce in Mexico and are available almost exclusively from government-owned banks. Private bank- ing resources overwhelmingly are short-term. Even investment banks, which are permitted to lend for up to 15 years and were expected to be the princi- pal long-term lenders to the private sector, have been constrained by the short-term nature of their resources to concentrate on much shorter-term lending. iii. FONEI was established as a Government trust fund to facilitate investment financing of medium-sized industrial enterprises producing for export or for efficient import substitution. The Banco de Mexico S. A. (BANXICO), which is the central bank, will act as trustee. For all practi- cal purposes FONEI staff will be BANXICO employees. The people thus far selected for the key jobs appear to be well qualified and experienced. FONEI's direct borrowers will be the eligible intermediaries, which will channel FONEI financing to iadustrial enterprises. FONEI will make loans to the intermediary or will discount paper resulting from its previously made loans. The intermediaries will be expected to evaluate the financial plan and risk of the project, and to secure adequate collateral before sub- mitting any project to FONEI. However, FONEI will be responsible for overall project appraisal. iv. FONEI will finance specific projects which will generate or save foreign exchange through exports or efficient import substitution; it will also finance feasibility studies for such projects. Eligible export projects must give promise of generating exports on a continuing basis, and must de- monstrate an ability to earn, without special subsidies, enough foreign ex- change to exceed foreign exchange expenditures of the project, including im- ported inputs and depreciation of imported equipment required for the produc- tion of export goods. Import substitution projects, which are expected to be a relatively small part of FONEI's operations, will be limited to those which can produce at no more than 25% above the c.i.f. price of comparable imported goods. Tourism projects cculd also be financed after FONEI establishes speci- fic criteria for such projects, acceptable to the Bank. FONEI may also absorb part of the cost of feasibility studies not followed by project investment,  - ii - but which FONEI considers promising. It would become the owner of such studies and as conditions change, might make them available for adaptation and use by potential investors. v. Including the proposed Bank loan, FONEI resources will total US$75 million equivalent. The Mexican Government will provide FONEI with resources for the repayment of the principal, thereby increasing its initial contribu- tion to FONEI's resources over the amortization period of the proposed Bank loan. The cash flow projections forecast that a Bank loan of US$35 million would be exhausted by the end of the third year following loan effectiveness. vi. The proposed Bank loan would be used for expenditures made or to be made for financing approved to select intermediaries for eligible projects. The proceeds of the loan would finance only the c.i.f. cost of direct imports of goods and services from the Bank's member countries and Switzerland. The off-the-shelf purchases would be financed on the basis of c.i.f. price, when it can be established. vii. FONEI would be given a free limit of US$500,000 equivalent subject to an aggregate limit of US$10 million equivalent. viii. Subject to the terms and conditions defined in Chapter VI, FONEI is a suitable recipient of a Bank loan of US$35 million for twenty years with a three-year grace period and a fixed amortization schedule.  I. INTRODUCTION 1.01 In the late 1960's increasing Mexican preoccupation with the deteri- orating balance of payments and with high industrial production costs led the Government to revise industrial policies, and to adopt a series of incentives to promote industrial exports. The Bank and the Government have engaged in a continuing dialogue since 1969 in search of a vehicle for lending to the in- dustrial sector which would have a positive effect on the balance of payments as well as on industrial efficiency. Several Bank missions visited Mexico to assist in the formulation of a suitable financial scheme. 1.02 On October 15, 1971 the Mexican Government established the Fondo de Equipamiento Industrial (FONEI) (Industrial Equipment Fund) as a trust fund of the Mexican Government. Banco de Mexico S.A. (BANXICO), the Central Bank, was designated as trustee. Using financial intermediaries, the new fund will finance investments in specific projects which demonstrate a capability to ex- port or to substitute efficiently for imports.1/ The Government of Mexico has asked for a US$35 million Bank loan to support FONEI's operations. II. THE INDUSTRIAL ENVIRONMENT 2.01 The growth of Mexico's GDP averaged 7.1% annually during the 1960's but the industrial sector grew even faster. Until recently import substitu- tion was an important factor in industrial development. Mexico now faces a situation where, despite extensive import substitution, the absolute volume of industrial imports keeps growing and where the industrial sector fails to generate the ability to pay for the increase in imports which growth inevita- bly demands. The development of industrial exports is now needed to open the Mexican economy and create a climate of competition and industrial efficiency. 2.02 The current account deficit averaged about 2% of total GDP during the 1960's, increasing to about 2.3% of GDP during the years in which the rate of economic growth rose above the average. If the Mexican economy is to continue growing at the same rate as in the past, overall export earnings should increase at about 11.3% a year, compared with a historical performance of about 9% a year.2/ This underlies the Government's concern for export promotion. 2.03 Mexico is among the more industrialized countries of Latin America, and has a sizeable capital goods sector. Its industrial output has changed considerably over the past 20 years and is now widely diversified. Recent 1/ This approach is an adaptation of the method already employed in three Bank loans to Mexico for agricultural development (Loan 430, 1965, US$25 million; Loan 610, 1969, US$65 million; and Loan 747, 1971, US$75 million). 2/ The Mexican economy is reviewed in the November 15, 1971 Report "Current Economic Position and Prospects of Mexico".  -2- years have seen the rapid growth of heavy industries such as steel, metal- working and chemicals. Industries in this category are large, eith-r publicly owned or private with likely foreign connections. Consumer goods industries, such as food, beverages, tobacco and textiles, were growing at a slower rate (Annex 1); they are predominantly private and their size varies considerably. A third group of industiHies consists of medium-size enterprises producing intermediate goods, supplies, components, spare parts, tools, simple machinery, etc. They are often young and poorly organized. Owing to a protected and growing market, these firms have a favorable environment for rapid growth but have been hampered by the lack of suitable credit and by low productivity. 2.04 Industrialization has been encouraged by moderate taxes, generous depreciation allowances and low wages, but protection against competitive imports has been the major factor. Protection has taken the form of a licens- ing system rather than tariffs; tariffs are actually lowet than in most Latin American countries but some two-thirds of the value of imports are subject to licensing. While the system undoubtedly stimulated industrial development, the lack of market competition tolerated inefficiency, led to high domestic prices and limited the capacity for continued growth. 2.05 Increasing manufacturing costs and balance of payments pressure have induced the present Mexican Government to alter past industrial policies. The authorities' stated intention is to reduce costs of domestic industries by denying quantitative protection to new products whose ex-factory prices would exceed the c.i.f. cost of imiport substitutes by more than 25%. The economic slowdown of 1971 liiiited the Government ability to implement these policies. Fiscal benefits are to be granted only to export firms, to those new industries which meet the above efficiency criterion and to those fitting into the Government's program of geographic decentralization. 2.06 The Government is also determined to boost industrial exports. In March 1971, a number of incentives for manufacturing exports were adopted; old incentives were reviewed and their scope was extended. The most important measures follow: (a) Refunds of part of import duties on inputs, which were previously limited to products with at least an 80% domestic input content, were made variable depending on the percentage of locally produced inputs incorporated in the export product. Since its inception, this scheme, has been applied quasi-automatically with a minimum of red tape; it amounts to a refunc averaging 13% of production costs in the form of non-transferable tax certificates. (b) The border industries program, established in 1966, allowed duty-free temporary imports of machinery, equipment and materials by export-oriented assembly plants along the U.S. border. Under the new incentive legislation, these  - 3 - provisions also apply to domestic firms supplying border industries. 1/ (c) "In-bond" plants can now be established in any Mexican port or free zone. Rules were also liberalized regarding the time during which imports could be granted transit status. (d) The Mexican Foreign Trade Institute (IMCE) was created to assist industrialists in market research and production design, and to advise the Government on tariff policy, trade controls, fiscal incentives and export credits. 2.07 In January 1972, the Government also removed some of the obstacles which discouraged the development of export trading companies and specialized export intermediaries now qualify for additional fiscal rebates on sales abroad. 2.08 Finally, the Mexican authorities decided to facilitate investment financing for export enterprises and established FONEI for this purpose. III. INDUSTRIAL FINANCING Financial Institutions '3.01 The principal Mexican financial institutions are BANXICO, Government banks, commercial banks, investment banks (financieras) and mortgage and hous- ing banks. The National Banking Commission is the top policy and regulatory body. It is composed of representatives of BANXICO, the Ministry of Finance, and commercial and Government banks. Banking regulations are rigorously en- forced and the Commission does not hesitate to impose heavy penalties for violation and has, on occasion, closed financial institutions which failed to comply with its requirements. 3.02 National Banking Commission policies are implemented by BANXICO. In agreement with the Ministry of Finance, it regulates reserve requirements, portfolio requirements, interest rates, lending fees and foreign operation limits. Although BANXICO provides only very limited credit, it does channel resources to the private sector from various funds that it manages. BANXICO administers five Central Government trust funds in addition to FONEI. The three main ones are: Fondo para el Fomento de las Exportacions de Productos Manufacturados (FOMEX) (Fund to Promote Exports of Manufactured Products), Fondo de Garantia y Fomento para la Agricultura, Ganaderia y Avicultura 1/ Border plants have been mushrooming during the past few years and now number about 330. Most of the plants assemble electronic equipment, clothing and toys. The total value-added exported by these industries is about US$80 million p.a.  -4- (Development and Guarantee Fund for Agriculture, Livestock and Poultry) 1/ and Fondo de Promocion de Infraestructura Turistica (INFRATUR)2/ (Fund for Promotion of Toutism Infrastructure). The first two funds channel resources to the private sector by rediscounting loans granted to final borrowers by financial intermediaties. 3.03 The Mexican banking system consists of 28 government banks and some 200 private commercial banksi In addition, there are about 60 private foreign baniks of which ohly the First National City Bank is allowed to re- ceive domestic deposits; all others must operate with foreign funds. 3.04 Government banks financt, on concessional terms, a wide range of specialized activites, such as housing, agriculture and the "ejidos" (com- munal farms). Naciohal Financiera S. A. (NAFIN) is the main development finance inatitution of the Government, specializing in industrial credit. Besides, NAPIN owns or controls an important number of industrial enterprises. About 70% of its industtial financing goes to publicly owned enterprises in- cluding its own. NAFIN is also a trustee fo'r nine governmental trust funds. Among the most important is Fondo de Garantia y Fomento para la Pequena y Mediana Industria (Guarantee and Development Fund for Small and Medium-Sized Industry).3/ NAFIN is also the finaneial agent of the Mexican Government for conrtractig foreign loans. In addition, NAFIN, which expects to be an eligible intermediary for NONEI financitig, wa- recently given the right to appoint one member of FONEI's Technical CommLttee (see paras. 4.03, 4.04 and 4.05). 3.05 Cotmercial banks provide credit to commerce, agriculture and industry, mainly on a short-term basis. Although BANXICO regulations permit commercial banks to lend for up to 10 yeats, the capacity of commercial banks to grant long-term credit is effectively limited by their lack of long-term resources. They make longet-term loans mainly when they are able to utilize the long-term resources of the Government's special purpose funds, such as the agricultural or industrial funds. 1/ This Fund was established in 1955 to support and promote agricultural and livestock development. It has received three World Bank loans totaling US$165 million. A direct result of the Fund's operations has been to lengthen somewhat the terms of loans to final borrowers. When the first IBRD loan was granted, private banks generally made loans for no more than three years. Under the terms of the second Bank loan, sub-loans have been granted for a minimum of three years; the average term has been six years. 2/ The Bank recently approved a loan of US$22 million to INFRATUR. 3/ This Fund rediscounts loans granted by financial intermediaries to pri- vate industry. The upper limit of its operations is US$280,000 equiva- lent. The rate of interest to final borrowers varies between 9% and 11% p.a. Maturities are up to 10 years. The Fund has received several loans from AID and IDB.  - 5 - 3.0 Almost all of the private fiantcierlls were oran ize.ld byv cuolmlmerCial banking groups, often in association with in(dustrial interests. The finan- cieras are permitted to lend for up to 15 years, and were intended to be long- term lenders to the private sector, but the scarcity of long-term resources has limited their capacity to do so. Nevertheless, they have been the most dynamic and profitable financial institutions in Mexico, largely because they enjoyed much more freedom of action than the commercial banks. In 1970, fi- nancieras were responsible for 40% of the total domestic credit, one-fourth of which went to the public and three-fourths to the private sector. The ten largest financieras account for about 75% of the total credit granted by financieras. FONEI expects the financieras to be its principal financial intermediaries. 3.07 The financieras obtain funds by selling their own bonds and other financial paper. (Annex 3 shows the main characteristics of these instruments.) These obligations are completely liquid since the financiera is willing to re- purchase them on demand. This makes them more attractive to the public and compensates, in part, for the lack of a secondary market. 1/ Concerned about this quasi-cash characteristic of the financieras' paper, in the early 1960's the monetary authorities imposed a ceiling on the annual rate of growth of these instruments. In 1965, BANXICO permitted the financieras to issue fi- nancial certificates which bear higher yields than other financiera paper but are not redeemable upon demand. 3.08 Interest rates to industry vary considerably. Commercial banks cannot lend at more than a nominal 12% p.a.; but their common practice of insisting on minimum compensating balances increases the real rate of in- terest. Financieras have no upper limit on their lending rates, which vary with the security of the borrower and the length of the loan. The average has been 13-15% p.a. in recent years. (Annex 4 summarizes the main types of industrial credit currently in use in Mexico.) Problems of Industrial Credit 3.09 Between 1963 and 1970 total domestic credit extended to the private sector more than doubled, but industry's percentage of the total was not main- tained (Annex 5). There was a clear trend toward short-term commercial credit, whose share of total domestic credit increased from 18% to 25%. As a result, the industrial enterprise in need of outside financing often had to use short- term credit to finance investments in fixed assets. Those loans are usually contracted with a tacit understanding that, when mature, they will be rolled over but the extension of the maturity is still contingent upon the availabi- lity of resources (and liquidity requirements of the credit institution). Of total domestic credit granted by the MIexican banking system as of December 31, 1970, only 18% carried maturities of five years or more. 1/ Several Mexican brokers specialize in receiving resources from foreign savers to buy bonds and other paper. It is impossible to quantify the amount of such foreign resources but it is quite large.  -6- 3.10 Financing of industrial projects is further handicapped by the high collateral normally required by the credit institutions and their practice of insisting on a debt/equity ratio no greater than one-to-one. 3.11 As most of the financieras were organized in association with industrial interests, industrial enterprises which are not directly associ- ated with a financiera meet difficulties in obtaining project financing. 3.12 Not all of the industrial enterprises are affected by the previous problems in the same way. The large industrial enterprises in the public sector are mainly financed by NAFIN; those owned by the private sector, often in association with foreign interests, can usually borrow directly from for- eign commercial banks on almost the same terms available to foreign industrial enterprises. The small enterprises have access to the trust fund administered by NAFIN. But a middle group of enterprises, which have begun to change over from family-run operations to professionally managed companies, often en- counter most of the problems previously identified. It is this group of industries to which FONEI will be addressing itself most effectively. IV. FONEIVS ORGANIZATION AND OPERATIONS General Objectives 4.01 FONEI is designed to address itself to some of Mexico's most pressing problems: the balance of payments, industrial efficiency and the structure of industrial financing. Its objective is to promote the efficient production of industrial goods and services which, by supplying export markets or subs- tituting for imports, would generate or save foreign exchange. Legal Basis and Organization 4.02 FONEI was established by Executive Order of the Ministry of Finance of October 15, 1971, as a trust fund of BANXICO (Annex 6). On October 29, 1971, a Trust Agreement was signed between the Minister of Finance and BANXICO pro- viding for the initial funding of FONEI and setting up the organizational basis for its operations (Annex 7); an addendum to the agreement with respect to NAFIN membership in the Technical Committee was signed on April 6, 1972 (Annex 8). As trustee, BANXICO assumes responsibility for FONEI's activities, including staff appointments and preparation of the annual budget. FONEI has its own Operating Regulations (Annex 9). The Bank has reviewed the above documents and found them satisfactory. Any change in the Trust Agreement, which will adversely and materially affect the carrying out of the project would be a condition of default. During negotiations assurances have been obtained that the Regulations not be changed without prior Bank approval. FONEI also has its own operating manuals which have been reviewed and found satisfactory. The organization of FONEI is described in the following para- graphs; an organizational chart is shown in Annex 10.  - 7 - 4.03 The Technical Committee is the supervising body of FONEI. It has responsibility for: (a) adopting and amending FONEI's organization, policies and operational rules; (b) approving loans granted by foreign or interna- tional financial organizations; (c) reviewing and approving FONEI's annual budget and its submission to the Ministry of Finance for final approval; and (d) selecting financial intermediaries. In addition, it will approve all individual loans granted by FONEI and make decisions regarding financing or acquisition of feasibility studies. 4.04 The Technical Committee consists of seven members: two representatives of BANXICO, two of the Ministry of Finance (one of whom is the Chairman of the Committee), one of the Ministry of Industry and Commerce, one of NAFIN and one of the Confederacion de Camaras de Industrias (CONCAMIN) (Confederation of Chambers of Industry). Its present membership is shown in Annex 11. The present Chairman of the Technical Committee is Mr. Mario Ramon Beteta, Under- Secretary of Finance, who has been active in promoting the recent changes in industrial policies (para. 2.06). The presence on the Committee of Mr. Alejandro Alvarez Guerrero, Pre$ident of CONCAMIN, is an indication of the high priority that the Mexican private sector gives FONEI. The Committee will meet as often as neces$ary. The status of the Technical Committee's members might prevent them from regularly attending meetings; however, the Committee has also seven Alternate embers, all of whom are technicians with broad industrial experience, who may su,bstitute for the regular members. 4.05 NAFIN is expected to be among FONEI's financial intermediaries because NAFIN it the only public financial institution engaged in industrial financing. It hxa,s b,road experience in industrial matters; it has branches all over the cou9nt,ry; and, finally, it is the only financial institution without close ties'to any partiqular group of industrialists. NAFIN is ex- pected to be pa,rticularly helpful in promoting industrial decentralization and opening finAncing possibilities to industrial enterprises lacking lever- age with private financial Institutions. Industrial enterprises controlled by NAFIN are not likely to be eligible for FONEI financing because of their size and th vai1ab$lity of alternative sources of finance (para. 4.13). The decision to give NAFIN the right to appoint a member of FONEI's Technical Committee suggests a possible conflict of interest in relation to NAFIN's participation a,s intermediary. However, the important role NAFIN can play in financing unallied enterprises, especially outside the principal indus- trial centers, is an adequate justification for NAFIN to act as an inter- mediary. The Bank is satisfied that no conflict of interest would arise as result of NAFIN particip4;ion as intermediary. 4.06 Management and Staff. FONEI staff is selected by BANXICO and is subject to 'its-re"egulationsi, salary scales and fringe benefits. For all practical purposes they are BANXICO employees. The Chief Executive officer of FONEI is the Fiduciary Delegate (Administrator). He attends the Tech- nical Committee meetings without the right to vote and is responsible for implementing thpe Conittee'$ decisions. He supervises FONEI operations and recommends on changes in FONEI's organization, policies and operating rules. The Fiduciary Delegate is Mr. Lergio Luis Cano, a former Under-Secretary of  Industry and Co6tmrce. An economist by training, he has a broad knowledge of industrial problems and is highly tegarded by the industrial and banking communities. The Chief of the Operations Department, Mr. Raul Acevedo Cortez, has a great deal of experience in lending operations. He has come to FONEI with almost seven years of continucus service with FOMEX, lastly as Deputy Director of Operations. The Central Bank selected Mr. Heberto Gonzalez-Karg as Chief of the Technical Department. He has had special training in project preparation and evaluation with the Inter-American Development Bank. (Cur- ricula vitae of Messrs. Cano, AceVedo and Gonzalez-Karg are in Annex 12). 4.07 The people thus far selected for the key positions are well qualified to supervise FONEI's operations. Ih addition, BANXICO is committed to the success of FONEI ahd its staff will be available to assist FONEI whenever necessary. FONEI's Technical Department will have the support of the Insti- tuto Mexicano de Investigaciones Tecnologicas (IMIT), (Mexican Institute of Technological Research) in the appraisal of industrial projects. 1/ IMIT is a semi-public otganization, pattially financed by BANXICO, with experience in project preparation and appraisal. With its more than 80 specialists in different industrial subjects IMIT will complement FONEI's own staff abilities. 4.08 Ad aspect that was given special consideration was the fact that IMIT is also doing feasibility studies for private industrial firms. This might involve a conflict of interest. Mr. Ernesto Fernandez Hurtado, Manag- ing Director of BANXICO, assured the Bank that Mr. Ignacio Deschamps, IMIT President, who it also a member of FONEI S Technical Committee, will not participate it decisions by that Cotmmittee on any project prepared by IMIT. The Bank is satisfied that such a coniflict of interest situation will not arise. Participating .1termediarie$ 4.09 FONEI's dire6t borrowers will be the eligible intermediaries which will channel FONEI financing t6 industrial enterprises. This practice is common in MeXico and has been used by the Government in the case of other funds admistered by BANXICO and NAFIN. Financing can be provided in two ways: (a) FONEI can grant loans to the intermediary which, in turn, will lend to industrialists; or (b) FONE! can partially discount paper already held by the intermediary, as a result of loans made by them, except in the case of feasi- bility studies. In the first case, the intermediary does not sign the loan contract with the beneficiary until after FONEI has received and approved the project. In the second case, the intermediary makes the loan and disburses it at its own risk before submission of the project to FONEI. Most of FONEI's financing is likely to take the first form. 1/ IMIT also assists in the appraisal of agro-business project financed by the agricultural fund.  - 9 - 4.10 Selection of Intermediaries. Financial intermediaries will be selected from the existing public and private credit institutions engaged in industrial financing, on the basis of their compliance with Mexican banking laws and regulations, financial soundness, management capability, and ability to supplement the financing provided by FONEI (including working capital) to meet in full the external financing requirement of the project. Accordingly, financieras, commercial banks and NAFIN would be potential intermediaries. Commercial banks are not expected to request FONEI financing because they lack the long-term resources needed to complement it, and do not have the habit or the aptitude of lending on long-term. Consequently, NAFIN and the financieras are the most likely intermediaries. It is expected that only about 15 - 20 financieras will qualify. Financial institutions can apply for qualification, either before or at the time they submit a loan applica- tion. In view of their limited role in project appraisal, it is not proposed that the Bank appraise nor approve them for participation in the proposed loan. This function will be left to FONEI, whose staff is capable of execut- ing it. FONEI would submit a certification to the Bank to the effect that each intermediary meets the eligibility criteria, together with copies of its latest a4dited financial statements, as well as yearly audited financial statements thereafter. 4.11 Role of Intermediaries. The intermediaries will be expected to evaluate the financial plan and risk of the project, and to secure adequate collateral before submitting any project to FONEI. They will be encouraged to appraise other than financial aspects of the projects, and eventually might be required by FONEI to do so. However, FONEI will do the full appraisal and follow-up of the project. The intermediary, as borrower from FONEI, will be responsible for interest and principal payments on FONEI loans, irrespective of collections from the industrial beneficiary. It will, however, be required to report on the use of FONEI's funds and sub-loan collections. 4.12 The accounts of the financial intermediaries will be audited by external auditors. Assurances have been obtained that the annual audits of financial intermediaries will be certified by external auditors acceptable to FONEI, in such form as FONEI shall prescribe, and shall be carried out in accordance with sound auditing principles, and that FONEI's standard with respect to selection of auditors and content of audits shall be consistent with the standards applied by the Bank. Types of Project Loans 4.13 In accordance with FONEI's objective to promote industrial invest- ment that will have a positive influence on the balance of payments, it expects to finance: (a) export projects, (b) efficient import substitution projects, (c) tourism projects, and (d) feasibility studies for such projects. FONEI's Operating Regulations clearly state that FONEI cannot be used for projects for which sufficient resources are available from alternative sources.  - 10 - 4.14 Export Projects. To be eligible, an export project must genei;re euports on a continuing basis without Government subsidies other than thcnz pr,ovided for in the laws and decrees specifying incentives for the estab--.-- ment and expansion of industrial enterprises. It must be able to earn wo,- aign exchange to exceed foreign exchange expenditures for the project, in-. acLuding imported inputs and depreciation of the imported equipment, requxred for the production of export goods. 4.15 Efficient Import Substitution Projects. Import substitution p jects must be competitive in quality and price with foreign products. prnducts may be capital goods, intermediate goods, or basic consumer good. Busic consumer goods are defined in the regulations as those consumed by a large percentage of the country's population or considered essential to Mexico's economic development. The Technical Committee will approve the ; of eligible products which, together with any subsequent changes, are SubJect to Bank approval. Agreement has been reached that FONEI will not finance pIojects for import substitution of basic consumer goods - either with te proceeds of the Bank loan or the local resources earmarked for FONEI's pro- posed lending programs (US$40 million equivalent) - until a list of goods eligible for such financing is prepared by FONEI, and accepted by the Bank. Agreement was also reached that if FONEI were to provide financing for such projects with funds other than FONEI's initial resources or the Bank loan, the Bank will be informed and given an opportunity to comment thereon. 4J16 The criteria for import substitution industries, as defined in the -FONEI regulations, are rather broad. The lack of a clear definition of price competitiveness could lead to indiscriminate financing of import substitution projects. The Mexican authorities accept the need to set a cut-off for FONEI projects whereby the price of the locally produced goods will not exceed the c.i.f. price of the corresponding imports by more than 25% - several BanK miesions recommended this cut-off point as an industrial policy objective to be reached in 5-10 years - and this was agreed during negotiations. 4X^17 Tourism Projects. Tourism is one of Mexico's principal sources of f9roeign exchange earnings and is included in FONEI's scope of activities, but an.a future option rather than an immediate intention. FONEI's operating s-ules do not contain clear criteria as to the kind of tourism projects chac FONEI would finance nor the extent or terms of tourism loans. The Bank ob- tained assurances during negotiations that tourism projects will not be f4nanced by FONEI - either wlth the proceeds of the Bank loan or with the 1lmoal resources earmarked for FONEI's financing (US$40 mill-ion equivalent) - until specific criteria, satisfactory to the Bank are established. Agreement has also been reached that if FONEI were to provide financing for such projects -fth o-ther resources, the Bank will be informed and given an opportunity to womaent thereon. -4gliB Feasibility Studies. FONEI may lend for feasibility studies, in- cdauding final engineering, but will have to approve the consultants, their -tarms of reference and the cost of the study. In the case of feasibility  - 11 - studies which lead to a project, the cosz will be consolidated with the proj- ect loan. Where no project results, FONEI may absorb part of the cost and become owner of the study. In effect, FONEI will acquire the feasibility study at a price to be agreed by the Technical Committee that will depend on the priority of the project and the quality of the study. Feasibility studies acquired by FONEI will be available to potential investors and should act as anl incentive to investment. Resources 4.19 Including the proposed Bank loan, FONEI's initial resources would total US$75 million equivalent. Initially, the Government will provide a non-repayable contribution of Mex$ 125 million (US$10 million equivalent), one half of which will be paid before effectiveness of the proposed Bank loan, and the other half in 1973.1/ BANXICO will also make available to FONEI, by the time the Bank loan is effective, the equivalent of at least US$30 million from the deposits that financial institutions have to main- tain with it, and FONEI will pay 9% p.a. interest on the amount withdrawn. (This is the interest rate which BANXICO pays to financial institutions.) Assuming that the proposed Bank loan of US$35 million is approved, peso funds will amount to 53%, and foreign funds to 47% of FONEI's initial resources. During negotiations agreement was reached that the Government's initial con- tribution to FONEI will be forthcoming as proposed and that BANXICO will make available at least US$30 million equivalent on terms and conditions adequate for the carrying out of the project. 4.20 The Mexican Government is to provide FONEI with US$35 million equivalent for repayment of the Bank loan principal in accordance with the repayment schedule, thereby providing a further contribution to FONEI's re- sources. FONEI will pay only the interest and commitment fee. During nego- tiations agreement was reached that this additional contribution will be made available as needed. 4.21 FONEI will not bear the exchange risk on the proposed loan. FONEI will receive the proceeds of the loan, in pesos, through BANXICO. Assurances have been obtained that the Bank will be informed on the terms and conditions of other borrowing by FONEI and that it will have reasonable opportunity to comment thereon. Terms and Limits of Financing 4.22 Apart from feasibility studies, FONEI will finance only fixed asset costs of eligible projects and its loans will never cover the full amount of such costs. Minimum FONEI financing will be US$280,000 equivalent to avoid overlapping with the Fund for Small and Medium-Sized Industry administered by 1/ The Mexican Government has already disbursed Mex$ 30 million to FONEI. Some specific taxes were also allocated to FONEI with the purpose of completing its total Mex$;125 million endowment before September 1, 1972.  - 12 - NAFIN. The maximum financing will be US$3 million equivalent. These limits could be changed by the Technical Committee subject to Bank concurrence. 4.'3 The intermediary and the industrial enterprise would be expected to participate in each FONEI financing. The maximum and minimum limits of this three-fold financing would be as follows: Expansion or Moder- Feasibility New Projects nization Projects Studies Industrial enterprise (minimum) 25% 20% 20% Intermediary (minimum) 10% 8% _ FONEI (maximum) 65% 72% 80% total 100% 100% 100% The above table refers only to fixed assets. In addition, the participating intermediary will be expected to provide out of its own resources a sufficient amount for working capital requirements, if asked to do so. The sponsor will have to cover other project costs and, given the current practices of the credit institutions, his equity capital will have to be at least equal to his overall indebtedness. 4.24 FONEI will charge financial intermediaries 9% interest per year and will collect 1% per year as commitment fee on the undisbursed balance of its loans. While it will have no spread on the BANXICO funds, it will earn the full 9% interest on the Government's non-repayable contribution and will have a likely spread of 1 3/4% on the proposed Bank loan. Assurances have been obtained that the rate of interest charged by FONEI will be adequate for the carrying out of the project, taking into account the prevailing conditions in capital markets and that in establishing such rates the Bank will be given a reasonable opportunity to comment thereon. 4.25 Financial intermediaries will charge the final beneficiaries 11% p.a. and will also pass the 1% annual commitment fee on to them. The 2% spread would give the intermediaries sufficient incentive to utilize FONEI's resources. The interest rate which the financiera would charge on its own resources would not be subject to the 11% limitation. The cost of FONEI's funds, although slightly lower than the cost of funds from alternative sources, should be viewed as a package which includes requirements not attached to bor- rowing from the market, such as export performance and efficient import sub- stitution requirements. The lower interest rate is considered necessary to make loans with these additional requirements attractive to industrial enter- prises as compared with unconditional market loans at slightly higher rates of 13-15%.  - 13 - 4.26 Financieras now obtain funds at an average of 11.15, 1/ andl lentd to their best customers at 13%. This spread ot 1.85% is less than the 2,' spread permitted by FONEI, and the financieras should therefore finid the active pro- motion of FONEI projects reasonably attractive. 4.27 FONEI, in making loans, will rely on the creditworthiness of the financieras. Loans granted by the latter would be guaranteed by a first mort- gage on the assets of the beneficiary. FONEI can request the financial inter- mediary to subrogate to it the rights and guarantees backing its credit. 4.23 FONEI will supervise the execution of investment plans and projects, and the performance of the borrowing enterprise. It will also determine whether the proceeds of its financing have been used for the purposes intended. 4.29 FONEI's financial statements will be certified by external auditors. During negotiations the Bank obtained assurances that the auditors will be acceptable to the Bank and that FONEI will submit to the Bank a copy of the certified financial statements together with the auditor's comments. Prospects for FONEI 4.30 Given the foregoing terms andl conditions of financing, FONEI's prospects appear good. FONEI should be attractive both to industrial enter- prises and to financial intermediaries. The former give evidence of liking FONEI's loan terms, which are for a longer term than presently available in Mexico and provide for a grace period, which is rare in Mexico. As they are in pesos, the loans will carry no exchange risk, and the interest rate is reasonable despite the export and/or efficient import substitution require- ments. The financieras also appear to favor FONEI. The 2% spread allowed them is adequate for this long-term money, especially considering the fact that projects should carry less risk because of FONEI's appraisal. The funds provided, on terms up to 13 years with up to three years grace period, will constitute a net addition to the intermediary's resources. There is also some evidence that the financial intermediaries may, if not immediately then in time, require lower guarantees because of the additional confidence provided by the project appraisal. 4.31 On these assumptions, FONEI's tentative projection of sources and uses of funds (Annex 13) shows that its initial resources (including the proposed Bank loan) would be exhausted by the end of the twelfth quarter followving Bank loan effectiveness. The projection is based on the assump- tion that the average project will require FONEI financing of about US$1.2 million. A number of industrial enterprises and financial intermediaries have already expressed their intent to submit applications for FONEI fi- nancing, including applications for feasibility studies for which FONEI budgeted a little less than 3,, of its lending operations. 1/ Includes interest, administrative expenditures and cost of idle money as a result of reserve and portfolio requirements, according to informa- tion obtained from the National Bankers Commission.  - 14 4.32 FONEI's projected balance sheet (Annex 14) malces nio provision for bad debts because FONEI is not expected to incur any losses on its lending. The reserve and portfolio requirements of the intermediaries are large enough to make any default virtually impossible. Payments due to FONEI will be effected through automatic transfer from the intermediaries' accounts at BANXICO. Thus, arrears are also unlikely. 4.33 The tentative profit and loss projections (Annex 15) indicate losses in the first three years of operation, which will be offset in the following two years as lending activities increase. From 1975 onwards, FONEI's current income will generate adequate funds to pay interest and fees on the BANXICO and Bank loans and to cover all of its other costs, including acquisition of negative feasibility studies for which US$500,000 equivalent per annum is budgeted. The latter provision is thought to be rather high in relation to the projected volume of feasibility study financing. V. THE PROPOSED BANK LOAN 5.01 Amount and Purpose. The proposed Bank loan of US$35 million for FONEI would finance the direct foreign exchange cost of specific industrial projects, approved by FONEI as meeting balance-of-payments and industrial efficiency criteria. It is expected that the major part of the loan would be used for export industries and the minor part for efficient import substitu- tion projects. The proposed amount of the loan would represent 47% of FONEI's initial resources and is forecast to be committed within a three year period. As for all Bank loans to Mexico, the borrower would be NAFIN. As trustee, BANXICO would sign the Project Agreement and the Mexican Government would guarantee the loan. NAFIN and BA4XICO would make arrangements satisfactory to the Bank for the transfer from NAFIN to BANXICO of the proceeds of the Bank loan, expressed in pesos. 5.02 Disbursement and Procurement. The amount of the Bank loan would be withdrawn from the Loan Account upon presentation of satisfactory documenta- tion for expenditures made or to be made by FONEI in accordance with financ- ing approved to selected intermediaries for eligible projects. The loan funds would be disbursed only for the c.i.f. cost of direct imports of goods and services 1/ specifically required for the project. Off-the-shelf purchases would be financed on the basis of c.i.f. price (Mexican port-of- entry) where it can be established. Procurement under the loan would be limited to Bank member countries and Switzerland. 5.03 Repayments to the Bank would be on the basis of a fixed amortiza- tion schedule. It is proposed that the Bank loan have a maturity of 20 years, with a three-year grace period. 1/ Including the cost of consultants or advisors to FONEI and of feasibility studies when paid for in foreign currencies.  - 15 - 5.04 FONEI would have a US$500,000 equivalent free limiit for individual projects, subject to an aggregate limit of US$10 million equivalent. With these limits, it is estimated that about 20 projects a year would come to the Bank for review. However, FONEI would be expected to submit, for in- formation only, its appraisals of all projects for which Bank financing is requested. 5.05 The nature of the project requires that the Bank follow up closely FONEI's operations and the performance of final borrowers, especially with regard to improved industrial efficiency and export performance, which are the justification of the loan. The usual assurances were obtained during negotiations regarding the Bank's right of access both to FONEI and to the final beneficiary, and the records of the intermediaries with respect to FONEI operations should also be available. VI. CONCLUSIONS AND RECOMMENDATIONS Conclusions 6.01 FONEI complements a series of fiscal incentives adopted by the Mexican Government for the promotion of exports and modernization of the industrial sector: it is consistent with, and furthers, policies directed toward increasing industrial efficiency and a greater export orientation of industry. FONEI will make it possible to finance good projects which might otherwise not be undertaken due to scarcity of long-term financing. The proposed scheme of financing is sufficiently flexible to permit future adjustments. 6.02 FONEI should be attractive to industrial enterprises because its loans will be for a longer term than is presently available in Mexico, thus permitting investment planning over a longer period of time; will provide for a grace period, a rare credit feature in Mexico; will be made in pesos with no exchange risk to the borrower; will carry an interest rate suffi- ciently attractive to make the export and/or efficient import substitution condition acceptable. The financial intermediaries will benefit from the 2% spread allowed them and the reduction of risk due to FONEI's appraisal. FONEI will provide the financial intermediaries with additional resources, not competitive with existing sources of funds. Recommendations 6.03 It is recommended that the Bank make-a loan of US$35 million to finance the import requirements of FONEI's lending for Mexican industrial enterprises to increase exports or to substitute efficiently for imports. The loan, which would be made to NAFIN, would be guaranteed by the Govern- ment. The project agreement would be with BANXICO (paras. 3.04, and 5.01). NAFIN and BANXICO would make arrangements, satisfactory to the Bank, for the transfer from NAFIN to BANXICO of the proceeds of the Bank loan expressed in pesos, for their use by FONEI (para. 4.21).  - 16 - 6.04 The loan would be for 20 years, including a grace period of three years, and would have a fixed amortization schedule. The loan would carry the standard commitment fee. 6.05 FONEI would be given a free-limit of US$500,000 for approval of individual projects, subject to an aggregate limit of US$10 million (para. 5.04). 6.06 In addition to the usual covenants, the following contractual con- ditions have been agreed upon: (a) That FONEI will not finance any project for the import sub- stitution of basic consumer goods out of the proceeds of the Bank loan or the local resources earmarked for FONEI's pro- posed lending program (US$40 million equivalent), before a list of goods eligible for such financing is prepared by FONEI. Such list shall be acceptable to the Bank and be subject to amendment only with the prior consent of the Bank (para. 4.15). (b) That neither the proceeds of the Bank loan nor the local resources earmarked for FONEI's proposed lending program (US$40 million equivalent) will be used to finance tourism projects until specific criteria satisfactory to the Bank are established (para. 4.17); (c) That in providing financing for tourism projects, or for import substitution projects of basic consumer goods, with funds other than the proceeds of the Bank loan or the local resources earmarked for FONEI's lending program (US$40 mil- lion equivalent), FONEI will inform the Bank and will give it a reasonable opportunity to comment thereon (paras. 4.15 and 4.17). (d) That FONEI will inform the Bank of the terms and conditions of any other financing that FONEI may obtain in addition to the Bank loan, and will give the Bank a reasonable opportunity to comment thereon (para. 4.21). 6.07 In addition, agreement was obtained during negotiations that FONEI's financing of efficient import substitution industries will be limited to proj- ects that will produce goods whose price at the plant site will not exceed by more than 25% the c.i.f. price of comparable imported goods (para. 4.16). 6.08 The transfer of the first US$5 million equivalent of the non- repayable Government contribution would be a condition of loan effectiveness (para. 4.19).  MEXICO FONDO DE EQUIPAMIENTO INDUSTRIAL (FONEI) INDEXES OF INDUSTRIAL OUTPUT 1960 = 100 Manufacturing Petroleum Food Textiles Furniture and Sub- and and and wood Construc- Electric Year General Mining Petrochemical Total Beverages Apparel products Chemical Other tion Energy 1961 104.9 95.9 110.9 105.5 106.5 101.2 102.9 102.8 97.6 99.5 108.9 1962 110.0 102.6 114.3 110.3 109.6 105.8 112.6 11-4.4 110.9 106.0 117.4 1963 120.6 105.1 121.2 120.8 118.7 109.1 121.7 124.0 115.1 121.4 136.3 1964 138.9 107.8 134.2 140.2 129.3 133.6 142.6 139.7 133.5 141.9 159.4 1965 1h8.5 107.7 142.8 152.3 137.8 141.9 156.8 156.6 146.6 139.8 176.1 1966 162.4 111.4 148.9 166.5 147.4 149.2 164.2 173.8 170.8 159.9 195.8 1967 175.1 114.6 169.1 177.0 153.9 167.3 171.7 188.4 191.3 180.7 217.7 1968 191.3 121.6 183.8 194.3 165.1 179.5 181.9 212.2 215.7 194.o 241.8 1969 207.8 127.9 195.2 211.2 175.9 194.8 200.5 243.2 238.3 212.3 275.2 197ol, 225.2 129.9 214.4 230.3 188.5 213.8 216.2 267.3 251.3 222.1 305.4 Source: Banco de Mexico S.A. - Annual Report 1970 1/ Preliminary DFCD February 14, 1972  ANNEX 2 M EICO FONDO DE EQUIPAMIENTO INDUSTRIAL (FONEI) PORTFOLIO REQUIREMENTS OF THE BANKING SYSTEM As of December 31, 1971 (percent) Commercial Banks in Commercial Investment Resources Federal Banks in Banks Mortgage earmarked for District the States (Financieras) Bonds Liquidity reserve | 1 ~~~~~~25 Government securities or deposit in 50 55 BANXICO Cattle bonds t ~~25 10 Agriculture - 2 Priority production activities 20 20 - 45 General production loans 5 - 20 - Balance of Payments- oriented - 5 Commerce 25 - - Low cost housing - 30 Middle class housing - 25 Free resources - 30 'O TOTAL RESOURCES 100 100 100 100 1/ Applicable to annual increases in resources of the banking system. Source: Banco de Mexico S.A. Annual Report 1970. D FCD February 14, 1972  ANNEX 3 MEXICO FONDO DE EQUIPAMIENTO INDUSTRIAL (FONEI) CHARACTERISTICS OF FINANCIAL PAPER ISSUED BY FINANCIERAS Outstanding as of Oct. 31, Paper Yield Term Guarantees 1970 (in lMex$ ~billior Financial bonds 9.0% 5, 10, 15 years Issuing Institution 22.90 Financial titles 9.0% 5, 10 years Issuing Institution 6.74 Promissory notes 11.5% Up to 1 year Market (none) 8.80 Financial certi- ficates 9.43% From 2 to 10 years Market (none) 6.90 Others - - 23.10 68.44 Source: Business Trerds - Volume VI - No. 261 - December 13, 1971. DFCD February 14, 1972   ANNEX 4 MIEXICO FONDO DE EQUIPAMIENTO INDUSTRIAL (FONEI) TYPES, SOURCES, MATURITIES AND INTEREST OF CREDIT EXTENDED TO INDUSTRY BY THE PRIVATE BANKING SYSTEM 1. Discounting commercial paper: Competition and the need to maintain an adequate volume of sales obliges many firms to grant generous payment con- ditions to their clients. These conditions vary between 60 and 90 days, but six month accounts are by no means infrequent. The fact that the credits to their clients freeze large sums of working capital contributed to the estab- lishment of a rediscounting scheme for commercial paper between banks and firms. The cost of such credits is normally 1% per month plus charges and fees, plus in many cases the requirements for firms to hold with their bank or financiera a compensating balance amounting to as much as 25% of the loan. These additional items raise the cost of money on this type of operation to close to 15% per annum. 2. Short-term credit: In addition to the discounting operations, the firms often maintain a credit line with their bank with a maturity of between 90 and 180 days, usually on a revolving basis. In general, neither the cre- dit lines, nor the direct short-term loans need a tangible guarantee by the borrower, as the personal guarantee plus a minimum deposit in the bank are sufficient as collateral. This type of credit can usually be obtained rela- tively easy. Moreover, it is attractive for the industrialist as he is not obliged to burden the assets of his firm with mortgages or other tangible guarantees. However, these loans are limited in size by the borrower's ability to offer personal guarantees. The total cost of these short-term loans vary considerably depending on the lending institution and on the firm. Commercial banks usually charge interest of between 9 and 12% per annum, plus fees and commissions which typically add another 3%. Financieras, again depending on their size, extend such loans at a cost to the industrialist of around 18%. 3. "Direct Credit": The so-called "Direct Credit" is a credit of up to one year. A collateral by the borrower of 130% may be required, although this is not in all cases so. If this type of credit is secured, the finan- cial institution is willing to renew it if at least 50% of the loan was repaid at maturity. A compensating balance, sometimes amounting to as much as 25% of the loan, is required by most of the banks. The lending rate by commercial banks is generally 12% per annum, while the rate of Financieras could go as high as 18% per annum. 4. Inventory and working capital loans (Credito de Avio): These loans are generally of a longer term than the normal revolving credits or the direct credits. Although normally one year, maturities may go to 2-3 years. In many cases this type of loan is not only used to finance the current operations of  ANNEX 4 Page 2 the plant, but also to purchase fixed assets and to expand operations. Gener- ally, a credit guarantee amounting to 150% of the loan contracted is required by commercial banks. Also, most financial institutions require the borrower to hold a compensating balance amounting to around 20%. Commercial Banks will charge from 9-12% per year, while Financieras' lending rates will go up to 16% per year. 5. Replacement loans (Credito refaccionario): This type of loan has terms of between 2 and 10 years. With the traditional reluctance of the fi- nancial institutions to commit their funds for such a long period, it is dif- ficult for the industrialist to botain this type of loan. Consequently, a very small amount of total credit given by the Banking system falls into that category. The conditions attached to this type of loan are much more stringent than for the previously discussed credit instruments. The borrower must present guarantees amounting to 150% of the loan contracted and in addition, is often required to hold a compensating balance of around 20% with the lending institution. The lending rates of commercial banks tend to be lower (10-12% per year) than those of financieras (up to 15% per year). Again, the lending rate depends on the type and quality of the borrower as well as the type of financial institution. 6. Long-term loans: Commercial banks in Mexico are not allowed to make loans over 10 years. The only such loans are made by the financieras. Long- term loans over 10 years require a mortgage guarantee. There is a little used type of industrial loan with a term of up to 15 years, available only from financieras at rates of 12-15%. Most Mexican industrialists try to avoid such loans as they burden their fixed assets, land and buildings with the mortgage guarantee, which greatly inhibits their secondary borrowing capacity. The valuation of the guarantee is normally very conservative. For instance, if a lending institution can lend, according to the law, up to 50% of the value of the guarantee, the limit imposed by the banks most frequently is between 20 and 30% of the real value of the guarantee. Some banks have gone to great extremes in securing their loans, and cases have become known when the value of the guarantee represented as much as 50 times the size of the loan. 7. "Simple" Credit: There is a special type of credit available in Mexico called "simple" credit which has been invented to consolidate the short-term credit structure of a firm. This type of credit is usually avail- able only through the financieras at a maturity of up to 10 years. The in- terest rate can go as high as 15% per year. The drawback of this type of cre- dit is the very high guarantee required by the lender, amounting to 200% in the form of the firm's land, property and buildings. With all its drawbacks, the simple credit has the advantage of consolidating many small credits, loans and accounts with various financial institutions into a manageable medium to long-term loan, at a cost no higher than the short-term credits. 8. Draft obligations: Drafts issued by large firms for a term of up to 10 years and yielding between 10 and 12% per year plus 1% commission fee, are sold to private and institutional investors. These draft obligations do  ANNEX 4 Page 3 not require a tangible guarantee. Such financing is available mainly to the large, well-known companies; it is not widely used. 9. Mortgage bonds: Some of the larger Mexican firms sell mortgage bonds to financial institutions in order to obtain long-term funds for fixed investment. This instrument has a drawback insofar as a poor market forces the financial institution to hold on to the bonds of the issuer. The finan- cial institution charges a 15% financing fee in addition to a commission fee to the issuer of the bonds, so long as these bonds do not find a market. The firm selling the mortgage bonds has to pay up to 12% per year for the funds obtained with this instrument. However, in the case of a poor financial market, the cost to the issuer increases substantially. 10. Foreign credit: Except for the First National City Bank, Foreign banks operating in Mexico have no access to domestic savings. Therefore, these banks must import funds in order to meet their client's needs. While most foreign banks previously specialized in arranging suppliers credits for their clients, they have now gone into financing of specific projects or making loans available for short- to medium-term operations. Before the US capital export restrictions in 1968, foreign banks used to obtain their funds mainly from the New York money markets. During the last three years however, they have relied more and more on the Euro-dollar market. In either case, in- terest rates charged to their clients are based on the New York prime rate or the current Euro-dollar rate. Adding a spread of 1-1/2 - 2-1/2% to these base rates, the Mexican client therefore has to pay between 9 and 11% per year. However, in these operations the exchange risk is carried by the bor- rower. In addition, some foreign banks, eager to obtain domestic peso funds, require their clients to hold certain compensating balances with them. Most of these foreign credits are based on a six-month term which can be renewed. There are no statistical data available about the extent and magnitude of foreign borrowing by Mexican industry. Indications received in the course of a number of interviews put the size of foreign loans to Mexican private in- dustry at over US$ 1 billion during 1970. DFCD May 9, 1972   MEXICO FONDO DE EQUIPANFENTO INIDUSTRIAL (FONEI) TOTAL DOMESTIC FINANCING GRANTED ANNUALLY TO THE PRIVATE SECTOR (in Mex$ billions) Year For Commerce For Production Industry Agriculture Mining Sub-Total Total 1963 8.9 32.0 8.2 0.2 40-4 49.3 1964 13.2 38.7 9.3 0.2 48.2 61.4 1965 14.0 42.0 10.6 0.2 52.8 66.8 1966 17.4 46.6 12.9 0.5 60.0 77.4 1967 20.7 55.3 14.0 1.0 70.3 91.0 1968 24.6 62.5 15.3 1.2 79.0 103.6 1969 31.8 75.0 16.2 1.7 92.9 124.7 1970 36.7 89.8 17.7 3.1 110.6 147.3 Source: Banco de Mexico S.A. - Annual Report 1970 DFCD February 14, 1972  ANNEX 6 MEXICO FONDO DE EQUIPAMIENTO INDUSTRIAL (FONEI) EXECUTIVE ORDER OF OCTOBER 15, 1971 With the aim of promoting the nation's economic and social develop- ment and strengthening our balance of payments positions, this Ministry has decided to set up a trust fund within Banco de Mexico for the purpose of en- couraging the establishment and expansion of industrial and service enter- prises which will effectively supply export markets or substitute imports. The trust fund will have the following characteristics: Trustor: The Federal Government, represented by the Ministry of Finance and Public Credit. Trustee: Banco de Mexico, S.A. Assets: will consist of: (1) The sum of Mex$ 125 million (one hundred and twenty-five million pesos), which will constitute the Federal Goverrment's initial contri- bution, to be made through the Ministry of Finance and Public Credit during 1972 and 1973. (2) Other contributions to be made by the Trustor thereafter. (3) Funds obtained in the form of financing granted by foreign insti- tutions or organizations. (4) Net earnings derived from transactions carried out by the Trustee and from investment of its surplus funds. (5) Other resources authorized by the Trustor. The Fund can also expect to receive funds directly or indirectly from Mexican loan institutions authorized by Banco de Mexico, S.A. The purpose, powers and structure of the Fund, including those of its technical Committee, are detailed in the attached draft agreement. DFCD February 14, 1972  A.NNEX 7 MEXICO FONDO DE EQUIPAMIENTO INDUSTRIAL (FONEI) CONTRACT SIGNED BETWEEN THE MINISTRY OF FINANCE AND THE CENTRAL BANK (AS TRUSTEE OF FONEI) Trust Agreement between the Federal Government, as Trustor, through the agency of the Ministry of Finance and Public Credit, represented by Mr. Mario Ramon Beteta, Undersecretary for Finance and Public Credit, and Banco de Mexico, S.A., as Trustee represented by its Director General, Mr. Ernesto Fernandez Hurtado, in accordance with the following Declara- tions and Articles: Declarations I. The Ministry of Finance and Public Credit hereby declares that the Government's policy for stimulating the nation's economic and social development includes the promotion of the establishment and expansion of industrial and service enterprises which will effectively supply export markets or substitute imports, thereby also achieving the related benefits of increased employment, acquisition of modern technology and a stronger balance of payments position. The Federal Government has therefore decided to set up an Industrial Equipment Fund, intended to promote the production of industrial goods and ser- vices which will generate or save foreign exchange in spheres not covered by other Funds, such as the Fund to Promote Exports of Manufactured Products, Guarantee and Development Fund for Small and Medium-Sized Industries, Develop- ment and Guarantee Fund for Agriculture, Livestock and Poultry, and the Special Fund for Agricultural Financing. The Federal Government has thus thought it advisable for the above- mentioned Fund to be administered and operated in trust by Banco de Mexico, S.A., that Bank being empowered, under its Organic Law, to act as trustee in cases where it is manifestly in the public interest that it should do so, such as the present one. II. Bando de Mexico, S.A. hereby expresses its willingness to operate the above-mentioned Industrial Equipment Fund in trust, and both parties therefore enter into the following Agreement; for the sake of brevity, the Ministry of Finance and Public Credit may hereinafter be called "the Trustor", Banco de Mexico, S.A. "the Trustee" and the Industrial Equipment Fund "the Fund".  ANNEX 7 Page 2 Article 1. The Federal Government, represented by the Ministry of Finance and Public Credit, as Trustor, and Banco de Mexico, S.A., as Trustee, hereby enter into the present trusteeship agreement, the object of which is the man- agement of an Industrial Equipment Fund intended to promote the production of industrial goods and services that generate or save foreign exchange. This trust fund shall be called the "Industrial Equipment Fund" (FONEI). Article 2. The Fund shall have the following assets: (a) The sum of Mex$ 125,000,000.00 (one hundred and twenty-five million pesos) which shall constitute the Federal Government's initial con- tribution, to be made through the Ministry of Finance and Public Credit during 1972 and 1973; (b) other contributions to be made by the Trustor thereafter; (c) funds obtained in the form of financing granted by foreign institutions or organizations; (d) net earnings derived from transactions carried out by the Trustee and from investment of its surplus funds; (e) other resources authorized by the Trustor. The Fund shall also have access to funds deriving directly or in- directly from Mexican loan institutions authorized by Banco de Mexico, S.A. Article 3. The Trustee shall have authority to effect the following trans- actions against the Fund's account: I. Refinancing of loans or credits granted by credit institutions for the purchase and installation of industrial equipment and facilities, and the construction of buildings, where the aim is: (a) The installation or equipment of new industrial plant for whose products there is a reasonably certain prospective foreign market; (b) the expansion or modernization of existing industrial plant whose present or projected production meets the requirement (a) above; (c) the installation, expansion or modernization of industrial plant whose products are effective import substitutes. II. The refinancing of loans or credits granted by private credit insti- tutions for the execution of other projects likely to generate or save foreign exchange, chiefly in the field of tourism.  ANNEX 7 Page 3 III. Refinancing through credit institutions, and in certain cases pay- ment from the Fund's account, as may be decided by the Technical Committee mentioned in Article 5, or part or all of the cost of studies or Drojects connected with transactions falling within the scope of the Fund. Article 4. In accordance with the provisions of Article 45, Section IV of the General Law on Credit Institutions and Auxiliary Organizations, the Trustor shall set up a Technical Committee composed of six regular members and six alternates, appointed as follows: two by the Ministry of Finance anc6 Public Credit, one by the Ministry of Industry and Commerce, two by Banco de M1exico, S.A. and one by the National Confederation of Chambers of Industry. For each regular member the above-mentioned bodies shall appoint an alternate. The Technical Committee shall have a Chairman, who shall be the first of the members appointed by the Ministry of Finance and Public Credit; it shall have a Secretary, appointed by the Committee itself; the presence of four members, including at least one of those appointed by the Ministry of Finance and Public Credit, shall constitute a quorum; resolutions shall be taken by majority vote and in the event of a tie, the Chairman shall have the casting vote. The Committee shall meet as often as necessary to achieve the aims of the Trustor; meetings shall be called by the Secretary upon instructions by the Chairman. Article 5. The Technical Committee shall have the following functions: (1) to establish the rules of operation of the Fund, by which management of the trusteeship shall be governed; (2) to approve operations charged to the Fund, as provided in the present Agreement and in the above-mentioned rules of operation; (3) to authorize the loans mentioned in Article 2 (c), laying down the conditions or general terms under which they are obtained; (4) to approve, on the recommendation of the Trustee, the annual budget of expenditure required for administration of the Fund, and to submit it to the Ministry of Finance and Public Credit for final approval; (5) any other functions that the Trustor may confer on it in future. Article 6. The Ministry of Finance and Public credit shall determine appro- priate remuneration for the members and secretary of the Technical Committee.  ANNEX 7 Page 4 Article 7. The Trustee shall invest any surplus funds of the Trust in (;overni- ment securities. Article 8. The Trustee shall appoint such technical and administrative staff as it considers necessary for operation of the trust fund, and shall determine their salaries and benefits; these shall be paid out of the Fund itself, sub- ject to the annual budget of expenditure authorized by the Technical Committee. Other expenses arising out of operation of this trust fund shall be paid by the Trustee, also out of the Fund itself. Article 9. The Trustee shall not be required to make the announcements or give the notice referred to in Article 45, Section IX, of the General Law on Credit Institutions and Auxiliary Organizations, but shall report each quarter on the management of the funds in trust. Article 10. The Trustee accepts the present trusteeship and undertake to exercise it in accordance with the provisions of the General Law on Credit Institutions and Auxiliary Organizations and of the General Law on Credit instruments and Transactions. Article 11. This trusteeship shall be of indefinite duration, but the Trustor reserves the right to revoke it at any time, allowing the Trustee the neces- sary powers to cover the obligations of the Fund. Article 12. At the end of each financial year, the Trustee shall receive fees calculated on the basis of the amount of funds managed by it, at the following rates: Up to the first Mex$ 500 million - 1/S of 1% per annum. On amounts in excess of Mex$ 500 million - 1/16 of 1% per annum. The rate or rates applicable shall be calculated on the average of the Fund's total assets on the last day of each month. This Agreement is signed in eight copies, seven of them remaining with the Trustor and one with the Trustee. It does not bear a stamp, be- cause of the status of the parties thereto. Mexico, D.F., October 29, 1971 FEDERAL GOVERNMENT BANCO DE MAEXICO, S.A. /s/ Mario Ramon Beteta /s/ Ernesto Fernandez Hurtado Ministry of Finance and Public Credit Bureau of Credit Department of Financial Investment Registry of Trusteeship Agreements. DFCD This Agreement was registered under No. 1534 February 14, 1972 at Mexico, D.F. on November 4, 1971  NiYNEX 8 Page 1 MEXICO FONDO DE EQUI]'AMIENTO INDUSTRIAL (FONEI) ADDENDUM TO THE CONTRACT OF OCTOBER 29, 1971 Background 1. On October 29, 1971 the Federal Government, represented by the Ministry of Finance and Public Credit, as trustor, and Banco de Mexico S.A. as trustee, entered into a trust agreement establishing the "Industrial Equipment Fund" (FONEI) for the purpose of developing the production of in- dustrial goods and services that would generate and/or save foreign exchange. 2. In official memorandum No. 305-V-1691 dated January 7, 1972, recorded in file No. 715.5/226185, the Ministry of Finance and Public Credit informed the Banco de Mexico, S.A. that: "Reference is made to the Trust established in your bank with regard to the Industrial Equipment Fund. In that connection, you are informed that this Ministry (Secretaria) has decided to amend Article IV of the Trust Agreement in question, simply by adding to the Technical Committee a regular member and alternate representing Nacional Financiera, S. A. We accordingly request you to send us the corresponding draft agreement". 3. Subsequent to the official memorandum mentioned above, the Ministry of Finance and Public Credit agreed with Banco de Mexico, S.A. to introduce a further amendment to the trust agreement in question, enabling FONEI's Tech- nical Committee to have an Assistant Secretary. In view of the foregoing, the parties agree to the following Single Article: Article IV of the trust agreement mentioned in the Background is amended to read as follows: "IV. In accordance with the provisions of Article 45, Section IV of the General Law on Credit Institutions and Auxiliary Organiza- tions, the Trustor shall set up a Technical Committee composed of 7 regular members and 7 alternates, appointed as follows:  ANNEX 8 Page 2 Two by the Ministry of Finance and Public Credit, One by the Ministry of Industry and Commerce, Two by Banco de Mexico, S.A., one by Nacional Financiera, S.A. and one by the National Confederation of Industrial Chambers of Industry. For each regular member the above-mentioned bodies shall appoint an alternate. The Chairman of the Technical Committee shall be the first of the members appointed by the Ministry of Finance and Public Credit; it shall have a Secretary and an Assistant Secretary, both appointed by the Committee itself; the presence of four members, including at least one of those appointed by the Ministry of Finance and Public Credit, shall constitute a quorum, resolutions shall be taken by majority vote and, in the event of a tie, the chairman shall have the casting vote. The Committee shall meet as often as necessary to achieve the purposes of the trust; meetings shall be called by the Secretary upon instructions by the Chairman". The present agreement is signed in octuplicate, 7 copies remaining with the trustor and one with the trustee; because of the status of the parties thereto, it requires no stamps. Mexico, D.F. April 4, 1972 Secretary of Finance and Public Credit Banco de Mexico, D. F. on behalf of the Federal Government UFCD May 9, 1972  ANNEX 9 Page 1 MEXICO FONDO DE EQUIPAMIENTO INDUSTRIAL (FONEI) OPERATING RFGULATIONS 1. The aim of the Industrial Equipment Fund shall be to promote the efficient production of industrial goods and services which, by supplying export markets or substituting imports, will lead to the generation and/or saving of foreign exchange. 2. The Trustee may use the Fund to carry out the following operations: (a) The discounting of paper held by credit institutions in respect of financing operations related to the purchase and installation of industrial equipment and facilities, the construction of buildings or the preparation of studies or projects related to the Fund's operations. (b) The granting of loans or credits to credit institutions for the purposes mentioned in the preceding paragraph. (c) The refinancing of loans or credits granted by private credit institutions for the execution of projects other than those mentioned in (a) and (b) above, which are likely to generate and/or save foreign exchange. (d) The carrying out of financing operations in connection with the operations mentioned in (a), (b) and (c) above. The Fund's investment operations shall be in domestic currency. 3. The financing operations mentioned in 2 (a), (b) and (d) above shall relate to: (a) The installation and/or equipment of new industrial plant for whose products there is a reasonably certain prospec- tive foreign market; (b) The expansion and/or modernization of existing industrial plant whose present or anticipated production meets the requirement set forth in (a) above; and  ANNEX 9 Page 2 (c) The installation, equipment expansion and/or modernization of industrial plant whose products are effective import substitutes. 4. When the Trustee decides to grant financing for the execution of projects designed to generate exports, there must be evidence that the project concerned is likely to generate such exports without requiring any Government subsidies other than those provided for in the laws and decrees containing incentives for the establishment and expansion of industrial enterprises. 5. When the Trustee decides to finance projects the aim of which is import substitution, the following general requirements shall be fulfilled: (a) The products manufactured by the borrower enterprise shall be competitive, from the point of view of quality and price, with identical or similar products manufactured abroad: (b) The production of the borrower enterprise shall consist of: (i) Capital goods; (ii) Intermediate goods; and (iii) Basic consumer goods. For the purpose of the present Regulations, basic consumer goods shall be taken to be those consumed by a large percentage of the country's population or considered essential to Mexico's economic development, and shall be identified in lists approved for the purpose by the Trustee. 6. In all the Fund's project-financing operations the net effect on the balance between exports and imports of goods and services related to the investment, including depreciation of equipment imported during the period of amortization of the respective loan, must be favorable to Mexico. 7. The Trustee may grant financing for the execution of feasibility studies when these refer to specific projects eligible for Fund assistance. Such financing shall be granted on terms approved in each case by the Trustee. Should the feasibility study result in implementation of the corresponding project, its financing shall be consolidated with the loan granted by the Trustee for execution of the project. Should the study find that execution of the project is not advisable, the Fund may, depending on the nature and size of the project and the borrower's capacity to pay, decide to absorb part of the cost of the financing it has granted for execution of the study.  ANNEX 9 Page 3 8, The financing granted by the Trustee to credit institutions shall be subject to the following basic requirements: (a) It may be granted only to credit institutions established in accordance with Mexican law, selected by the Trustee on the basis of a number of criteria including the financial, technical and administrative capacity of the institution and the extent of its observance of the pertinent laws and regulations. (b) The recipient credit institution shall finance part of the project out of its own resources on the basis of the per- centages set forth in Regulation 12; (c) The credit institution acting as financial intermediary shall give the Trustee an undertaking that it will provide financing out of its own resources to the borrower enter- prise in an amount sufficient to support its working capital as required by the project concerned; (d) The financial intermediary shall give the Trustee an under- taking that it will appraise the financial aspects of the project, including the borrower's capacity to pay; (e) The financial intermediary may in no case use FONEI's re- sources to grant loans to industrial enterprises in which said intermediary has a controlling participation or in- terest; (f) The credit institution acting as financial intermediary shall undertake to service the FONEI loan, punctually and in full, regardless of whether or not it has received the payments from its borrower. 9. In the selection of projects to be financed out of FONEI's resources the following general interest aspects shall be considered, among others: 1. Generation and/or saving of foreign exchange: 2. Utilization of labor; 3. Value added; 4. Industrial decentralization and regional development. 10. In appraising projects, FONEI shall take account of the following specific aspects, among others:  ANNEX 9 Page 4 1. Legal organization and technical and administrative capacity of the borrower enterprise; 2. Expected return on the project; 3. Market situation and other economic aspects related to execu- tion of the project; 4. Financial situation of the enterprise, the latter being obliged to prove that it is able to obtain all the fi- nancing it needs for execution of the project, including resources that may be provided by the Fund; 5. The company's financial projections, including working capital; 6. Know- ow required for the project; 7. Supply of raw materials and goods required for production; 8. Geographic location; 9. Alternative sources of funds. 11. The operations entered into by the Trustee shall be carried out in line with sound financial procedures and shall relate only to those pro- jects whose execution meets the required conditions of safety and feasbility. 12. Participation by the Fund in financing operations relating to the purchase of fixed assets or to the execution of feasibility studies shall be based on the following percentages: New Modernization Feasibility Projects or expansion studies Industrial enterprise (minimum) 25% 20% 20% Financial intermediary (minimum) 10% 8% - FONEI (maximum) 65% 72% 80% 13. The minimum amount of each of the financings authorized by the Trustee shall be 3.5 million pesos and the maximum 37.5 million Pesos. This rule shall not apply to the financing of feasibility studies, to which the provisions of Regulation 7 shall apply.  ANNEX 9 Page 5 14. Depending on the characteristics of the project, the Trustee shall decide on the repayment terms and other conditions of the financing granted out of its resources. Loans may be granted for a maximum of thirteen years, which period shall include up to three years of grace. 15. On the basis of the condition of the capital markets, the Trustee shall establish the limits of the charges that are to be imposed on the cre- dit institutions. For operations financed by FONEI said institutions may not charge the borrower enterprise more than 2% per annum over and above the rate they are required to pay to the Trustee, including fees, commissions and any other charges, with the exception of the commitment charge referred to in Regulation 16 below. 16. The Trustee shall require the recipient credit institutions to pay a commitment charge on undisbursed balances, which charge shall not exceed 1% per annum. The said financial intermediaries may in turn require the final user of the specific credit to pay a (commitment) charge that shall not exceed 1% per annum. 17. The resources of the Fund may not be used for projects for which sufficient resources are available from alternative sources. 18. The agreements signed by the Trustee with the financial interme- diaries and those signed by the latter with the final users of the credits shall specify that the Trustee is entitled at all times to obtain any infor- mation it may need concerning execution of the projects, to inspect and supervise the execution and operation thereof, and to require both the fi- nancial intermediaries and the final users to submit financial statements certified by external auditors acceptable to the Trustee. 19. The financial intermediary shall give the Trustee an undertaking that it will supervise the correct use of the financing proceeds and ensure the maintenance of the pertinent guarantees, and that it will pay in to the Fund without delay the amount of any advance repayments received. 20. The Technical Committee shall approve each and every one of the financing operations carried out by the Fund pursuant to these Regulations, and the Trustee shall carry out only such operations as, in its opinion, continue to demonstrate the original conditions on the basis of which they were approved. DFCD May 9, 1972   ME X I C O FONDO DE EQUIPATEENTO IND1TSTRTAL (FONEI) ORGANIZATION DELEGAT TECHNICAL DEPT. OPERATIONS DEPT. ACCOUNTING DEPT. ADMINISTRATION ACCOUNTANT TVASITNTIVE APPRAISAL AND PROMOTION LOANS DISBURSEMENTS SUPERVISIr4 JF PROJECT S I I ACCOUNTANT CLERICAL CLERICAL SUPERVISOR PROMOTER ANALYST ANALYST RESEARCRH ANALYST ANALYST ANAMYST ANALYST _ S TATIS TIC0 SECTION DFCD February lh, 1972   ANNEX 11 MEXICO FONDO DE EQUIPAMNOT INDUSTRIAL (FONEI) COMPOSITION OF FONEIIS TECHNICAL COMMITTEE Director Alternate 1. Lic. Mario Ramon Beteta, Lic. Jesus Silva-Herzog Undersecretary of Finance General Director of Public Credit (Secretariat of Finance) 2. Lic. Hector Hernandez Lic. Agustin Lopez Munguia Gene ral Director of Economic Studies (Deputy Director Economic Studies) (Ministry of Finance) (Secretariat of Finance) 3. Lie. Jos6 Campillo Saenz Lie. Guillermo Becker Undersecretary of Industry and Director of Industries Commerce (Secretariat of Industry and Commerce) 4. Lic. Ernesto Fernandez Hurtado Lic. Miguel Mancera Director General Deputy Director General BANXICO BANXICO 5. Ing. Ignacio Deschamps Lic. Alfredo Phillips Olmedo President IMIT Manager (International Organizations) (but Representative of BANXICO) BANXICO 6. Lie. Manuel Calder6n de la Barca Lic. Pedro Galicia Deputy Director General (NAFIN) Manager(International Department) (NAFIN) 7. Ing. Alejandro Alvarez Guerrero Mr. Pablo Morera President CONCAMIN member CONCAMIN DFCD February 14, 1972  ANNEX 12 MEXICO FONDO DE BQUIPAMIENTO INDUSTRIAL (FONEI) CURRICULA VITAE A. LIC. SERGIO LUIS CANO - Fiduciary Delegate PROFESSIONAL BACKGROUND - Licentiate in Economics - Universidad Nacional Autonoma de Mexico - Training in the Statistical Office of the Ministry of Finance - Training E C L A - Santiago, Chile EXPERIENCE - Several jobs in the Statistical Office of the Ministry of Finance and at BANXICO - Undersecretary of Industry and Commerce - Permanent Representative of Mexico in L?FTA B. LIC. RAUL ACEVEDO CORTEZ - Chief, Operations Department PROFESSIONAL BACKGROUND - Licentiate in Economics - Universidad Nacional Autonoma de Mexico EXPERIENCE - Several jobs in the Ministry of Financeg and in the Research and Foreign Trade Section of BANXICO - Several jobs at FOMEX culminating in that of Deputy Director C. LIC. HEBERTO GONZALES-KARG - Chief, Technical Department PROFESSIONAL BACKGROUND - Licentiate in Economics - Instituto Tecnolbgico de Monterrey - Master of Business Administration - Harvard University - Training at Tegel, Berlin (Fed. Rep. of Germany) - Public Accountant - Instituto Tecnolbgico de Monterrey EXPERIENCE - Several jobs in NAFIN - Several jobs *ith IDB - Finance Officer, IDB, Regional Office Montevideo, Uruguay DFCD February 14, 1972  ANNEX 13 MEXICO FONDO DE EQUIPA)IENTO INDUSTRIAL (FONEI) PROJECTED SOURCES AND USES OF FUNDS, 1972-76 (In US$ million) 1972