Latin Finance - May 2008 - 93

francisco gil díaz Back in the Ring with Slim by Greg Brosnan o illustrate how much Mexican markets have changed since he began his long and diverse career in public and private sector finances, Francisco Gil Díaz recalls the rudimentary tools on which he relied as an economist in his early twenties. Fresh out of college in 1965, the former Mexican finance minister found himself sitting at a desk at a central bank that would not gain autonomy for another three decades, creating compound interest tables using a mechanical calculator. “You had to push a carriage from side to side,” the president of Telefónica’s Mexico unit tells LatinFinance in an exclusive interview. “To do four or five operations at the same time you had to tie elastic bands to some of the buttons.” Mexico is barely recognizable from those early days. The canopy of gleaming corporate skyscrapers Gil Díaz sees stretching out across the business district of Santa Fé from his 19th floor office, for example, was a mountainside wasteland of garbage dumps and strip mines on the edge of Mexico City when LatinFinance first went to press 20 years ago. Gil Díaz says devastating financial crises over the decades have taught Mexico and Latin America hard-earned lessons of economic management, but he bemoans the region’s inability to catch up with other emerging markets and warns that it still walks in the shadow of a long-looming pension debacle. “We’ve learnt that fixed exchange rates . . . sooner or later fall apart,” he says. “That you need well supervised banks, clear rules and transparent information.” “But we’ve barely done any of the good things they’ve done in these other parts of the world. We liberalized too little and badly; we privatized too little and badly; we regulated too little and badly.” T As finance minister, Francisco Gil Díaz oversaw Mexico’s rise to high grade and criticized Slim’s dominance. Now leading Telefónica, he is back in the ring with an old adversary. float the currency that followed it. “We threw ourselves into the water without knowing how to swim,” he says. “We had walked to the end of the plank. There was nothing we could do but jump.” Gil Díaz adds that Mexico’s decision to float and then launch a peso contract on the Chicago Mercantile Exchange in the wake of the crisis – a move which gave investors a way to hedge exposure to a volatile currency – laid foundations that would eventually make the peso a relatively stable bet in times of drastic swings elsewhere in FX markets. “This was a very important turning point for Mexico and taught many other economies a lesson: that even with a small economy and a minor currency, freefloating works,” he says. “That was something that worried us . . . we thought the volatility would be too great.” Gil Díaz lays much of the blame for the tequila crisis on the orgy of barely regulated, careless lending that preceded. He says that while LatAm countries partly learned from Mexico’s mistake, the world’s largest economy apparently did not. The US might have side-stepped the sub-prime mess by paying more attention to the economic history of its southern neighbor, particularly with regards to regulation, Gil Díaz adds. “Everything we did wrong leading up to the crisis of 1994 and 1995 is what we are seeing in the United States, with worldwide repercussions,” he says. “Regulation is fundamental, whether the economy is small, medium-sized or the United States.” “Markets are always looking for ways to dodge the rules and market players are infinitely more ingenious than those trying to regulate them.” Done too little, too badly: Gil Diaz someone in his field is holding the fort during multiple financial meltdowns. The executive reels off a list of Mexican macroeconomic calamities he worked through dating back to the early 1970s. Heavy spending and borrowing under presidents José López Portillo and Luis Echeverría; violent peso devaluations, a bank nationalization, triple digit inflation, an oil price crash, to name but a few. “It’s quite ample battle experience,” he jokes. But Gil Díaz singles out one episode both as the scariest time in his career, and also as a defining moment which taught LatAm a painful lesson about how to run, and how not to run an economy: the Tequila Crisis of 1994 and 1995. As vicegovernor of Mexico’s central bank at the time, Gil Díaz saw the events up close and was central to the landmark decision to An Orgy of Careless Lending Gil Díaz, 64, says the best experience for May 2008 LATINFINANCE 93

Latin Finance - May 2008

Table of Contents for the Digital Edition of Latin Finance - May 2008

Latin Finance - May 2008
Contents
20 Years in Review
Markets Outlook
Awards - 20 Years of Excellence
Roger Thomas
Jose Olympio
Roberto Setubal
Bill Rhodes
William Rhodes
China and Latin America
Michael Pettis
Mohamed El-Erian
Nicholas Brady
Pedro Pablo Kuczynski
Brazilian Investment Banking
Maria Helena Santana
Fernando Henrique Cardoso
Henrique Meirelles
Arminio Fraga
Andres Velasco
José Pablo Arellano
Codelco
Eduardo Elsztain
Julio Torres
Mark Mobius
Larry Summers
Charles Dallara
Martin Schubert
Claudio Loser
Francisco Gil Diaz
Hans Humes
Francisco Gil Diaz
Therese Rabieh
Nina Shapiro
Enrique Garcia
Angel Gurria
Susan Segal
Martin Krause
Alberto Benavides
Hans Schulz
Lee Buchheit
Latin Finance - May 2008 - Latin Finance - May 2008
Latin Finance - May 2008 - Cover2
Latin Finance - May 2008 - Contents
Latin Finance - May 2008 - 2
Latin Finance - May 2008 - 3
Latin Finance - May 2008 - 4
Latin Finance - May 2008 - 5
Latin Finance - May 2008 - 6
Latin Finance - May 2008 - 7
Latin Finance - May 2008 - 8
Latin Finance - May 2008 - 9
Latin Finance - May 2008 - 10
Latin Finance - May 2008 - 11
Latin Finance - May 2008 - 12
Latin Finance - May 2008 - 13
Latin Finance - May 2008 - 14
Latin Finance - May 2008 - 15
Latin Finance - May 2008 - 16
Latin Finance - May 2008 - 17
Latin Finance - May 2008 - 20 Years in Review
Latin Finance - May 2008 - 19
Latin Finance - May 2008 - 20
Latin Finance - May 2008 - Markets Outlook
Latin Finance - May 2008 - 22
Latin Finance - May 2008 - 23
Latin Finance - May 2008 - 24
Latin Finance - May 2008 - 25
Latin Finance - May 2008 - 26
Latin Finance - May 2008 - 27
Latin Finance - May 2008 - 28
Latin Finance - May 2008 - 29
Latin Finance - May 2008 - 30
Latin Finance - May 2008 - 31
Latin Finance - May 2008 - 32
Latin Finance - May 2008 - 33
Latin Finance - May 2008 - 34
Latin Finance - May 2008 - 35
Latin Finance - May 2008 - 36
Latin Finance - May 2008 - 37
Latin Finance - May 2008 - 38
Latin Finance - May 2008 - 39
Latin Finance - May 2008 - 40
Latin Finance - May 2008 - 41
Latin Finance - May 2008 - 42
Latin Finance - May 2008 - 43
Latin Finance - May 2008 - 44
Latin Finance - May 2008 - 45
Latin Finance - May 2008 - 46
Latin Finance - May 2008 - 47
Latin Finance - May 2008 - Awards - 20 Years of Excellence
Latin Finance - May 2008 - 49
Latin Finance - May 2008 - Roger Thomas
Latin Finance - May 2008 - Jose Olympio
Latin Finance - May 2008 - Roberto Setubal
Latin Finance - May 2008 - William Rhodes
Latin Finance - May 2008 - China and Latin America
Latin Finance - May 2008 - 55
Latin Finance - May 2008 - Michael Pettis
Latin Finance - May 2008 - 57
Latin Finance - May 2008 - Mohamed El-Erian
Latin Finance - May 2008 - 59
Latin Finance - May 2008 - Nicholas Brady
Latin Finance - May 2008 - 61
Latin Finance - May 2008 - 62
Latin Finance - May 2008 - Pedro Pablo Kuczynski
Latin Finance - May 2008 - Brazilian Investment Banking
Latin Finance - May 2008 - 65
Latin Finance - May 2008 - 66
Latin Finance - May 2008 - 67
Latin Finance - May 2008 - 68
Latin Finance - May 2008 - 69
Latin Finance - May 2008 - 70
Latin Finance - May 2008 - Maria Helena Santana
Latin Finance - May 2008 - Fernando Henrique Cardoso
Latin Finance - May 2008 - 73
Latin Finance - May 2008 - 74
Latin Finance - May 2008 - Henrique Meirelles
Latin Finance - May 2008 - Arminio Fraga
Latin Finance - May 2008 - 77
Latin Finance - May 2008 - 78
Latin Finance - May 2008 - Andres Velasco
Latin Finance - May 2008 - Codelco
Latin Finance - May 2008 - Eduardo Elsztain
Latin Finance - May 2008 - 82
Latin Finance - May 2008 - 83
Latin Finance - May 2008 - Julio Torres
Latin Finance - May 2008 - Mark Mobius
Latin Finance - May 2008 - 86
Latin Finance - May 2008 - Larry Summers
Latin Finance - May 2008 - Charles Dallara
Latin Finance - May 2008 - Martin Schubert
Latin Finance - May 2008 - Claudio Loser
Latin Finance - May 2008 - Hans Humes
Latin Finance - May 2008 - 92
Latin Finance - May 2008 - Francisco Gil Diaz
Latin Finance - May 2008 - Therese Rabieh
Latin Finance - May 2008 - Nina Shapiro
Latin Finance - May 2008 - Angel Gurria
Latin Finance - May 2008 - 97
Latin Finance - May 2008 - Susan Segal
Latin Finance - May 2008 - Martin Krause
Latin Finance - May 2008 - 100
Latin Finance - May 2008 - Alberto Benavides
Latin Finance - May 2008 - Hans Schulz
Latin Finance - May 2008 - 103
Latin Finance - May 2008 - 104
Latin Finance - May 2008 - 105
Latin Finance - May 2008 - 106
Latin Finance - May 2008 - 107
Latin Finance - May 2008 - 108
Latin Finance - May 2008 - 109
Latin Finance - May 2008 - 110
Latin Finance - May 2008 - Lee Buchheit
Latin Finance - May 2008 - 112
Latin Finance - May 2008 - Cover3
Latin Finance - May 2008 - Cover4
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