Annual Report on Exchange Arrangements and Exchange Restrictions 2005
Chapter

MEXICO

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2005
Share
  • ShareShare
Show Summary Details

(Position as of December 31, 2004)

Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: November 12, 1946.
Exchange Arrangement
CurrencyThe currency of Mexico is the Mexican peso.
Exchange rate structureUnitary.
Classification
Independently floatingThe exchange rate of the peso is determined freely in the foreign exchange market. The Exchange Commission established a rules-based mechanism to reduce the rate of international reserves accumulation. On March 12, 2004, the Bank of Mexico (BOM) announced that, under this mechanism, the BOM sells dollars directly in the foreign exchange market every day according to the following procedure: the BOM announces every quarter the total amount of dollars it will offer to the currency market each day during the following four quarters (previously, the next quarter). The change in the mechanism began to apply from the May–July 2004 sales period onward. The total amount of dollars to be sold will equal 50% of the net international reserves accumulated during the previous quarter, with one-fourth of the established amount being auctioned each quarter (previously, this distribution did not apply) not including the cumulative amount of dollars sold through the auction mechanism during the same period. Based on the total amount of dollars, the BOM auctions on a daily basis a fixed amount of dollars following a preestablished schedule (the daily amount to be sold is determined according to the number of working days in the current quarter).
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketCommercial banks are allowed to enter into exchange rate, stock exchange, and other derivative transactions. Authorization from the BOM is required, which is granted on the basis of certain organizational, legal, and risk management requirements.
Arrangements for Payments and Receipts
Prescription of currency requirementsNo.
Payments arrangements
Bilateral payments arrangements
OperativeThere is a payments arrangement with the Bank Negara Malaysia.
Regional arrangementsIn accordance with the Reciprocal Credits and Payments Agreements entered into by the BOM with the central banks of Argentina, Bolivia, Brazil, Chile, Colombia, the Dominican Republic, Ecuador, Paraguay, Peru, Uruguay, and República Bolivariana de Venezuela, payments to these countries may be made through the BOM and the central bank of the country concerned within the framework of the multilateral clearing system of the LAIA. A similar payments arrangement exists with the central banks of Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. Mexico is also a member of the NAFTA.
Clearing agreementsThere are clearing agreements in accordance with the regional payments agreements referred to above.
Administration of controlNo.
International security restrictionsNo.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)No.
Controls on exports and imports of banknotes
On imports
Domestic currencyThe customs law requires that persons bringing into the country an amount of cash, checks, or a combination of both exceeding the equivalent of $10,000 declare it to the customs authorities.
Foreign currencyThe regulations governing imports of domestic currency apply.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyCommercial banks are permitted to hold foreign exchange deposits in checking accounts payable in Mexico, provided the holders of such accounts are (1) residents of the 20-kilometer-long strip along the northern border area of Mexico or living in Baja California or Baja California Sur, or (2) firms domiciled in Mexico. Commercial banks are also permitted to hold foreign exchange deposits from firms established in Mexico, provided such deposits are payable abroad.
Held abroadYes.
Accounts in domestic currency held abroadYes.
Accounts in domestic currency convertible into foreign currencyNo.
Nonresident Accounts
Foreign exchange accounts permittedCommercial banks are permitted to hold foreign exchange deposits only in checking accounts payable in Mexico with respect to official representations of foreign governments and international organizations, including foreign individuals employed in such entities and foreign correspondents. In such cases, they must be registered in Mexico with the appropriate authority.
Domestic currency accountsYes.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsNo.
Import licenses and other nontariff measuresImport licenses issued by the Ministry of Economy (MOE) are required for 260 of the 11,927 items on which Mexico’s general import tariff is levied, except for temporary imports of raw materials and intermediate goods for export industries. New licenses are issued, provided that the criteria set by the MOE are satisfied. On average, import licenses are valid for a period of one year, but for some sensitive products, they are valid only for six months. For some products, “open-ended” import licenses may be granted, allowing imports to be effected during a period of six months to one year, subject to an overall limit. Depending on the importer’s performance, the license may be renewed repeatedly. On January 1, 2004, import license requirements for new vehicles were eliminated and a duty of 50% imposed on new cars imported from all countries excluding NAFTA and EU countries (previously, imports of new cars by a given manufacturer were limited to 143% of the export levels of the same manufacturer). Imports of used cars are subject to the prior approval of the MOE, but only special-purpose vehicles that are different from those made locally are allowed.
Negative listYes.
Open general licensesYes.
Licenses with quotasYes.
Other nontariff measuresImports of raw materials and intermediate products require agricultural certificates, inspection, and lab analysis. Goods covered by the Convention on International Trade in Endangered Species of Wild Fauna and Flora are prohibited. Other nontariff regulations, such as those related to national security concerns; Health Department standards; ecological and environmental regulations; and restrictions on drugs, narcotic substances, nuclear energy, and toxic and hazardous materials, apply to about 1,600 of the 11,927 items of Mexico’s general import tariff. About 3,672 tariff items are subject to qualitative examinations by customs to fulfill certain Mexican consumer standards.
Import taxes and/or tariffsImport duties range from zero to 20%, with higher rates for a few products such as fructose (subject to a 210% tariff) and clothing, footwear, and leather goods (subject to a 35% tariff). Effective January 1, 2004, a 50% tariff applies to imports of new cars from all countries except EU and NAFTA countries. Imports from members of the LAIA are granted preferential duty treatment. Free trade agreements exist with Bolivia, Chile, Colombia, Costa Rica, the EFTA, El Salvador, the EU, Guatemala, Honduras, Israel, Japan, Nicaragua, Uruguay, and República Bolivariana de Venezuela. Trade with Canada and the United States takes place under the NAFTA. Mexico has applied antidumping duties to the following products: electrical transformers and steel products from Brazil; textiles and articles of apparel, electronic products, toys, pencils, padlocks, bicycles and bicycle tires, iron and steel valves, and chemical products from China; beef, rice, sodium hydroxide, polyvinyl chloride, fructose, seamless steel tubes, rods and bars, and polystyrene from the United States; seamless steel tubes from Japan; polyester from Korea; steel products from Canada, Russia, Ukraine, and República Bolivariana de Venezuela; chemical products from Denmark; and frozen beef and polystyrene from EU countries. Tariffs apply to imports destined for reexportation, except those under a free trade agreement.
Effective December 30, 2004, the import tax on most goods from countries with which Mexico does not have a free trade agreement was reduced by an average of 3 percentage points for raw materials and 10 percentage points for final goods.
State import monopolyNo.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirementsNo.
Export licensesMost exports do not require licenses. Exports of a few specified items related to drugs, narcotic substances, endangered species, and archaeological pieces are prohibited.
Export taxesExport taxes apply to endangered species’ skins, turtle oil, and electricity, among other goods.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNo.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
Capital Transactions
Controls on capital transactionsYes.
Controls on capital and money market instruments
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsPurchase of shares and other securities of a participating nature may be affected by the laws on inward direct investment. Such laws specify activities for which investment is reserved to the government or Mexican investors. Thus, with the authorization of the MOE, investment trusts may be established by Mexican banks acting as trustees. These trusts issue ordinary participation certificates that may be acquired by foreign investors; the certificates grant only economic rights to their holders and do not confer voting rights in the companies whose stock is held by the trusts (such voting rights being exercisable only by the trustee).
Sale or issue locally by nonresidentsForeign commercial entities must be authorized by the MOE before engaging in habitual commercial activities in Mexican territory. Foreign securities publicly offered in the domestic market must be approved by the National Banking and Securities Commission (CNBV).
Purchase abroad by residentsMOF authorization is required for banks, securities firms, and securities specialists to purchase shares of foreign financial intermediaries.
Sale or issue abroad by residentsDomestic securities offered in foreign markets must be registered with the National Registry of Securities (NRS).
Bonds or other debt securities
Sale or issue locally by nonresidentsThe regulations governing shares or other securities of a participating nature apply.
Sale or issue abroad by residentsThe regulations governing shares or other securities of a participating nature apply.
On money market instrumentsThe regulations governing bonds or other debt securities of a participating nature apply.
On collective investment securities
Purchase locally by nonresidentsIrrespective of the holder’s nationality or residence, the board of directors of each mutual fund must establish a maximum limit on individual holdings of its shares.
Sale or issue locally by nonresidentsThe regulations governing shares or other securities of a participating nature apply.
Sale or issue abroad by residentsThe regulations governing shares or other securities of a participating nature apply.
Controls on derivatives and other instruments
Purchase locally by nonresidentsForeigners are restricted to investing in publicly traded options when investments in the underlying shares or other securities of a participating nature of such options are reserved exclusively for Mexican residents.
Sale or issue locally by nonresidentsForeign commercial entities must be authorized by the MOE before engaging in habitual commercial activities on Mexican territory. The underlying assets of publicly traded equity options must be registered with the NRS and the Mexican Stock Exchange (MSE) where the option is traded. Options on foreign stock exchange indexes need the approval on the respective index by the MSE on which the option is traded. Furthermore, foreign derivatives publicly offered in the domestic market must be approved by the CNBV.
Purchase abroad by residentsControls apply to Mexican financial institutions with respect to the types of transactions they can enter into and amounts related thereto.
Sale or issue abroad by residentsThe controls for purchases abroad by residents apply.
Controls on credit operations
Financial credits
By residents to nonresidentsThere are limits on the amounts that banks are allowed to lend to individual borrowers and on the open foreign exchange position of banks.
To residents from nonresidentsThere are limits on credits denominated in foreign currency granted to Mexican banks and on open foreign exchange positions.
Guarantees, sureties, and financial backup facilities
To residents from nonresidentsContracting with foreign bonding companies to insure actions of persons who must fulfill obligations on Mexican territory, except for reguarantee operations, is prohibited.
Controls on direct investment
Inward direct investmentIf certain conditions are satisfied, the ownership by foreign investors of 100% of the capital stock of a Mexican company is permitted. The law sets forth economic activities that are reserved to the government or to Mexican investors and lists the different activities in which foreign investment may not exceed 10%, 25%, and 49% of the total investment. Effective January 24, 2004, financial institutions and commercial entities that provide information to credit information companies may not acquire more than 18% ownership interest of such companies, or directly or indirectly control them.
Foreign governments or state enterprises are prohibited from investing directly or indirectly in insurance and bonding companies. Entities that exercise governmental authority are prohibited from investing directly or indirectly in commercial banks, limited-scope financial institutions, financial holding companies, securities specialists, securities firms, general deposit warehouses, financial leasing companies, factoring companies, foreign exchange firms, mutual funds, companies managing mutual or pension funds, companies distributing shares of mutual funds, companies appraising shares of mutual pension funds, central counterparties, stock exchanges, or credit information companies.
Investments in the following sectors are reserved for the government: petroleum and other hydrocarbons; basic petrochemicals; electricity; nuclear energy generation; radioactive minerals; telegraph service; radiotelegraphy; postal service; issuance of paper money; minting of coins; and the control and supervision of ports, airports, and heliports.
Investments in the following sectors are reserved exclusively for Mexican individuals or Mexican corporations with a foreign exclusion clause: retail trade of gasoline and liquefied petroleum gas; radio and television broadcasting services other than cable television; ground transport of passengers, tourism, and loading (excluding courier and packaged goods transport services); credit unions; development banks; and certain professional and technical services. Notwithstanding these restrictions, foreign investors may invest in these activities through the acquisition of ordinary participation certificates issued by investment trusts established by Mexican banks acting as trustee, which grant only economic rights to their holders.
Investments exceeding 49% in the following sectors and companies require prior authorization from the National Foreign Investment Commission: acquisition in a Mexican corporation if the total value of assets exceeds the equivalent of $160 million; port services for interior navigation; shipping companies dedicated only to the export of high-speed ships; administration of air terminals; cellular telephone service; construction of pipelines for oil and other derivatives; oil and gas drilling; legal services; private education; securities rating institutions; insurance agencies; and building, operation, and development of railway lines, if they are for general lines of communication, and the public service of railway transportation. Limits on maximum foreign investments are applied to the following sectors: cooperative production entities (10%); air transportation (25%); certain financial institutions (49%); manufacturing of explosives and firearms (49%); newspapers for national distribution (49%); acquisition of T shares that represent the value of land used for agriculture, livestock, and forestry purposes (49%); fishing, other than aquaculture, in coastal and fresh waters or in the Exclusive Economic Zone (49%); interior navigation and coastal sailing, except tourist cruises and the development of dredges and other marine devices for ports (49%); integral harbor administration (49%); port pilot services for interior navigation (49%); supply of fuels and lubricants for ships, aircraft, and railroad equipment (49%); using or developing a frequency band in national territory, except for the free-use spectrum and the official-use spectrum (49%); installing, operating, or developing public telecommunications networks (49%); occupying geostationary orbital positions and satellite orbits assigned to Mexico, or developing the corresponding frequency bands (49%); and developing signal transmission and reception rights of frequency bands associated with foreign satellite systems that may cover or render services in the national territory (49%).
Any shareholder, regardless of nationality, may acquire the control of series O shares of a commercial bank, securities firm, or financial holding company. Prior approval from the respective financial authority is required for a shareholder to own more than 5% of the shares representing the capital stock of a commercial bank, securities firm, or financial holding company.
Shareholders may acquire control of the shares of an insurance company or bonding company, with prior approval of the MOF, regardless of their nationality. When such acquisition exceeds 5% of the shares representing the capital stock of such insurance company or bonding company, MOF approval is issued only with prior authorization of the National Insurance and Bonding Commission. Shareholders may acquire assets representing the capital stock of credit information companies, regardless of their nationality.
Controls on liquidation of direct investmentNo.
Controls on real estate transactions
Purchase locally by nonresidentsThese controls apply to the direct acquisition by foreign nonresidents of real estate inside a 100-kilometer strip alongside the Mexican land border and a 50-kilometer strip inland from the Mexican coast. In addition, foreign nonresident investors may acquire real estate through Mexican companies, according to whose by-laws these nonresidents are considered Mexican, and refrain from invoking the protection of their government regarding the property acquired and their rights to the real estate within the zone defined above. Such acquisitions may take place (1) through the acquisition of shares of Mexican companies dedicated to nonresidential activities, with notification to the Ministry of Foreign Affairs (MFA), or (2) through a real estate trust for residential activities, with the approval of the MFA.
Controls on personal capital transactions
Gifts, endowments, inheritances, and legaciesThese transactions are subject to local civil provisions. In some states, foreign inheritances from a Mexican resident are subject to international reciprocity.
Provisions specific to commercial banks and other credit institutionsBanks that obtain an unconditional warranty from foreign entities may be exempt from the limits on foreign currency liabilities and investments for foreign exchange transactions, provided that the long-term debt of the warrantor is rated at least AA–by Standard and Poor’s or Aa3 by Moody’s Investor Service. BOM approval is required for debt rated by other agencies. Effective January 26, 2004, the Law for the Transparency and Ordering of Financial Services requires banks and financial intermediaries to disclose fees and commissions to users of financial services. Effective January 28, 2004, the Credit Institutions Law was modified to authorize the BOM to determine if there is reasonable competition with respect to the fees of banks and other financial intermediaries.
Borrowing abroadBorrowing abroad is permitted, subject to the limits on the liabilities of commercial banks denominated in foreign currency and on open foreign exchange positions.
Maintenance of accounts abroadForeign exchange risk positions, both total and for each foreign currency, must not exceed the daily limit of 15% of the bank’s base capital.
Lending to nonresidents (financial or commercial credits)There are limits on the amount that banks may lend regardless of the borrower’s residence.
Lending locally in foreign exchangeThere are limits on the amount that banks may lend regardless of the borrower’s nationality or residence, and on their net open foreign exchange position.
Purchase of locally issued securities denominated in foreign exchangeIrrespective of the currency denomination, banks may enter into transactions on their own account with respect to debt and securities, commercial instruments not registered with the NRS and capital commercial instruments, whether or not registered in the NRS.
Differential treatment of deposit accounts in foreign exchange
Liquid asset requirementsBanks must invest in liquid assets—as determined by the BOM and denominated in foreign currency—an amount calculated through the maturity structure of their liabilities payable in foreign currency.
Investment regulations
Abroad by banksControls apply on the types of transactions that banks may enter into and amounts related thereto.
In banks by nonresidentsAny shareholder, regardless of nationality and residence, may acquire the control of O shares, with prior MOF approval. If the acquisition exceeds 5% of the shares representing the capital stock of a banking institution, CNBV opinion is required prior to MOF approval. The limits on shareholders do not apply to foreign offshore banking institutions that were set up in accordance with an international trade treaty.
Open foreign exchange position limits
On resident assets and liabilitiesIrrespective of the counterparty’s residence, total liabilities of commercial banks denominated in or referred to foreign currency (excluding cash and highly liquid assets, as determined by the BOM) must not exceed an amount equal to 183% of the capital stock of the respective bank. (Calculation of the base capital stock reflects the capitalization procedure set under the Basel Accord. The conversion of the base capital into national currency takes into account the exchange rate published by the BOM in the Official Gazette of the business day following the date of the calculation of the base capital.) Notwithstanding this requirement, the BOM allows short or long foreign exchange risk positions, which, both jointly and for each foreign currency at the end of each day, do not exceed 15% of the bank’s base capital (base capital being calculated pursuant to rules issued by the MOF). For the calculation of the foreign exchange position, commercial banks must include the foreign currency operations of their agencies and affiliates—in Mexico and abroad—except for securities firms, foreign exchange firms, bonding companies, insurance companies, managing companies of mutual funds, mutual funds, and pension fund management companies.
Commercial banks may be authorized by the BOM to determine the positions referred to above from a long position in dollars.
On nonresident assets and liabilitiesThe regulations governing resident assets and liabilities apply.
Provisions specific to institutional investors
Limits (max.) on securities issued by nonresidentsInsurance companies may invest in equity of other insurance, reinsurance, or bonding companies. However, they may invest their reserve only pursuant to rules issued by the MOF. These rules specify the types of instruments and amounts in which insurance companies may invest.
Mutual funds must invest at least 96% of their total assets in specially designated “assets for investment”—which include securities registered with the NRS and others established by law, depending on the types of funds—and those authorized by the CNBV. Pension fund management companies may invest in government-issued instruments and in instruments rated by international rating agencies. In addition, pension fund management companies may invest up to 20% of their assets in securities issued by nonresidents as authorized by the National Commission for Retirement Savings.
Limits (max.) on investment portfolio held abroadThe regulations governing limits on securities issued by nonresidents apply.
Limits (min.) on investment portfolio held locallyVariable-income mutual funds and debt instrument mutual funds must invest their portfolios in accordance with the provisions set forth by the CNBV. The investment guidelines determined by such authority establish the types of instruments and the minimum percentage of total assets in which such mutual funds may invest.
Other controls imposed by securities lawsNo.
Changes During 2004
Exchange arrangemeMarch 12. The BOM modified the daily auction mechanism for sales of dollars, distributing in equal parts the amount of dollars to be sold each day during the following four quarters (previously, one quarter).
Imports and import paymentsJanuary 1. The import license requirements for new vehicles were eliminated and replaced with a 50% tariff on imports of new vehicles from all countries, excluding NAFTA and EU countries.
December 30. The import tax on most goods from countries with which Mexico does not have a free trade agreement was reduced by an average of 3 percentage points for raw materials and 10 percentage points for final goods.
Capital transactions
Controls on direct investmentJanuary 24. Financial and commercial entities that provide information to credit information companies were prohibited from acquiring more than 18% ownership interest in such companies or directly or indirectly controlling them.
Provisions specific to commercial banks and other credit institutionsJanuary 26. The Law for the Transparency and Ordering of Financial Services required banks and other financial intermediaries to disclose fees and commissions to users of financial services.
January 28. The Credit Institutions Law was modified to authorize the BOM to determine if there is reasonable economic competition with respect to the fees of banks and other financial intermediaries.

    Other Resources Citing This Publication