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In God We Trust… but the government?

18 July 2018

While foreigners usually think of a “fideicomiso” (“trust fund”) only in terms of a simple work-around for restrictions on foreign property ownership in the exclusion zones (within 100 Km of a land border, or 50Km of coastal waters), these trusts have a long history in Mexico, which in recent times, have become a popular form of government investments not without controversy.

In the days when Church and State were one, Fideicomisos were an acceptable way for wealthy families to provide for their inconvenient heirs and dependents.  The family would endow a chapel (or the side altar of a church), that would include the money to pay a caretaker or chaplain, which the family would appoint.  The funds themselves (other than what was needed to initially build the chapel) could be invested, and they did keep a few ne’er-do-well rich kids off the streets… although more commonly, the recipient would get together with other heirs to similar chapels, and just hire some low-paid cleaning woman to take care of the lot of them.

The 17th century Jesuits found a fideicomiso extremely profitable.  The “Pious Fund” was meant to support missionary work in California, and it did.  But not through anything done in California.  Instead, the Fund was invested in cattle ranches in mining areas, and tobacco farm. It also became a source for mortgage loans, and expanded over the centuries, even after the Jesuits were expelled from New Spain, and the Franciscans took over both the California missions and the fund.   The Pious Fund paid for expanding the missions into Alta California, which is where the trouble started.

The Fund’s only purpose was to support missions and missionaries in California, but the cash reserves were a huge temptation for the chronically broke Mexican governments of the early 19th century.  Santa Anna “borrowed” the entire amount to pay the army … to keep the gringos out of California (and the California missions). That didn’t quite work out as intended, and the restored Republic of the 1850s would nationalize the church’s assets in the late 1850s anyway, so the fund was pretty much considered a dead issue.

Except, that the fund still existed (at least on paper) and Bishop of San Francisco, faced with the huge growth in California’s population, was hard pressed for revenue. His Eminence was also a savvy politician, calling on the faithful to pressure on California congressional delegates to push for the United States government to recover the funds meant for his church.  Porfirio Díaz wanted to keep good relations with border state politicians and agreed to settle the issue.

While the Pious Fund Case became a landmark in International Jurisprudence, being the first case ever heard by the Permanent Court of Arbitrations, finally being resolved in 1902, and not completely settled until 1960 (when the last payment was made and the Fund liquidated), it served as something of a object lesson for Mexico’s public financial managers. Although public funds were invested from time to time in specific industries (PEMEX was a “paraestal”… a state owned company), it was only during the last few administrations that state fideicomisos were reintroduced.  In theory, the new fidiocomisios, are like the Pious Fund, in that the investments are to be channeled to a specific purpose outside the state’s normal expenditures, or needing critical attention, but perhaps of a temporary nature.   The Pious Fund may have been watched over by beady-eyed clerics, but who watches over the state fideicomisos?  Apparently nobody.  And while Santa Anna might have been able to make a case that by paying the army out of the Pious Fund he was, in a way, a service provider to the missions in California, what the 374 government Fidiocomisios do with the 835,477,800,000 (give or take) pesos they hold is anyone’s guess.

Other state fideicomisios, like those set up by tourists to own their houses, are managed, not by anyone connected with the government, or responsible to the public, but by private banks.  What the banks charge in management fees, or what is done with returns on investments above whatever the agreement is with the bank is nobody’s business but the bankers.  And they’re not about to tell.

With relatively transparent government funds having somehow found their way into individual politicians’ pockets, or into the coffers of the political parties, the fideicomisios appear particularly ripe for the plucking.  Perhaps. like the colonial chapels, they’re a sinecure for political ne’er-do-wells, and inconvenient “juniors.  Or something more nefarious.  The Jesuits invested their money in red meat and tobacco, but there are plenty of less health-conscious agricultural products than that have a sizable return on investment nowadays.  The incoming government has threatened to liquidate fideicomisos, or at least make them open their books.  Best done before someone find the Mexican government owes them $1,420,682.67 plus back interest (the Pious Fund payout back in 1902).

SOURCES:

The Pious Fund Case (United States of America v. Mexico)
Daniela Barragán, “Videgaray y Meade dejan bomba de tiempo a AMLO: 835 mil millones escondidos en 374 fideicomisos”, Sin Embargo, 16 July 2018.
http://fundar.org.mx/
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