Debt/Equity Swaps and Mexican Law: The Interplay between Law and Regulation

Baker, Mark B. | January 1, 1988

Undeniably, one of the most significant current economic issues is the role of Direct Foreign Investment (“DFI”) in the continued development of all nations, rich and poor. History has shown that successful DFI requires a delicate balance between the investor and host country. The emerging view (and one supported by the plethora of recently enacted or modified Foreign Investment Codes) is to seek only those investments from abroad which might be characterized as “beneficial” to the host country. The United States of Mexico has addressed the question of Direct Foreign Investment for many years. In doing so, Mexican policy regarding foreign investment has ranged from very receptive to extremely negative, depending upon the administration in power and the state of the Mexican economy. Debt/Equity swaps are the latest vehicle for achieving Mexican political and economic goals. At present, the ultimate success of the program remains to be determined. However, this latest plan again points out the juxtaposition of law and its administration in the everyday world. Mexican law may often be far removed from the reality of its application. As a result, stated governmental goals and outside investment targets often miss their mark. This Article attempts to explain how the interplay between law and its administration in Mexico has had a significant impact on the country and its outside investors, particularly in the case of debt/equity swaps.