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Mexico: And now for the good news

Prospects for the beleagured Mexican banking sector have improved following an agreement on restructuring that many analysts feel goes beyond expectations

Last month's decision by the lower house of congress to establish a new bail-out vehicle brought to an end a nine month dispute over who should pay the costs of the 1994 banking crisis.

Despite opposition cries that the public should not foot the bill for banks' errors, in this latest deal the government remains responsible attracting criticism from opposition politicians that the exercise is largely cosmetic. But the agreement has made considerable advances in the areas of foreign ownership of banks and the restricting of deposit insurance.

"People feel this agreement exceeds expectations in terms of structure, timing and scope," says Daniel Abut, an analyst with Goldman Sachs, though he notes that share prices have not so far responded to the news. "This is not the end of the [bad debt] problem but at least we have an end to the noisy and nasty discussions about who should pay. Those discussions took too long and hurt the banks." The new bill is likely to be approved when it reaches the Mexican Senate.

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