United States, Mexico, and Latin America with Ricardo Salinas

As chairman and founder of Grupo Salinas, Ricardo Salinas has built one of the largest business conglomerates in Latin America providing banking and telecommunication services to millions at the bottom of the economic pyramid. Through his non-profit work and foundations, Fundacion Azteca and Fundacion Azteca America, he is increasingly involved in improving Latin America and the Latino community in the United States. This is a discussion with Salinas on the state of poverty, democracy, free enterprise, and rule of law in Latin America, and the prospects for its relationship with the United States.

The CEO Speaker series is a unique forum for leading global CEOs to share their insights on issues that are at the center of commerce and foreign policy and to speak to the changing role of business in the international community. The series is one way that CFR seeks to integrate perspectives from the business community into ongoing dialogues on pressing policy issues, such as the international economic recovery, sustainable growth and job creation, and the expanding reach and impact of technology.

DONNA HRINAK: Good evening, everyone, and welcome to today's Council on Foreign Relations meeting, which is part of our CEO Speaker series.

Before I introduce our guest, I'd like to ask you all to please turn off your electronic devices, not just put them on vibrate or silent. They do interfere with the video and audio equipment. And as you might have guessed from the video camera here, this conversation is on the record.

You all have Ricardo Salinas' bio in your materials, so I'm not going to go into his list of many accomplishments, many business successes. But suffice to say that in Mexico and increasingly around the hemisphere, if you have bought, borrowed or watched it, Ricardo—good chance he's played some role in having it delivered to you. He's made it available through banking, communications, retail. And he's interested not only in business, thoughtful not only about business and how to do business in the hemisphere, but about culture, about some of the questions in U.S.-Mexico bilateral relations and about the hemisphere in general.

So Ricardo, it is a real pleasure to be here with you this evening.

RICARDO SALINAS: Thank you, Donna. You're so kind.

And I have to say I'm very impressed to be able to be here with all of you tonight at the Council on Foreign Relations. I'm surprised that so many people showed up. Thank you. (Laughter.) I hope not to disappoint you.

HRINAK: You're a good draw.

So Ricardo, you are doing business in seven countries around the hemisphere outside of Mexico, from Mexico and Brazil, the largest, to some of the smaller countries in Central America. And as you look around the hemisphere, what do you see that makes you cheer, and what gives you pause?

SALINAS: The cheer, I think—you know, I just came back from Japan. I was really surprised to see the society that is inward-looking, that is old, that is not thinking about growth, just maintaining and stops growing. And I was really surprised to see that and to feel that feeling in Japan.

And when you go to Latin America in general and specifically in my country, in Mexico, you see young people. They're vibrant. They want to go ahead and change their lives. They think they're going to live better than their parents. You know, that's what I feel. And there's a big, big young population up and coming, and they're not going to be left in the dustbin of history. So I feel that there's a lot of opportunity, and that gives me cheer.

However, we see a lot of major strategic mistakes on the part of the management of the countries. So take my country, Mexico. There's one thing, one thing that overpowers all the positive, which is the fight against violence and the narcocartels. But that leaves on the side everything else. Where is investment? Where is education? Where's job creation? What is the industrial policy? Nothing. So we're very worried about that.

HRINAK: Well, let's stay on Mexico for a minute, then. You have a presidential election coming up next year. And even though a lot more is going on in Mexico than just the violence that we read about or the corruption that seems to be undermining law enforcement and security there, what does the next president have to do to get a handle on that, more of the same of what President Calderon has been doing? Or is a totally new approach required?

SALINAS: You know, I have a definition of madness: doing more of the same and expecting a different result. I mean, clearly, this war on drugs is lost. It's a—it's a failed strategy. As long as consumers in the developed world—the United States, Europe—are willing to spend that kind of money on drugs, there is absolutely no way to stop the criminal syndicates.

And this is reminiscent of Prohibition in the United States. It's incredible that Americans, you know, who invented Prohibition and amended the Constitution to do that, then they amended it again to reverse it—America should learn from that mistake and just treat this drug issue as a health problem. Poor druggies, they're in a bad shape. Let's not make them criminals until they've committed a criminal act and then deal with this as a health problem.

But other than that, a huge amount of money going into not only Mexico, but Central America, too, and Colombia. And every country has a problem. And not only money, but guns and high-powered armament shows up in our countries.

And frankly, you know, the law enforcement community in our country should not be dedicated to that. It should be dedicated to just imparting justice in the traditional sense, which is now way behind. I'm talking about, you know, the normal stuff. They steal your car, they get—your house gets robbed, some homicide—I mean, not normally because we don't like that to happen—but those issues are the issues that affect the vast majority of the population. And those are not being taken care of because all the resources are chasing these narcocartels.

HRINAK: What's this mean for an investor in Mexico? Can you, with a clear conscience, tell people to come down and invest in Mexico despite all of this?

SALINAS: So again, it's 112 million people in Mexico. The vast majority are hardworking, pacific, happy people that go about their jobs, doing their stuff every day. And I understand, from a foreign point of view, you really think that—I'm not going to Mexico.

HRINAK: It's a failed state, right?

SALINAS: Right. But it's not like that at all. There's just so many people going about their business, and every day you can do business in Mexico. But you could be much better if we had the right policy in place. That's my point, though.

HRINAK: I don't want to talk only about Mexico, but Manuel Lopez Obrador was just named the PRD's candidate for president next year according to a poll that the party conducted. Are you—are you worried about a possible Lopez Obrador presidency?

SALINAS: No. As a matter of fact, I have a long-standing relationship with him. We talk a lot. I think that he's mistaken in some things, but in other things, he's got the right line.

Now, the presidential succession now is very clear. On the one hand, Mr. Enrique Pena—who, by the way, is in New York as we speak --

HRINAK: In town this week, right.

SALINAS: I just bumped into him at The New York Times—said hello. (Laughter.)

HRINAK: It happens all the time, I know, yeah.

SALINAS: Surprising what you can run into.

Anyway, so he pretty much has it clinched, you know, the nomination for the PRI. On the other hand, the left wing, which was under big risk of splitting between Mr. Ebrard, the mayor of Mexico City, and Lopez Obrador, the ex-presidential runner, has now unified, and they're going—united with Lopez Obrador.

So that leaves the ruling party, the PAN. Who are they going to choose? There's four candidates, or three maybe, but there's really one. Mrs. Josefina Vasquez Mota is leading the polls by far. Unless the ruling party, the PAN, decides to say Mr. Cortes (sp) is going like that—(inaudible) --

HRINAK: (Inaudible)—yeah.

SALINAS:—she will win the nomination. And so that will be the three-way race.

HRINAK: So maybe it's time for Mexico to have a woman president, like Brazil.

SALINAS: Well, the problem is that the ruling party is not doing well in the polls because people are fed up with all these things that are happening. So they say we need a change. And that's where the PRI is going to come in. The new PRI—and I was talking about this with somebody here—is a whole new set of people that were not around when the PRI left power in '96.

HRINAK: The dinosaurs are gone.

SALINAS: Well, they're still out there, but they're not reproducing, let's put it this way. (Laughter.)

HRINAK: OK.

SALINAS: So yes, I think the PRI has a very good chance. I mean, this is not my opinion, this is polls. If the election was held today, Enrique Pena would win with 42 percent of the votes. And the runner-up would be Josefina with, like, 29. So that's where we are today. It could change.

HRINAK: Lots of time yet.

SALINAS: Things change.

HRINAK: Right.

SALINAS: But I think that the elections in the state of Michoacan last week were pretty clear. The PRI won, by a small margin, but it won. And this was the president's sister. This was "Cocoa" Calderon Hinojosa. She lost. So anyway.

HRINAK: We were talking about drug trafficking and gun running across the U.S.-Mexican border. I know immigration is one of your passions, and after 9/11 we talked about the possibility of having a responsible, constructive dialogue on immigration between Mexico and the United States as a victim of 9/11. And now it appears that it's a victim of the U.S. economic downturn, as well.

How can we construct an environment in which Mexico and the United States can again talk about having an immigration, a migration relationship that benefits both countries?

SALINAS: Well, I think it's time to cut the lies and look at things as they really are. These immigrants from Mexico are here. It's not like they're going to come; they're here already. And they've been here for a long time, most of them. And you can't ignore that fact. And what is the prognosis? To make believe that they don't exist? They do exist.

And for every Mexican here, there's an American employer; somebody's paying them to be here, you know. It's not like they're on the unemployment lines collecting food stamps. All of them are working, and most of these people are really hard-working people that—most of them also don't have an interest in living, particularly, in the United States. They mostly want to send money back and go back.

So I think we should just face the reality as it is and accept that this is a fact of life. It's kind of like the drug trade. Whether we like it or not, drug use is on the rise and we might as well face it and treat it as a health problem.

Well, immigration is also on the rise because it's human capital flowing to where it is better deployed. Think about the border. Everything goes across the border—information flows, investment flows both ways, trade flows, merchandise flows—but human capital, no. That we cannot let it (passively ?) flow. It's a mistake. It's a mistake, because it's just like any other resource. It will go and will come and go to where it's most needed.

When you get into the politics of this, it's really disgusting.

HRINAK: It's not encouraging.

SALINAS: It's disgusting because the—(of course ?) xenophobia, you know.

HRINAK: Yeah, there's some of that.

SALINAS: And the racism. It's so far from what made the United States a great nation, which was based on immigrants, at the end of the day So I think somebody should call attention to the fact that it doesn't make any sense. We've got to stop thinking about illegal aliens, you know. This is a pretty bad word, you know. Aliens from Mars and illegals. It couldn't get any worse. So I think that we just need to start talking about it.

HRINAK: And who's "we" in this point?

SALINAS: We everybody. Everybody. Leaders.

HRINAK: Does the business community have a --

SALINAS: Leaders in general, because this is—politics, you know, I mean, I can understand congressmen being subject to pressure for this and that, but again, on the other side, there's all these employers who need this labor. And I think the business community in that sense should have a much more—louder voice for what's going on.

HRINAK: Yeah, I think there's a responsibility for business also, yeah.

SALINAS: Most of the jobs are not something that unemployed Americans want to take. Because the jobs are there. I mean, look, cutting the lawn and doing the restaurant, doing the construction work. The jobs are there. And why are they all staffed by—by immigrants? Because Americans don't want to do that kind of job.

And the paradox is, at the end of the day you get imports from China, which is really labor being imported in the forms of goods, that's OK. It would be better or have the labor take place here. At least they would pay taxes and they would contribute to the community and so forth.

So I think something needs to change and leadership needs to change. And hopefully, in this forum—which, of course, being an international organization, is much more open to this, you know? If we went to, I don't know, Cleveland, we'd probably have a bad --

HRINAK: Pittsburgh. I'm from Pittsburgh. It's a hard sell. (Laughter.)

SALINAS: Yeah.

HRINAK: We've seen business people like you from Latin America creating these multi-Latinas, Latin American multinationals, working not just in the hemisphere but going outside to all parts of the world. And I think many of us have been impressed by the quality of business leadership that we've seen. Do you think political leadership in Latin America is keeping up? You've talked about the management of the country Mexico, but in general, are you impressed by the quality of political leadership?

SALINAS: No. No, with some few and far-between exceptions. For example, President Lula, whom I met and know very well, he's—what do you say—broke the mold

HRINAK: Exceptional.

SALINAS: Extraordinary character. And when he came in, nobody believed that he was really going to do something good for Brazil. As a matter of fact, if you remember, the currency devalued and Brazil was sort of written off. The left wing's taking over. Turns out he did a really good job not only in managing the country but in returning optimism to the people.

And we see the same thing happening in Colombia, for example, right now, with the big success that they have had against the guerrillas, which, by the way, is a completely different problem from what we are experiencing in Mexico. The problem in Colombia was actual warfare with guerrilla, and over here in Mexico, where we have these different things, it's gangs fighting against the government and between each other.

So optimism has returned to Colombia in a big time. Even Peru, which is now under a left-wing leader, seems to be doing really well. We'll see how—what road he chooses. But again, the opportunity for these countries is huge. I would say that the Central American countries, though, have a much harder time because they're so small. You know, if you take Guatemala, Honduras, El Salvador, they're tiny economies, and they would do much better if they could integrate.

So back to leadership, I think there's much better leadership in the business community than in the politics and the government community. There's exceptions, of course, but in general—and that's something that we in the business sector in Latin America need to do something about.

HRINAK: You need to run for office.

SALINAS: We need to participate. For example, my daughter decided to participate, and then when she did, I was sort of upset because she went and ran for a congresswoman—no, that's—(inaudible)—you know, these people are different from congressmen. (Laughter.)

But, well, she decided, and she's learning a lot, and she's, you know, at almost two years into this. And I think it's been a great decision to be there and to understand how it works. And next year she's going to run for the Senate and then be in there. And she's 31, and she's going to be part of the change. I think that should happen with more people who are prepared and who don't need to steal to become rich, who don't need to go into corruption, who can do things for the country. I think we could do a much better job there—all the countries, not only Mexico. But sometimes, you know, running for office is like a dirty word, or being part of the government is.

HRINAK: Yeah. And campaigns are tough.

SALINAS: Yes, but it's more that it's—why would you want to go there?

HRINAK: You can't do any good? You can't change things? Is that what you're saying, yeah?

SALINAS: Many people feel like that. And that's why—and I was mentioning that study we have about how Mexicans think. It's a very interesting picture. You know, 85 percent of Mexicans think that their children will live better than what they are doing today.

HRINAK: Eight-five percent?

SALINAS: Eighty-five (percent).

HRINAK: I think that figure is not so high in the United States. (Laughter.)

SALINAS: No. So—and you could describe the Mexican as a rabid individualist—think that no matter what happens, we—me and my family will go ahead. That's the way of thinking. So that, of course, makes them not very good citizens because it's every man for himself.

HRINAK: Collective responsibility, mmm hmm.

SALINAS: And that comes back to the basic issue of—the government pact here and everywhere should be you organize the state to protect the citizens from each other because, you know, citizens are like a flock of sheep and some wolves. If you've got, you know, 3,000 sheep and two wolves, they can cut them down all. So again, 2 percent, 1 percent of the population that misbehaves can cut down the whole society unless the government intervenes to—with law and order.

And that's what's happening in all of these countries and, I'm going to say, in all of world where we do business: in Brazil, Colombia—(inaudible). The justice system is way behind the times. It's ineffective. And the cause and effect—if you do this, you're going to risk the punishment—doesn't exist. That—I think that is the core of the—of the—of the problem. The criminals know they can go rob a house, you know, steal a car, and nothing is going to happen to them. It's incredible, because the system is not working.

HRINAK: Do you see improvement in that?

SALINAS: No.

HRINAK: Really?

SALINAS: No, I don't see any improvement. And what's needed here is radical reform in the justice system. For example, there was an effort made in Mexico to go with the oral trials. It's even badly put. It shouldn't be an oral trial. There should be a videotaped trial with lots of cameras—you know, you can store these images in digital media; it costs nothing—and get away with these thousands—hundreds of thousands of paper pages that, you know—(inaudible)—because today if the file doesn't say it, then it's not true. And this puts especially poor people and uneducated people at a huge disadvantage. That could be so easy to change.

But again, there's no—there's no time in the agenda. The agenda is go catch the criminal gangs. And what about justice for the common citizen? We need to get back to that. And that, as I said, is a problem all across the region.

HRINAK: Ricardo, you've had your problems with regulators both in the United States and in Mexico, and you've complained about excessive regulation as a barrier to doing business. At the same time, you're one of the richest people in the world. You're part of—you talk about 2 percent—you're part of that 1 percent that some in the 99 percent said is in the 1 percent because there hasn't been enough regulation or there hasn't been enforcement of regulation. Do you understand how people could feel this way? And what do—what do you say to them?

SALINAS: Well, when I started working in the—in the early '80s, my dad invited me to work with him at the family company, called Elektra. We had 54 stores. And at that time—it was 1981—I was working in the United States for an American company as a salesman. And so he convinced me to come back and help him and so forth. But my dad, he's a scrooge. So he cut my salary in half. (Laughter.) And I was making 2,000 bucks a month in the States, so he paid me a thousand bucks.

Next thing I know, we have a devaluation, and instead of making a thousand bucks, I was making 300. We went broke with our 54 stores. And during the '80s my job was to turn that company around. And it took a lot of passion and perseverance and hard work, and today we have 2,700 stores. We have a bank in there that we started eight years ago. We later bought TV Azteca from the government at an auction, and we paid 30 percent more than the next guy. So I was never given the license or a concession. I bought it from them and paid them—government.

And we had—we turned from 0 percent share of audience to 42 percent share of audience. We went from zero income to 31 percent share of the advertising spending. And then we decided to get, you know, into the cellular business and compete with the richest guy in the world—pretty powerful guy, too—Mr. Slim.

So all of that we've been able to do in the past 25, 30 years. And that's not where we—where I started, no?

So right now if you take a picture now with this—(inaudible)—I've been bred—born and bred in competition. What I know how to do is to compete, which means offer a better service to customers; otherwise, how can you compete?

And that's the reason our bank has now 20 million customers. In microcredit, we're dealing with 400,000 women after just one year of operations. I think next year we'll have about 2 million women signed up for the microcredit. And all this is done through hard work and competition, as I said.

What I—what do I think of regulation? For me, regulation has always been, you know, the—(in Spanish).

HRINAK: The stone in the shoe.

SALINAS: The stone in the shoe—because the government should be my partner. You know, we're paying, like, taxes to them. If I'm doing well, they're going to do well.

But instead of being partners, they're a lousy partner because they don't offer anything and they take a lot. Where they don't offer security, I have to provide my own security. They don't offer education; have to provide my own education. Health? Same thing.

So here I'm reflecting something that most businessmen think and maybe they don't say—but they think it and they feel it—is, what does the government do for me? And that's why many, many, many businessmen are going into the underground economy, like paying no taxes and not paying Social Security for the—and benefits for the employees.

It should be much simpler. Why is this regulation so complex? After I was on the record for many, many times when—well, you know, Mexicans, they like to copy the wrong thing. They copied (Sarb-Ox ?), put the same—copy/paste—(laughter)—from here to there. I mean it's great business for lawyers and accountants and them—that's good for them.

HRINAK: There are a lot of them in this room, you know that.

SALINAS: I know! Good! (Laughter.)

But the fact of the matter is (Sarb-Ox ?) didn't do anything to prevent the bad guys from doing the bad things. So it's not about that. It's a totally mistaken view, that governments take, to pull down the businessmen who are creating the jobs and creating prosperity.

So, yeah, somebody has to get rich first, you know? The richest guy in the town is the one who has one chicken, because they all were starving before. It's a process. And, you know, in America there's lots of talk about inequality. It's a big thing, you know—inequality.

Well, of course there's inequality. Thank goodness for that, because inequality brings diversity; like women can make children and men cannot. Good! Bravo for women! Otherwise we would all die, you know, as a species. Some people can dance and they can sing and they can do fantastic works of art; I cannot. I'd love to be able to play piano, but I can't. There—I'm—inequality is there. Some people are really good at business; some are good at social.

Inequality is inherent in humanity, and it's not a bad thing. And we should stop thinking about it as a bad thing, especially not when you talk about bringing the guys on top down, because if it was talking about the guys at the bottom—making them go up in terms of economic progress, that would be a better deal, no? But no, most of the—of the thought goes not to make the poor people richer, but the rich—make them poorer. I don't—I don't think that's a good policy at all.

HRINAK: I want to open up to questions from our members as well. But you talked about President Lula, and I was in Brazil when Lula ran for president in 2002 and won. And he talked a lot about hope overcoming fear as a way of bringing the marginalized into society and including them. And you have pinned your—some of what you're doing in Mexico on hope as well, Esperanza Azteca, Aztec Hope. Can you tell us a little bit about that project?

SALINAS: Oh, it's a fascinating project. Of all the social action things that we do—and we run that as a separate business, no? Social action—not really business, but as a unit that requires attention. Well, the one that I—I'm most proud of is called Esperanza Azteca. And what we do is we work together with the government—state governments—to find young men and boys, ages 7 to 17, who show an interest in music.

And so we put them together to form an orchestra, and the nice thing is, after four or five months, you have a playing orchestra. And they do very good job. But much more than a musical project, what we have here is a human formation effort. So why I'm saying this? Because of course they learn how to play music, and they do that with excellence in many cases. But in addition to that, they learn the value of hard work, of perseverance and of teamwork. Instead of being in the streets—you know, selling drugs or getting into all kinds of trouble—they're working in teams playing these orchestras.

So after just two years, we now have 51 orchestras. Almost 40,000 boys—40,000 boys and girls are in the project, and my goal is to get them to 5 million in the next five years. So I'm really pushing all my friends in government; I'm telling them, listen, you guys, you're spending so much on education, with poor result. Why don't you spend something on this, which is really forming human beings? And it's resonating. I'm very glad to see that.

HRINAK: That's a great initiative.

SALINAS: Yeah. I wish I could show you some videos of that because it's really touching.

HRINAK: Next time; you'll come back.

SALINAS: (Chuckles.)

HRINAK: I'd like to open it up to questions from our members now, and we have some microphones in the room. So if I could ask you to raise your hand and wait until the microphone comes around to you and then to state your name and affiliation and ask your question.

And there's a question back here.

SALINAS: (Inaudible)—get shy.

HRINAK: Hi. I'm Isabell Penafardo (ph), a Mexican citizen also. You made a really interesting question, Mr. Salinas, about what the government does for me. And I was—I was specifically thinking about the new government that came in, in 2000, the PAN, and what they do for people like you and for companies like yours, specifically about—(inaudible), who gives—you know, a second-tier bank, helping microcredit business, and just wanted to see your thoughts about the PAN coming in in 2000.

SALINAS: Yeah, well, one of the other projects that we have in the Fundacion Azteca is called Movimiento (ph) Azteca, and what we do is through the television we create conscience about what different social institutions are doing to help people in the community. We also have another thing called Iniciativa Mexico, which is, again, looking at the community and finding out what each one is doing and seeing how we can help.

But the point of this is, every time I speak with these organizations—and everybody, every one of them, is doing a good job, I have to say—they all are needing resources; they need money to do things. So the question is, where do we get money? From the government, right? No, but the government has a full budget. Well, the data is the Mexican government spends 400 million pesos per hour, and now this year it's going to go to 500 million pesos an hour—round numbers, $50 million an hour. This is 24 hours a day, 365 days a week (sic). That's a lot of money.

And if you consider the poor results for the vast majority of the people in terms of education, because Mexico is a—in the PISA test and the ENLACE test, its grades are—(speaks in Spanish)—how do you say? Everybody's --

AUDIENCE MEMBER: Failed.

SALINAS: Failed.

HRINAK: Particularly in science and math.

SALINAS: It's huge—it's terrible. What is all this effort in education? We're spending so much money on education. For what?

And the same in health: When you look at the hospitals of the Seguro Social and what they do, and they make you wait, and the bad service—I mean, clearly, there's a huge amount of mismanagement going on with those budgets.

And, yes, sometimes, in between, you get something good, because, again, it's a lot of money, so not everything is bad. But in general, if I look at the government results as a businessman, I would say their results are quite bad.

But this is not a prerogative of the (pen ?), you know. I think, in general, even in America, the budget problems that United States is having and the problem with the deficit—I mean, clearly, government spending is out of control—not only in America, in Europe also. So I think that citizens need to have a much more active role and say in what's going on with their money.

HRINAK: Other questions?

QUESTIONER: Shannon O'Neil from the Council on Foreign Relations. In Mexico and the United States, everyone's always trying to diagnose and figure out why Mexico can't grow faster than 2 percent a year.

SALINAS: Two percent.

QUESTIONER: And there are many reasons thrown out there, but one that I hear repeatedly more recently is the lack of credit and the lack of available finance for individuals, and particularly for small and medium-size enterprises—not yours so much, but for the rest of the economy.

SALINAS: Yes.

QUESTIONER: And I know you've been in this space in many ways for many years, so I'd be interested in your reflections on: Is it increasing? Is it improving? What are the real barriers to finance, and particularly when you compare Mexico to Brazil and the availability of credit? So what are the problems? Why can't Mexico extend credit? And do you think this is the real issue for Mexico, or do you think it's other issues that are really the barriers so Mexico isn't growing at what it could grow at?

SALINAS: Well, I mean, access to credit is definitely critical to be able to grow. I used to spend a lot of time in New York in the '90s, begging for money, because that's where the money was, right? Now, thank goodness, I come on other affairs. (Laughter.)

But, yes, it's a difficult thing to get credit. But now we have a bank, since eight years ago, called Banco Azteca. It's a tremendously successful bank, and it's a very different model from traditional banks—you know, Bank of America, Wells Fargo, whatever, Scotiabank. Our bank is designed to go to the bottom of the pyramid. It's like a supermarket bank: It's open 9:00 a.m. to 9:00 p.m.; it works Monday through Sunday; all the days of the year, it's open; and it charges no commissions, nor fees. It makes money the old-fashioned way, which is making loans and collecting interest and, of course, capital.

But, you know, the biggest problem to setting up this bank, which now has 20 million customers—the biggest problem was convincing the regulators that it was a good idea. Believe it or not, when they came—when we came to the government to get that license, they said: Well, what do you know about banking? You're not a banker. And I said: Well, gee, I'm not a banker, but I know how to collect interest, and I don't get bailed out, you know, like these other guys. (Laughter.)

So they wanted to impose the same kind of regulation that they have on Citibank on Banco Azteca, which means that every loan has to go through a committee. Our loans are $400; how can we pass that through a committee? And all kinds of—you know, the file, when we started doing it, they want the file this thick of papers for each loan. Now, the problem is, we have 11 million loans, so where will we put all this paper?

It was just a struggle to get them to understand that we could have digital signatures, digital files and biometric approval—that technology was way ahead, like video face recognition and fingerprints to identify the customers, so our fraud rate is nothing. And all our collectors—we have over 8,000 credit officers, which are credit office and collectors—all of them have a GPS in their iPhone, and they have the highest technology there, with pictures and images, to move around.

So this is a bank that can give credit to the bottom of the pyramid, where there's a great amount of job creation. It's also been criticized for charging high interest rates. But, you know, here's the deal: What is more expensive than not having access to credit? It's—that is really exclusionary, you know? It excludes people from development, having them—totally negated the access.

And not only that, but if you outlaw certain interest rates by decree, the only thing you're doing is putting the loan sharks in business. So paradoxically, the people who try to do good and protect the least-privileged of the bottom of the pyramid end up actually damaging them and creating much more harm, and no good at all. And there's a very simple reason. Everybody knows an APR when you see one, right? You know, what's better: 10 percent APR, or a hundred percent APR? Obviously, 10 percent. But the problem is that the capital amount is not comparable.

We charge a hundred percent APR on a $400 loan. OK, so it's $400 over a year's period. You borrow 400 (dollars); you have to pay back 800 (dollars). Is that a lot? Maybe, but I tell you, if it was such a bad deal, we wouldn't have 10 million customers, by far.

HRINAK: What's your payback rate?

SALINAS: Eh?

HRINAK: What's your payback rate? We—what's your percentage result?

SALINAS: We lose less than 3 percent.

HRINAK: I'm sorry?

SALINAS: Less than 3 percent.

HRINAK: Less than 3 percent.

SALINAS: So what we do is we're very transparent with people, you know? We say, OK, here's the money that you're going to take—no commissions—and this is the weekly payment that you have to make. It's always fixed—never goes up, never goes down. Interest—go up, that's our problem—go down, that's our problem.

So it's clear, and it's available. And some people say, well, a hundred percent is too much. Well, maybe if you're going to borrow $40,000 for a car, of course it's too much. If you're going to borrow $400,000 for a house, it's way too much. But for $400, it's a good deal. Otherwise, people wouldn't go to that.

So again, in America, for example, there's interest rates even of 18 percent, and change it by state. In effect, what they do is translation. It is prohibited to make loans under $2,000 because the fixed cost of making and servicing a loan is such that you have to charge more for a small loan than for a big loan. And it's really sad.

Now, the 400,000 women that we have on the microcredit program are amazing. I just came back from this convention in Japan. Twelve thousand—no, 1,200 women in the room listening to the best speakers that we could get on business, each one of them avidly writing down what they had to do to make a better business—it was really fascinating. And then hearing the feedback of what they did for a living—incredible.

And these—they're getting $400 loans. That's changing their lives, changing their community because these women, they don't want a job because they have—they're head of home, and they have usually children, so they have to work from home. There was a dance studio, a restaurant, and arts and craft, a jewelry maker, all of them thrilled to be able to have a little capital available. I think that could really change the world in Latin America and also in the United States, because here, the bottom of the pyramid is getting bigger.

HRINAK: There are best practices that can go in the other direction, for sure, yeah.

We had a question in the back over here.

QUESTIONER: Yeah, my name is Catalina Zerrel (ph). I'm actually from—sorry, Catalina Zerrel (sp). I'm from Colombia. I had a question about investment in Latin America. So as you know, there's been a lot of investment in Colombia lately, largely because of the efforts of Alvaro Uribe. And when the government changed and Santos came into power, most of the countries had a pause, and they weren't sure what was going to happen. So my question to you is to what extent do you believe that investment in Latin America is tied to the sitting president, and how should U.S. investors considering investing in Latin America view that and measure that risk?

SALINAS: Well, it's certainly an important factor. Having confidence in the leadership of the country is a very important factor. When one thinks of going to invest in a distant place, you want to feel comfortable with the people who are managing this. And that's why we're not investing in Venezuela, for example. You know, we're not investing in Ecuador, nor Nicaragua.

But we are investing in Colombia. And as a matter of fact, we just won a very interesting government auction to lay fiber-optic cable to the most remote municipalities of Colombia. And it's a—it's a fascinating, well-thought-of subsidy. You know, the government gives you money in order to lay this superhighway of information, and so people have access to this at a lower cost than if it was at market rates. So it's a really creative way to go, and I was surprised to see that. And we're very optimistic about Colombia.

But—tell you the truth, I had long conversations with Uribe, and we actually got into a pretty nasty argument because he was radically opposed to high interest rates. So there was no way I could convince him that microcredit needs to have a hundred percent interest rate. The maximum that he was going to go was 30 percent, and that was bursary. And he really believed that. (Inaudible)—so of course we didn't go into Colombia. And Colombia is a credit-starved nation because they have this—(inaudible)—which puts very strict and penal sanctions on rates above a certain level.

HRINAK: Yeah, I would agree.

SALINAS: So they're doing themselves a really—a disservice and a harm by not realizing that.

Now we had some conversations with Santos, and he's more open, and they're slowly raising the maximum rate. But again, the translation of that regulation is no small loans allowed, only big loans. Who benefits from big loans? Big, rich guys who can pay for them. Who gets harmed? Small guys who need a small loan.

HRINAK: Yes, a question here.

QUESTIONER: Thank you, Mr. Salinas. Laurie Kawita (ph) from Future Generations. I really did enjoy your insight on microcredit and the women.

SALINAS: Thank you.

QUESTIONER: And I know it has been proven to be such a success around the world. What is emerging now is as those women get, you know, the business acumen and innovations to start successful initiatives, they reach another huge barrier, which is now the missing middle, $500 to about 50,000 (dollars).

SALINAS: Yes.

QUESTIONER: Who is serving that market? Are there—are you thinking about entering that market? Because I think that is the next challenge.

SALINAS: Yes. I'm—you know, I'm so excited about that project that I'm definitely going to follow through on that. But we just started the microcredit for women one year ago. And in one year we were able to sign 400,000 women. Our conservative projection is we'll get a million and a half for next year.

But it's obvious what's happening. And when you see these successful women, the obvious next thing for us is to make them a bigger loan for something else. We are thrilled to be able to find out about good customers, paying customers, hardworking customers, so then we can help them do something else. So I see this as a starting point. And some of them will not be successful, and they will fail. But most of them, and a lot of them, will go on to another stage. And yes, we are setting up to go to the $50,000 level. That's exactly the next step that we're going to.

HRINAK: But you won't charge a hundred percent interest on 50,000 (dollars)? (Laughter.)

SALINAS: No, absolutely not. And we already have that, you know. A smaller loan has the higher rate than the bigger loan, absolutely.

HRINAK: Yes.

QUESTIONER: I'm Jeff Laurenti with The Century Foundation. Mr. Salinas, I was much struck by your observation in the earlier part of the discussion about, quote, "labor imported as goods from China," end quote, which may have something to do with that expansion at the bottom of our pyramid that you mentioned a moment ago.

SALINAS: Yes.

QUESTIONER: And we see not only the labor unions in the United States, but the public at large showing ever-fiercer resistance to free trade pacts. Obama very reluctantly, and with some changes, finally pushed through the free trade agreements that Bush had negotiated. Clinton had—and—but there's none else coming down the road as far as we can see. Clinton had sugarcoated the NAFTA agreement with these labor side agreements. How much do Mexican working people perceive their wages, their working conditions having improved as a result either of those labor side agreements that were inserted into the NAFTA pact or by the opening of the U.S. market? And how much have those promises of NAFTA been hollowed out by the emergence of China as the global bulldozer of manufacturing, flattening every other developing country's opportunities?

SALINAS: Yeah. Well, going into NAFTA, for Mexico, was a huge traumatic effect. I mean, let's not kid ourselves. The vast majority of industry in Mexico was uncompetitive, and even the agricultural sector was uncompetitive. And compared to these corn farmers in Iowa or Kansas, which produce, you know, a zillion tons per hectare, the conditions are very different in Mexico. So there's huge problems, adaptation problems.

But you know, it seems to me that in a world where information flows freely and capital flows, there's not another way, whether we like it or not. And it's not a question of what can we do. There's nothing we can do because the only option would be to build a wall and a bubble and not let anything in or out and be completely isolated. But the moment you allow for any kind of capital flow or information flow, you're in a globalized world. And information probably is the most powerful of all.

So did the jobs migrate from the U.S. to Mexico? At the beginning they did, and then not anymore. Mexico is not a low-labor-cost country. And for a country that wants to compete on low labor, it's bad news because there's low cost all over the world. You know, if it's not Vietnam, it's going to be Pakistan, or it's going to be whatever-stan, you know? Competing on low labor costs is a really bad idea. You have to think much more in—of education, of productivity.

But it has been a trauma for the United States, too, but not only with Mexico. They're open—America is open to China and to any—most any country can bring their goods and merchandise here. You know, I'm not sure that you can pin the blame for that on NAFTA. Now, are people better off? Mexico and the U.S. have over $350 billion in trade cross-border per year. I mean, it's a huge number. And American investments in Mexico are huge. Again, you know, from Wal-Mart to Ford to GM to IBM, you name them, everybody is there.

I think that there was—in a global world, there's no way to put these walls up. And we might as well face the reality that's what it is and deal with it, as opposed to, you know, sitting around and saying, ah, the government should make this barrier or make this illegal. How are they going to do it, you know?

HRINAK: You know, at the time of NAFTA we were talking about integrating the hemisphere through free trade—partially through free trade, but many other ways as well. And business leaders like you would go before the Summits of the Americas and develop recommendations for the leaders who were going to meet. We have another summit coming up in April. Do you care? (Laughter.)

SALINAS: Right, my experience with influencing government policy has been rather bad. (Laughter.) So I think that we need to work in the realm of ideas and practical things that work. And I think that leadership, again, needs to have a much more proactive stance in these things and not leave it to the politicians.

My experience with politicians has been rather bad. They are very short-term thinkers, and they're mostly concerned about getting re-elected, how much budget they're going to spend, with no heed to results. So I don't think that's—that change is going to come from that side.

Now, do we need another free trade pact? I don't know. Obama was talking about this trans-Pacific thing, you know?

HRINAK: Sure. Yeah.

SALINAS: Maybe it's a good idea. I mean, I don't think that you can turn the USA into an island. I think it's a really bad idea because it can't be done. It cannot be done.

So people should be encouraged to think in different ways, and hard work, education, productivity is probably the way out of the current situation. But I'm not sure because I'm not doing recipes for the U.S. (Laughter.)

HRINAK: I think we have time for one final question.

In the back.

QUESTIONER: Hi, going back to the topic --

HRINAK: Go ahead. I thought—go ahead.

QUESTIONER:—sorry—to the topic of microfinance, you mentioned that, by next year, you want to have about 2 million women signed.

SALINAS: One point five (million).

QUESTIONER: One point five (million). And not to mention, you know, Compartamos, who also has now 2 million, and a lot of other, you know—Financiera Independencia, who are really big—Credito Real, et cetera. Those big competitors are signing more and more people, so we're now talking about several millions of people, and in Mexico there is about 97 percent of people who don't have a bank right now.

But I was thinking about the limits that you see in this area. For example, you know, Puebla—sorry if there are any "poblanas" in here—but who have a bad history and a lot of microfinance institutions don't want to lend to "poblanas" (ph) and, for example, the "Puertocina" (ph) area who's known not to really be able to pay back. What do you see as the limits, you know, of microfinance and expansion?

SALINAS: Yeah. Well, like, Compartamos has been around for, like, 10 or 15 years and they have like 300 offices. And what we—what we've been able to do is the 300 offices were done in one year—400,000 customers in one year—so we're growing at a much, much faster rate than they are.

And the same thing—what happens with (Independencia ?), has been around forever. You see, what we do is much more of a massive, industrial-scale operation. And that includes our loan origination and collection. The reason why people don't pay is you don't go to collect. You expect them to just come and show up and make their payment. And you know, people tend to forget. (Laughter.)

HRINAK: It's easy.

SALINAS: They forget. So—(chuckles)—the only way is to remind them—(knocking)—with a friendly knock on their head. "What happened?"

So that's why we're down to 3 percent bad debt, that we do remind them, you know. We do remind them that they owe—this is a—this is a pact; they got to pay. It' not an option; they've got to. And well, we have our problems, we're restructuring and so forth, but basically this reminder whenever they go late, we use weekly payments. If you go late two weeks—(knocks)—what happened? If you're having problems, we'll work together with you. But if not, then—well, you have to pay.

So I'm not worried about that. You know, there's about 23 million households in the country. I would say about 10 million would be our target customer. So we're quite a ways from getting to our target audience.

And in terms of Puebla, we have four very successful offices in Puebla. We do extend credit to "poblanas" (ph)—(laughter)—and they do pay. So it's—again, it's not a question of the people; it's more a question of the organization that's doing the job and how it approaches the customers and how close you are.

But I'm very optimistic of reaching those goals and to move forward to that other step, you know, because we—now we start at $400 and then we could take it to a thousand (dollars) and then 2,000 (dollars) and then all the way to 50,000 (dollars). Why not? Absolutely.

I think that is the real growth of the country. If we had 10 million women working like this, GDP growth would go through the roof. Maybe not because they're not measured, because all the informal sector. So that's another big thing about GDP. It's just the official numbers. But the underground economy is huge, and for good reasons.

So I'm—I am really, really optimistic about that, and I think that there's much, much more to do, not only in Mexico, but in all of Latin America and even in the United States. One day we'll have a bank for the bottom of the pyramid too.

HRINAK: It's nice to hear some optimistic comments about the United States as well these days. (Very good ?). (Laughter.)

Ricardo, thank you very much for being with us.

SALINAS: Thank you. (Applause.)