Tough times may be ahead for border economy
Nov 27, 2011 (El Paso Times - McClatchy-Tribune Information Services via COMTEX) --The El Paso border economy, and not just the Mexican peso, may be in for a bumpy ride if the U.S. recession returns and European markets remain shaky, experts say.
The peso fell by 20 percent during the past four months, and it can be expected to reach 17 pesos to the dollar at retail outlets. Last month, some retail outlets in Northern Mexico were trading the currency at 18 pesos to the dollar.
Grupo Banamex reported the interbank exchange rate at 14.14 pesos to the dollar, and the teller rate at 14.25 pesos to the dollar.
Politics, violence and foreign investment trends south of the border will also affect the local economy as well as the peso's strength, experts say.
"Given the precarious nature of economic conditions in the United States and Western Europe, there is substantial downside risk facing the borderplex economy," said Tom Fullerton, J.P. Morgan Chase professor at the University of Texas at El Paso.
"Widespread sovereign debt default risks across Europe and debt rollover debacle in Washington have already contributed to a steep decline in the exchange value of the peso in recent weeks."
Sergio Kurczyn, an analyst for Grupo Mexico, also said in a recent study "Review of Mexico's Economic Situation" that instability in European financial markets will continue to put pressure on the peso.
Juarez resident Gina Gutierrez, 58, said devaluations, no matter how small, have an adverse effect on the pocketbooks of low-income people who rely on stable
currency-exchange rates for business or shopping.
"One of my neighbors sells decorative hairpins that she makes herself," Gutierrez said. "She buys her supplies for the pins in El Paso in dollars, but whenever the peso loses value, she complains that she can't make enough of profit for her business to be worthwhile. Her customers buy her products with pesos, and so she can't raise her prices too much.
"Devaluations are good for people who deal in dollars, but not for those of us who receive salaries or microbusiness income in pesos."
What Gutierrez said reiterates the notion that casas de cambio, or foreign currency exchange services, amount to the poor man's stock market in Mexico.
Carmen Martinez, who sells used clothing in Juarez, said a weaker peso makes her items more expensive for her customers. "They are less likely to buy clothes because the dollar has become more expensive," she said.
Martinez buys the used clothing with dollars and sells them in pesos.
On the flip side, a cheaper peso has helped U.S. manufacturers who operate in Mexico, including those who have maquiladoras in Juarez, because their costs, including labor, go down.
But Fullerton said that while a cheaper peso "helps export manufacturing prospects in northern Mexico, it also hurts retail performance on the north side of the river as a consequence of reduced purchasing power for prospective customers who reside in Ciudad Juarez and elsewhere in the state of Chihuahua."
It may become less expensive to make products, but consumers who hold pesos will not be able to afford them if the dollar continues to gain against the peso.
Mike Haskell, vice president of the Valuta currency exchange service, said earlier market reports indicated that the dollar was going to weaken, but that just the opposite happened. "I believe the dollar rather than the peso is the currency to watch," he said.
Politics and violence will have an impact on the border's economic trends.
Community leaders have complained that the ongoing violence in Mexico may be scaring investors away from the border. However, the violence and adjacent criminality have mainly affected small businesses and not major industries.
Mexican authorities have attributed the continuing violence to drug cartel wars that have evolved into turf battles between competing organized crime groups.
Nathan Ashby, another economics expert at UTEP, said his research indicates that violence is not keeping other countries from investing in Mexico, although the countries that are most likely to invest are those with a history of organized-crime-related violence, such as Colombia, Brazil and Italy.
Mexico will elect a new president next year, and the possibility of a shift in political party rule is bound to add to uncertainty about the Mexican government's future role in the crackdown against the cartels.
"Some are finding that the violence across the border has become more predictable, even though homicide rates stay about the same," Ashby said. "Our sources in Mexico believe that the PRI may be willing to negotiate with organized crime if a PRI president is elected."
At least one political leader in the Mexican border state of Coahuila is using the Internet to sound an alarm over previous devaluations under presidents of the Institutional Revolutionary Party, or PRI.
Erick Zapata, an official of the state National Action Party, or PAN, in Monclova, Coahuila, warned in an Internet posting about Mexico's previous currency devaluations under PRI presidents.
"Bad government and the excesses of PRI governments caused this country to collapse on various occasions," Zapata said. "We only need to recall the devaluations by PRI members after they said they would defend our economy, and then how we lost control of the peso at the end of their sexenios." Mexican presidents serve six-year terms or sexenios.
Vicente Fox was the first opposition party candidate (PAN) in Mexico's modern history to defeat the PRI to become president in 2000. His successor, Felipe Calderon, is a member of the PAN.
"Politics can affect the economy, if it results in uncertainty about what's going to happen, or it can create more certainty" Ashby said. "We don't know if presidential politics will affect the peso exchange rate. Usually, when there is uncertainty, there is a flight to the dollar."
But "Mexico's fiscal policies have been sound, and the government has allowed the peso exchange rate to float, instead of artificially holding it up," Ashby said. "Mexico had major peso devaluations after the government spent like crazy and then fixed the exchange rate to the dollar."
Trade accords such as the North American Free Trade Agreement have integrated the economies of nations, including those with disparate economies like the U.S. and Mexico, to the point that it's impossible for one country's economic woes not to affect its trade partners.
Experts say this is why the world is worried about whether or not Greece can recover with a bailout. If it doesn't, then its problems will spill over in different ways to other parts of Europe and North America.
The U.S. provided Mexico with a $50 billion bailout after the 1994 peso crisis that crippled that country's economy and set back its middle class for an additional 10 to 15 years. The Mexican government repaid the bailout money.
Back then, a severely weakened peso resulted in fewer customers for retail stores in South El Paso, some of which relied on shoppers from Juarez for up to 70 percent of their business.
Ashby and Fullerton both agree that the border's fortunes, including a healthy peso-dollar exchange rate, hinge on when and how quickly the U.S. economy rebounds.
"Preliminary simulations with the UTEP Borderplex Econometric Model indicate that local economic growth will be moderate in 2012, but only as long as a national business cycle downturn is avoided," Fullerton said.
Juarez resident Ruth Navarro, who shops regularly in El Paso, said she knows the dollar has gotten more expensive over the course of the year. But she is not likely to stop crossing the border to hunt for the occasional bargain.
"Some commodities are more expensive in El Paso than in Juarez, and sometimes it takes me a long time to cross the international bridges," she said, "but it's still worth it to me to shop in El Paso."
Diana Washington Valdez may be reached at dvaldez@elpasotimes.com; 546-6140.
The Mexican peso
Mexican peso devaluations and their presidents:
-- 1975: -29.4 percent, Luis Echeverria Alvarez.
-- 1982: -56.1 percent, Jose Lopez Portillo.
-- 1986: -38.7 percent, Miguel De La Madrid Hurtado.
-- 1994: -26.9 percent, Carlos Salinas De Gortari.
-- 1995: -24.6 percent, Ernesto Zedillo Ponce de Leon.
-- 2006: +12.1 percent (gain), Vicente Fox Quesada.
Source: Banco de Mexico, INEGE figures.
___ (c)2011 the El Paso Times (El Paso, Texas) Visit the El Paso Times (El
Paso, Texas) at www.elpasotimes.com Distributed by MCT Information Services
留言列表
