Price Gouging Leaves Tijuana Shoppers Mad : Mexican Government Orders Some Leading Stores Closed

Carlos Ugalde, child in hand, fixed a menacing glare upon the window of Dorian’s, the fashionable department store here that caters to middle-class Mexicans and visitors from the United States.

“ Ratas !” he sneered, turning away from the display window and its twinkling Christmas lights. “Rats! What they’re doing is no good for the Mexican people.”

Ugalde’s reaction reflects a general discontent here with what is perceived as widespread price-gouging by merchants who manipulate fluctuations in the dollar-peso exchange rate to their own advantage. That discontent broke into the open recently, illustrating once again how the economy of the U.S.-Mexican border region is a quirky thing susceptible to pressures from both sides of the international line.

Stores Ordered Closed After Peso Plunge

Last week, Mexican authorities concerned about price-gouging in the wake of the latest devaluation of the peso took the rather drastic step of ordering dozens of stores nationwide shut for various periods of time; Dorian’s was shut down for five days. The government also imposed three-day shutdowns on individual stores of three other major chain outlets, Calimax, Ley and Mas; all the affected big-chain outlets were situated in the upscale, U.S.-style Zona del Rio shopping complex, which is virtually indistinguishable from its suburban American progenitors. A number of smaller shops here were also forced to suspend operations.

Their crime: manipulating the drop of the peso to their own advantage. The stores, government commerce officials charged, used the recent peso devaluation as a pretext to raise prices of merchandise. While some price hikes are justified, officials said, many were excessive and others were unnecessary--such as increases in the costs of dollar-priced goods that merchants had purchased long ago at a government-controlled exchange rate that was unaffected by the devaluation.

Apart from the closures, authorities said that as many as 50 other Tijuana stores may face future fines for overcharging on staples such as milk and tortillas--whose prices are supported by the government--and violating laws requiring that certain items be priced in pesos, not dollars. Mexican law permits merchants to price some tourist goods and other merchandise in dollars, but most basic goods must be marked in pesos, explained Jorge R. Palacio Batani, Tijuana representative for the federal attorney general’s consumer office.

“Ninety percent of the people here earn pesos, so it’s very important that prices be in pesos and not dollars,” said Palacio Batani. “You know, the dollar is always going up (in value) and the peso is always going down.”

In reality, use of the dollar is prevalent in Tijuana and other Mexican border towns. Rents, for instance, are often paid in dollars. Many merchants blatantly disregard laws requiring that goods bear their prices in pesos.

The ubiquitous presence of the dollar is both a blessing and a curse here: The cost of living along the border is among the highest in Mexico, but the standard of living is also among the most elevated.

“If my husband didn’t earn dollars, I wouldn’t be able to shop here,” said Adela Garza, a Tijuana housewife who was shopping in the Zona del Rio shopping center, where workers last week were stringing Christmas trimmings.

Hers is an oft-repeated refrain.

With the dollar in such wide circulation, the opportunities for price-gouging are many. As the peso drops in value, merchants quickly adjust their prices upward, further squeezing Mexican consumers who have already lost much of their buying power during the nation’s prolonged economic crisis. Currently, the inflation rate south of the border is well above 100%. Often, merchants go well beyond simply making up for the peso’s decline, contributing to the inflationary spiral.

‘Stamping New Prices’

“The day after the devaluation, the supermarket had 20 checkers out stamping new prices on the goods,” one Tijuana man recalled.

He was referring to the most recent peso “shock,” which struck unexpectedly on Nov. 18. That shock is the cause of the current uproar. In a few hours, the unofficial rate of the peso sank from 1,700 to the dollar to 3,000 or more per dollar.

Despite that severe drop in the peso’s free-market value, the peso’s government-backed “official” rate, which is used in certain business transactions, remained virtually unchanged. Nonetheless, officials said, some stores used the devaluation as a reason to hike the prices of goods purchased months ago at the controlled rate and sold for dollars.

“They’re always abusing the prices,” said Alejandro Pereda, a Tijuana man who spoke as he stood outside the closed Dorian’s store.

Reflecting a general sentiment, Pereda added, “It’s pure robbery.”